Alan Tannenbaum, Esq.:
My name is Alan Tannenbaum of the law firm of Tannenbaum, Lemole & Hill. And I have my partners, Jon Lemole and Cindy Hill, and our associates, Destinee Small and Jennifer Myers, are on with us today. Today's program is going to be run by Jon and Cindy, who have been more closely attending to the particular bills at issue, which have to do with the milestone inspection legislation applicable to building codes under Chapter 553 and the structural reserve studies and funding under Chapter 718 and Chapter 719. What's interesting from a legislative perspective is how reactive and not proactive state legislatures tend to be. It's a good example here. Historically, in 1981, there was the collapse of the Harbour Cay Condominium in Cocoa Beach. It was a condominium under construction. There were 11 workers who died, and that brought about a major change to the building code requirements in Florida as a result of that collapse in 1981.
Then in 1992, Hurricane Andrew hit South Florida. And what the experience was was that one community that was impacted by the storm had relatively minor damage and another community got destroyed. And there were investigations, major changes legislatively into the building codes that arose out of that. And then of course, in 2021, we had the horrendous Champlain Towers collapse, which again brought about a major legislative effort last year, in 2022, to react to that particular situation. Does it create an atmosphere for the best legislation to be created? Usually not, but that's symptomatic. And it's interesting, as we look at the events in Hawaii, the questions are asked, "Well, how did they let it happen?" and so forth. And unfortunately it takes a terrible tragedy sometimes for things to be improved, again, unfortunately. So at this juncture, I'm going to turn the program over to my partner, Jon Lemole, and he's going to start the discussion of what the legislature did this year to fill in some of the gaps and make some of the corrections to the hastily adopted legislation of 2021. Jon, take it on.Jon Lemole, Esq.:
All right, thank you. Good morning, everybody. We've got a lot of ground to cover, but we want to make sure... I expect there will be a lot of questions, so we're going to hope to leave enough time and answer questions at the end of this. But the general format of today's agenda, if I want to try to distill the agenda today, the first two sections we're going to talk, basically I call it the who, what, when, and to some extent, where, of the two different inspection regimes. Number one, the milestone inspection regime, and then secondly the structural integrity reserve study process and the rules around that. And then in the third section, I'm going to flip it over to Cindy Hill and we're going to get a little bit more in detail about some reserve funding issues, reserve funding methods and things that you all will need to know as you head into budget season.
And then lastly, Cindy's going to touch on the fiduciary issues, the fiduciary duties question that these inspection regimes and reserve funding regimes raise for directors and managers of condominiums and co-ops. I want to just say that I'm primarily going to be talking about condominiums today. And so if there is a co-op person on here, understand that these are basically identical provisions in 718 and 719. And so if I don't mention co-ops, understand that that's just for ease of discussion but you can take away the same principles for your co-op communities. And as Alan said, for you HOA folks, first of all, if you're a manager, this will be for CEU credit. That's good. And secondly, you'll have some insight into how the legislative process works. So let's jump into the first topic, which is going to be the milestone inspection regime.
One of the main focal points of the legislation that came out last year was that over a two-day legislative session with what appeared not to be a whole lot of input from the architectural and engineering communities and the legal communities, the legislature created a regime for studying the structural integrity or the structure of condominium buildings in Florida. And so for a year now, we've been dealing with that legislation. And in a lot of respects it created a lot more questions than it answered, there were a lot of ambiguities in there.
And then in March, I think it was March, the governor signed a second round of legislation which tried to clear up, I think, some of those issues. It did, to some extent. I think there's still some questions that remain a little bit confusing and unanswered and we'll try to point those out today. But the first thing that they tackled was actual engineering inspections of certain condominium buildings in Florida, and they created this milestone inspection regime. And if you're looking for it, it's not in 718, it's in Chapter 553 of the Florida Statutes. That is the chapter that relates to the Florida building code. So if you're looking for it in 718, that's not where you're going to find it.
