Understanding Florida's New Condo and Safety Insurance Reform Bill
Alan Tannenbaum, Esq.:
Okay. Welcome, everybody. This is Alan Tannenbaum of Tannenbaum, Lemole, & Kleinberg. For those of you who don't know us, we are construction lawyers, primarily serving the community association industry. So, we take condo and homeowner associations through turnover, assist them with engineering and accounting analyses. We pursue claims against developers for recovery under those circumstances. We also do repair consulting for older groups that are having major repair projects. We help negotiate the contracts with the engineers and with the contractors. We enforce those contracts on behalf of our groups. We also handle complex covenant enforcement actions that general counsel choose not to take on. We do that as a service to them.
I have with me, John Lemole, who's my partner and Brian Tannenbaum, who's our associate, and we're going to break the presentation up into segments. I'm going to handle the first part of the statute, John, the reserve portion and the roofing issues with insurance and so forth, and Brian is going to present a really helpful timeline at the end that's a good summary of when things have to be accomplished under this new legislation. So, the Florida legislature. When I was in law school in Tallahassee, I worked in the Florida legislature. I know how the process works. It's oftentimes not a very pretty process.
In this particular case, it's our understanding that this bill was formulated, passed both houses of the legislature in special session over