What the legislature did, and this is kind of interesting, in this Glitch Bill, they changed the focus a little bit of the legislative intent of this regime. So in the original statute, the overriding intent of the law referenced "maintaining the structural integrity of a building during the service life of the building." And that was a little bit confusing because service life is somewhat of an engineering term of art. And if you ask some folks, the service life of a building in Florida is limited, and a high-rise condominium may have technically a service life of 50 years, let's say. And so that created an open door, if you will, for some challenges to the law, and the legislature kind of took that on in this Glitch Bill and they closed that up. So now the overriding legislative intent of the milestone inspection regime is to "maintain the structural integrity of a building throughout the life of the building."
So however long this building is going to be standing, it made it clear that the obligation of owners of those buildings and associations who maintain those buildings is to maintain them for as long as they need to be maintained, and so theoretically, as long as as they're condominium buildings. So that was a very integral provision in the Glitch Bill. The other thing that they did right out at the opening is changed some of the wording about the professional practice standards for managers, and so you managers want to be aware of this. What they changed was previously the statute said, "If a community association manager or a community association management firm has a contract with a community association that has a building on the association's property." They've taken that phrase out, "That has a building on the association's property."
You'll see why in a minute because there's some provisions about mixed-use buildings. But what they've made clear here is that if you're a manager or you are a management company and that you have a contract with a community association that is now subject to 553.899, which is the milestone inspection regime, that you must comply with that section as directed by the board. Okay, so let's get into the meat of this. Mandatory structural inspections for condominium and cooperative buildings. The legislature has tinkered a little bit with the definition of a milestone inspection, and what it reads now is that it's "a structural inspection of a building, including an inspection of the load-bearing elements." They took out the word walls. So now they've made it pretty clear that they want engineers to look at any element in the building which impacts the load-bearing capacity of the building. So that can be slabs, it can be foundations, it can be pilings, it can be structural columns. It's not just walls, and so they broaden that.
And so it's "a structural inspection including an inspection of the load-bearing elements and the primary structural members and primary structural systems as those terms are defined in Florida statute 627.706, by an architect licensed under chapter 481, or an engineer licensed under chapter 471." So 481 and 471 are the sections of the Florida statutes that regulate architects and engineers operating and licensed in Florida. The purpose of it is to attest "to the life safety and adequacy of the structural components of the building, and to the extent reasonably possible, determining the general structural condition of the building as it affects the safety of such building, including a determination of any necessary maintenance, repair, or replacement of any structural component of the building."
Now, key thing at the end of this, "The purpose of such inspection is not to determine if the condition of the existing building is in compliance with the Florida building code or the fire safety code." That's important because this is not in a study which is directed at necessarily bringing buildings up to current code, but it is an engineering study to determine the safety of the building. Now, the current code may have to be complied with if there are changes and repairs that need to be made to the building, but it's not a code inspection.
We got a lot of questions after the first bill came out, and not only from owners, from associations, from managers, from directors. We got a lot of questions from engineers as to who can do these inspections. There was a lot of concern that the only folks that could actually do these inspections were the engineers themselves, the PEs. And so that was creating some confusion and frankly a lot of backlog. And I think the legislature responded to the concern about that there was not enough engineering services around to go around to complete these inspections on time. And so they address that in 553.899(2). And so now what they talk about in the new Glitch Bill is that these inspections can be performed by a "team of professionals." So, "The milestone inspection services may be provided by a team of professionals with an architect or engineer acting as a registered design professional in responsible charge with all work and reports signed and sealed by the appropriate qualified team member."
So what that practically means is that that engineer who's signing that report doesn't necessarily need to be onsite all the time, doesn't need to be the one who's going crawling around that building and dropping down on scaffolding or lifts and inspecting all of this stuff. They can come in with their usual team, but the engineer at the end of the day has to sign a report, sign and seal the report that is provided to him and based upon information that his team provides to him. So hopefully that provides a little relief for the engineering and architectural community to be able to meet these inspection deadlines, take on more of your communities and get the work done. Because there was a serious question as to whether there was enough folks, enough engineers and architects to go around the way the old statute was worded. So you should start to see some relief, I'm hoping, as you're trying to get these services taken care of in your communities.
The Glitch Bill also changed a little bit, slightly, the definition of substantial structural deterioration, because that is the essential element that the milestone phase one inspection is directed at. It's directed at determining whether there's substantial structural deterioration of a building. And they've opened that up a little bit and it used to say "substantial structural distress," full stop. They've now added this extra phrase, "or substantial structural weakness." From an engineering standpoint, I'm a lawyer, I'm an engineer, I don't know how an engineer looks at that and says, "Well, what's distress versus weakness?" In my mind, it makes it a little bit more expansive. In other words, distress is perhaps a little bit more extreme than weakness. And so the way I read this is that it gives an engineer or an architect a little bit more flexibility to say that there is an issue that may not rise to the level of distress, but does create some weakness in the structure.
So for example, you've got spalling concrete in support columns or in your foundation. Is that distress or is that weakness? Well, it may not be distress, but it may be weakness. So what you may see coming out of this Glitch Bill is that there are going to be more buildings flagged for phase two inspections. Maybe that's a good thing, I suppose all things considered, that is a good thing. That may not be a good thing when considering the financial impact of that on communities. But be prepared for that because I think it opens the door to some more engineering studies that may have to be done. But anyway, deterioration is distress, "substantial structural distress or substantial structural weakness that negatively affects a building's general structural condition and integrity." They've kept all the other stuff about what it doesn't mean: "surface imperfections, cracks, distortion, sagging, deflections, misalignment, signs of leakage or peeling of finishes, unless of course the engineer or architect determines that those surface imperfections are a sign of substantial structural deterioration."
So you've got maybe some water intrusion problems. That doesn't necessarily mean that your building is in distress or that it is structurally weak. You may have some stucco cracking. Again, that doesn't necessarily mean those things. It has to rise to a little bit of a higher level. So if you've got those concerns in your building, that may not be a necessary cause for alarm. But at the end of the day, it's going to be up to the engineer to decide whether those things are issues that need to be addressed or not.
Okay, so at the very beginning before we started the presentation, there was some discussion off the record, and we were talking about who's covered under these milestone inspections and who isn't. The gap that was closed in this Glitch Bill is that there was concern about mixed-use buildings, commercial condominiums, and how did they fall under this regime? Well, SB 154 has tackled that, and so now they refer to "an owner or owners of a building," first of all, so that may be a mixed-use type of situation. And the statute now says that "An owner or owners of a building that is three stories or more in height, that is subject in whole or in part to the condominium or cooperative form of ownership as a residential condominium or cooperative." So what that means is first of all, any commercial building is excluded. It has to be whole or in part residential.
And the primary responsibility is on the owner of the building. That may not mean that the condominium association is the primary party responsible for these milestone inspections and arranging them. So we're going to talk on the next slide a little bit about mixed=use condominiums and so I'm going to reserve for a second here. So owner or owners, three stories or more in height. And the DBPR, so you all know, seems to think that above-ground covered parking is a story, so be aware of that. Those are the buildings that are going to fall under the milestone inspection regime. Those folks, those buildings must have a milestone inspection, an initial one, done by December 31st of the year in which the building reaches 30 years of age. And that's going to be measured by when the certificate of completion of that building was issued by the local building official.
And then every 10 years after, it needs to be done again. Now, there's a huge change when it comes to the issue of coastline buildings because if you'll recall, in the original bill, there was a definitive 25-year first milestone inspection for buildings that were three years from the coastline. And the coastline was not really well-defined except it referred back to... There is a coastline definition in the Florida Statutes, but it was very, very unclear. And so you had a lot of confusion among folks that were on bays and bayous and canals and other things as to whether they were under a 25-year schedule or a 30-year schedule. So what the legislature has done is they've essentially eradicated that.
What they've done instead is they've made it essentially the discretion of the local building official. So if the local building official determines, for a variety of reasons, including the proximity to saltwater, if that local building official feels that a milestone inspection is required prior to 30 years, at 25 years, then the local building official can determine that, and then can obviously tell those buildings, "This is when you need to have your first milestone inspection done." So if you're in that category where you're not sure, you're going to have to probably wait for some clarification from the building official. I know that's kind of hard to predict where that's going to shake out for you folks, but everybody's on a 30-year schedule until told otherwise by the building official. That's the best we can do coming out of this legislation for now. There is an exception for one, two or three-family dwellings, or buildings that have one, two, or three-family dwellings with three or fewer habitable stories above ground.
So these are perhaps your villa-style condominiums. They may be three habitable stories above ground, but if there are three families in that building, three dwellings, separate dwellings in that building or less, those folks are not going to need to comply with the milestone inspection regime. All right, so we said we were going to talk about mixed-use buildings. Milestone inspections are now required of "whoever is responsible for the operation, maintenance and repair and replacement of the structural components, whether a condominium association or not." However, the condominium association that may be attached somehow or involved in the operation or maintenance of that condominium within that mixed-use building, that condominium association "is responsible for the costs associated with inspecting the portions of the building for which it is responsible to maintain under the governing documents."
So if you have a mixed-use building and there is a condominium association that is responsible for the maintenance and repair of the structure of the condominium portions of that mixed-use building, although it is the building owner's responsibility to arrange the milestone inspection, the condominium association is going to have to budget for its portion of those costs. So be aware of that for you folks in those situations.
They've given some relief in this bill to when the milestone inspections need to be completed. There was a lot of confusion about this. Because originally the statute said that any building that had a certificate of occupancy issued on or before July 1st, 1992, had to have their first milestone inspection performed before December 31st, 2024. That's still the case. But what happened to buildings that turned 30 after July 1st, 2022? There was some concern that they had a very short window to complete these studies. And so what the legislature has done is that they've created this kind of gap, and they've said that, "If a building reaches 30 years of age between July 1st, 2022 and December 31st, 2024, those first milestone inspections on those buildings is due before or by the end of 2025." So for some of those folks that turn 30 right after, let's say on August 1st, 2022, you've got a little bit of extra time to complete your milestone inspection.
They also gave a little bit of extra relief in that the local building official can extend the deadline for good cause, but only if you have an inspection contract signed. So if for some reason you have a contract signed, but the engineer's just overburdened, they can't get out there, they're running behind schedule, it's just not going to be able to be completed, the local building can issue an extension for good cause. There's some additional stuff -- in the interest of time, I'm going to jump ahead a little bit here -- about the local building enforcement agency providing notice, who they need to provide notice to, and how long you have after getting that notice in which you must complete the milestone inspection phase. That hasn't changed too much from the original bill, so I can answer some questions after we're done in the chat if anybody's got some questions about that.
Now, some of you may find yourselves in a phase two situation. The phase one study's been done, the engineer decides that you need to go to phase two because they found signs of structural distress or structural weakness. And so if you are in that and you have to go to phase two, that phase two inspection hasn't changed much in what it encompasses. It could involve destructive testing, it could involve other forms of inspection and testing of the building, but you're going to need to do it. And more importantly, what has been added is that that phase two progress report, a progress report must be reported to the local enforcement agency with a timeline for completion of phase two within 180 days after the engineer issued their phase one report.
So you can't drag your feet on this. If you got to go to round two, the engineer's got to report on progress in completing phase two within 180 days after they've issued their phase one report. So that could create some burden financially because you're going to have to get that engineer engaged to do that and pay them to do that. So be aware of that timeline. Disclosure, this is going to be very important. So, "Phase One/Phase Two reports must be submitted," and they've added this, "along with a separate summary of findings and recommendations." So the engineer has to issue the report and a summary. And they have to be issued to the association, the building owner and the building official. "Within 30 days of receiving the report, the association must distribute a copy of the separate summary."
You don't have to disclose the entire report, but you got to send around the separate summary to all of the unit owners. And it's got to be by mail or hand delivered. And if there's an email address, also by email or fax to those addresses that the association has on file for notice purposes. So everybody gets this summary. And if your association must maintain a website, within 30 days after you receive the separate summary, you have to post that summary and the full report on the website. So there's no hiding. This has to be fully disclosed to your unit owners.
So those are the main differences in the milestone inspection and we're going to now move on to structural integrity reserve studies. This is in 718. They've tweaked the definition of a reserve study, a SIRS, I'm going to call it a SIRS. It's now the study of reserve funds required for future major repairs and replacement. They took out common areas. There's a reason for that. It's "reserve funds required for future major repairs and replacement of condominium property as required under 718.112(2)(g)." Now there's a very big change in the SIRS regime. First of all, it only applies to residential condominiums again, and co-ops, not commercial. So commercial folks can disregard this. It doesn't mean they can disregard the old reserve requirements, but they can disregard this SIRS process. And the SIRS also no longer applies to "portions or components of a building that are not submitted to condominium or cooperative form of ownership, or any portion of a building that is maintained by someone other than the association."
So again, in those mixed-use situations, the SIRS doesn't necessarily need -- and I don't know how this is going to be done -- but it doesn't necessarily need to be performed on the entire building. That's going to create some questions, I think, but I want you to be aware that that's in this new SIRS regime under the Glitch Bill. Also, they've increased who can perform the SIRS. In the old bill, there was a lot of concern that really this had to all be done by engineers or architects, and that's no longer the case. Any person qualified to perform such studies can perform the studies. So your traditional reserve study professionals can do portions of the SIRS. Not the entire thing, because the visual inspection must be performed by an engineer or architect, or "a person who is certified as a reserve specialist or professional reserve analyst by the Community Associations Institute," they did some good lobbying there, "or the APRA," which is the American Professional Reserve Appraisers, or the Association of Professional Reserve Appraisers, I think is what it stands for.
So the visual inspection doesn't necessarily need to be done solely by an architect or engineer. If somebody's a reserve specialist certified by CAI or a professional reserve analyst by APRA, they can actually do the visual study. Then all the calculations in the funding in the reserve amounts that are done after the visual inspection can be done by other folks who are working with those engineers, architects, reserve specialists or professional reserve analysts, so that creates some relief. But the specialists must do the visual inspection. What does it contain? A SIRS, "At a minimum, it must identify each item of the condominium property." They took out common areas because these areas aren't always necessarily common areas.
"Each item of the condominium property being visually inspected, state the estimated remaining useful life and the estimated replacement costs or deferred maintenance expense of the common areas being visually inspected, and provide a reserve funding schedule with a recommended annual reserve amount that achieves the estimated replacement costs or deferred maintenance expense of each item of the condominium property being visually inspected." So not limited to common areas.
You're all familiar with this list in 718.112(2(g). They've changed it. They've taken some things out, they've added some things in. What must be inspected in the SIRS? "Roof, structure, including load-bearing walls and other primary structural members and primary structural systems, fireproofing and fire protection, plumbing, electrical systems, waterproofing and exterior painting, windows and exterior doors." They've added exterior doors, they've kept windows. I know that creates a lot of ambiguity. "And any other item that has a deferred expense exceeding $10,000. And the failure to replace or maintain such item negatively affects the above systems." However, they put in a big caveat here. "The SIRS may recommend that reserves do not need to be maintained for any item for which an estimate of useful life and an estimate of replacement cost, cannot be determined." It can recommend a deferred maintenance cost or the maintenance reserve. But if it can't be determined what the estimated useful life or replacement cost is, then you don't necessarily need to have a reserve for replacement in this study.
And the SIRS can also recommend that no replacement cost reserves for an item need to be maintained where the estimated remaining useful life is greater than 25 years. So that should provide some relief when you get to things like foundations and slabs and things like that. You don't have to replace the slab. Who's covered? Buildings three stories or higher, same as milestones. And the same exception applies here, but not one, two or three-family buildings with three or fewer habitable stories above ground.
For covered buildings, i.e., buildings that are three stories or higher, residential buildings that are three stories or higher, "The SIRS only needs to be performed on the portions of the building submitted to the condominium form of ownership or for any portion or component of a building that is maintained by the association." This is still going to create a lot of issues around windows, because windows may not be maintained by the association, they may be maintained by the unit owner, but they are submitted to the condominium form of ownership. So there's probably going to continue to be some arguments over windows, folks. I don't know that this bill has solved that. The SIRS is due within 10 years of the creation for covered buildings. It's due within 10 years of the creation of the condominium. You can read that as recording of the declaration. For condominiums turned over before July 1st, 2022, so if they were under owner control, unit owner control prior to July 1st, 2022, the first SIRS report is due by December 31st, 2024 on those covered buildings.
If, however, you have a condo that is not required to do a milestone inspection before December 31st, 2026, those folks can delay their first SIRS and coordinate it essentially with the milestone inspection and deliver those reports together at the same time. So that's going to help, folks, because you can basically have an engineer doing both and not having to have separately timed reports, which was a problem under the old statute. So those are the major changes. I know we ran through those really quickly so we could fit them in with some time to spare. I'm going to now send it over to Cindy, who's going to talk a little bit about the reserve funding issues, the actual funding issues that you all are dealing with. So go ahead, Cindy. You're on.Cindy Hill, Esq.:
Thanks, Jon. Good morning to everyone. Before getting into the details, I do want to start with an issue that still seems to create some confusion generally with these new reserve requirements, and that is what is fully funding a reserve item? It is not funding the entire amount that's due within the upcoming statutory deadlines. So if you need $100,000 to replace your roof in 10 years, you don't need $100,000 by December 31st, 2024. What you need to do is start fully funding to have that $100,000 within the 10 years it's been estimated it's needed. So really what fully funded means is meeting the reserve funding schedule. It does not mean forcing everything up until December 31st, 2024. So those of you who don't yet understand that, don't have a panic attack over that, it's not that bad. That being said, this of course is a burden to associations that you are on this call because you want to know how to best to deal with this.
The new statute added an alternative funding method, which I don't want anybody to get excited about because I doubt anyone on this call is going to be able to use this. Specifically, the Glitch Bill now allows members of an association that are operating a multi-condominium to determine to provide no reserves or less reserves than required under the new laws if there's an alternative funding method that's been approved by the Division of Condominiums, Timeshares and Mobile Homes. Well, that sounds interesting, doesn't it? Until you look at the actual definition of alternative funding method they provided in the Condominium Act, and that is that it only applies to multi-condominium associations that are operating at least 25 condominiums. So that's pretty much a no deal for I would guess everybody on this call and most everyone who's not in a big metropolitan area. So don't let that term or addition create any sort of excitement or confusion. It really is only applicable to a small number of associations in the state.
The Glitch Bill did not help us with the component versus pooled funding, unfortunately. It has been the Division of Condominiums, Timeshares and Mobile Homes' position since the Building Safety Act was implemented in response to the Surfside tragedy that pooled funding is still allowed. Well, okay, that's great, but what does that mean? So the Glitch Bill did not help us with that either. Although the division still says pool funding is allowed, we have that, the industry's starting to lean toward maybe having two pools of funds, one for SIRS and not SIRS. But that's something really to discuss with your professionals and your counsel because, again, we unfortunately still don't have good answers on that.
So with the G components that Jon was just discussing, they're the ones that are mandatory under the SIRS. And of course then you have your funding reserve requirements that have existed since the Condominium Act. So what now can you waive or reduce and what can you not, and what are the deadlines that are coming? Associations are required to get a SIRS and maintain reserves for the G items, which they're responsible pursuant to their declaration. They can vote with a majority vote of the total voting interest for no or reduced reserves up until a budget adopted on or after December 31st, 2024.
So up until a budget that is adopted on or after December 31st, 2024, associations can vote for no or reduced reserves for the paragraph G items. But after that pumpkin appears on December 31st, 2024, you no longer have any discretion to do that. Those amounts have to be fully reserved, which means that it might not be in an association's best interest right now in that window that exists to be voting to waive or reduce, because once December 31st, 2024 happens, you have no discretion. And you also cannot vote to waive the interest on those funds, by the way.
That being said, you can still continue to vote to waive or reduce funding for the non-paragraph G items, but it has to be approved in advance by a majority vote of all the voting interests of the condominium. There was some availability before to just have the voting interests that were at a meeting at which a quorum was attained. Now it's everyone. If you have 100 units, you're going to have to get 51 people that agree to waive or reduce funding for any of your non-paragraph G funding reserves responsibilities. Just briefly, because I know we're coming up to the end of time here, developer reserve funding. Developers really have no discretion to -- lack of a better way put it -- to mess with reserves at this point. Before turnover control, a developer-controlled association may not vote to waive reserves or reduce funding reserves.
Also, they may not vote to use reserves for purposes other than those which they were intended. Which I should add, that's also starting December 31st, 2024 for these paragraph G items. Non-developer controlled associations are not going to be able to vote to use those funds for other than they were collected as well. So this is a deadline to be calendaring and to be budgeting accordingly. I know that there are a lot of questions about these issues. The Glitch Bill has helped with some, not with others. So again, do reach out to your counsel, get these issues resolved and have a plan.
The last item we had was the fiduciary duty. This was disconcerting when the Building Safety Act was released in that under standard law in Florida operating for decades, condominium association board directors and officers don't have liability -- personal liability, I should add. Not to mean the association itself isn't liable -- do not have personal liability unless they really created some egregious acts, such as theft, fraud, maliciously taking action against donors. It was a very high bar. So it was disturbing to see that the Building Safety Act suddenly threw in this provision that said if directors and association failed to complete a SIRS that failure could be a breach of their fiduciary duty. Well, the Glitch Act did soften that a little bit. It now states, as you can see in the slide, the additional language is underlined. If the officers or directors of an association willfully and knowingly fail to complete a SIRS, they can be liable under their fiduciary relationship to the unit owners.
So that's still a disconcerting provision to have in the act, but willfully and knowingly is a much higher standard than simply fails. Fails could arguably be an event where you thought you had a contractor lined up, you didn't get a contractor lined up, or miscommunication, something went wrong. Suddenly a board director's in a position where they're looking at personal liability just due to a set of bad facts. Willfully and knowingly is more along the lines of you know there's an obligation and you just do nothing about it. So that is some better news for volunteer board directors. And I believe we are at the time that we ask questions.Alan Tannenbaum, Esq.:
Cindy, if I can add something on the breach of fiduciary duty part. There's going to have to be a reevaluation on your fiduciary insurance and some discussions with carriers about it, because one thing about fiduciary insurance, under the old statute, if there was an act of misfeasance and malfeasance, it wouldn't be covered under your policy. The insurance company would be required to defend you from a claim, but actually the payment of the claim wouldn't be covered. Now with this new language, where it's really negligence that somebody fails to get the study, whether that's going to be covered appropriately by your insurance policy. And so it's certainly worth having a discussion. The carriers are going to have to adjust those policies to potentially cover this specific liability.Cindy Hill, Esq.:
I agree, Alan. That's a very good discussion to have with the insurance agent.Alan Tannenbaum, Esq.:
Yeah. The other point, and I'm just curious, even by a show of hands out there, has anyone had a structural inspection under this legislative regime actually performed by an architect? And this is the anomaly, because architects are not licensed to do structural inspections. And it's a question of whether by the legislature including architects in these bills as being allowed, whether that's overcoming the restrictions under the licensing law. But I think more importantly is I'm pretty aware of what professional liability coverage is, again for architects, and I don't believe that most professional liability policies for architects covers them doing structural work, anything outside of their core architectural requirements. So even though legislature included architects in there, I think most architects won't be doing them. And if you get an architect to do them, they're probably bare without professional liability coverage, so it may not even be advisable to seek them out. But I would be surprised if you find architects doing that. So anyway, with that-Jon Lemole, Esq.:
Alan, there's a question-Alan Tannenbaum, Esq.:
Sure, go ahead.Jon Lemole, Esq.:
... I want to address about the SIRS. The question is from Donna Childress. It says, "We had a reserve study professionally done before this statute passed for our own information. Is that acceptable as a structural integrity reserve study?" The answer to that question is maybe. One of the things that was added to 718.112, and it's subparagraph seven, I'm going to read it. It says, "If a milestone inspection or an inspection completed for a similar local requirement," so like in South Florida, some municipalities have building certification inspections. "If it was performed within the past five years and meets the requirements of this paragraph, such inspection may be used in place of the visual inspection portion of the structural integrity reserve study." I mean, the way I read that is if you've had within the last five years, a thorough structural engineering study of your building, you may be able to avoid having to do that part of it again to meet your SIRS responsibility.
That report can be taken by a reserve analyst, perhaps, and they can create a SIRS report that meets the requirements of the statute based on that. But if you just had a basic reserve study done in the last five years, I wouldn't say automatically that that would constitute a report that satisfies these requirements under the new statute. It's going to be a case by case situation as to whether that report meets all of those requirements. So it's possible, but you're really going to have to have a professional look at that report, general counsel or maybe the engineer that did that earlier inspection, to determine whether or not that would meet those requirements. So no easy answer on that question.Alan Tannenbaum, Esq.:
Jon, there was a question from Donna about the reluctance of Pinellas County and the City of Tarpon Springs to accept reports. I don't really know what that means, accepting, but really the reluctance of building officials to be involved in this entire process. What would be our recommendations for dealing with building officials who say, "Nobody asked us about all this additional requirements that we have to be involved in. And no, thanks, legislature"?Jon Lemole, Esq.:
It's imposing a tremendous burden on local building officials because now those municipalities have to deal with the enforcement regime that this statute creates. But at the end of the day, a statute is a statute and you have to comply with it. So I would say that even though your municipality may not be totally on board or up to speed, that's not where I would necessarily take my cues. I would be sure to comply with the statute because you have an independent duty to your owners. And the failure to discharge the duties that are required by the statute exposes the association to potential liability to an owner who says, "Hey, you're not complying with the statute." And I don't know that it's an acceptable defense to say, "Well, we haven't gotten any guidance from our local building official." That's my take on it.Alan Tannenbaum, Esq.:
Yeah, I think it's really built into the statute now that if you make a good faith effort to comply, for instance, scheduling your engineer and there's delays on that, and then you apply to your building department for an extension and they don't respond, you've done all you have been able to do as a manager or a board member to comply, there probably in the end will be forgiveness. But one of the things that's important is with the engineers being as busy as they are, don't wait. The earlier you get started with the process, the better, and get on their schedule. If you start the process late and then expect that, well, we'll be excused, you're going to be subject to questions about why you waited so long to get that process started. So that adds to your burdens, but there's no way around that. So it looks like-Jon Lemole, Esq.:
I'm still seeing some questions about one and two-story condominiums and reserve requirements there. If your buildings are not under the SIRS regime, in other words, they're not three stories or higher, you're still obligated under I'll call it the old, preexisting traditional reserve requirements that were in the statute and continue to be in the statute, as far as I know, Cindy.Cindy Hill, Esq.:
Yeah, that's right.Jon Lemole, Esq.:
Don't take the fact that you're not under the SIRS regime to mean that, "Well, I don't have to reserve anything anymore because my building isn't high enough." There are still reserve requirements, they still exist. Those reserve requirements for your buildings in the less than three stories or higher category are the same as they always were. So we'll leave it at that.Cindy Hill, Esq.:
I agree. There's also a question in here about exterior doors. Do they include sliding glass doors? What if there's lanais? I have to say, that's all going to be dependent on your declaration of condominium. Because sometimes lanais are part of the units. Sometimes they're limited common elements. Sometimes the windows are part of the units. Sometimes the sliders are, sometimes they're not. I'm not trying to be facetious at all, this is literally a document-driven answer. So that unfortunately can't be answered without getting individual counsel to assist with that.Alan Tannenbaum, Esq.:
Jon, the last question. There's a question, are there any changes on the timing of the full funding for SIRS items? Is it still January 1st, 2025?Jon Lemole, Esq.:
Cindy can probably take that one, but I think the answer is going to be for a budget adopted after December 31st, 2024, that those SIRS items, the items in 718.112(g)(2), have to be fully funded going forward.Cindy Hill, Esq.:
Correct. And it's actually on that date or after. So if you vote for a budget on December 31st, 2024, that date counts.Alan Tannenbaum, Esq.:
Okay, folks, it's 11:59. Thanks for responding to our poll. Any of you managers who are concerned about your CEU credit, you'll contact Michelle Colburn of our office. Her email, I think, was presented at the bottom of the presentation. These materials will be available for anyone who wants them. Contact Michelle on that. And this program will be published on our website, probably within a week to 10 days. So you can always access our website under, I believe it says news and resources. Not only this particular presentation, but most of our others that have been previously recorded. Also contains a transcript of the preceding piece. You need some bedtime reading, that's available. And with that, we will see everybody next time. Thanks for filling out the poll. And any questions you have, keep sending them. We'll respond as best we can. Thank you.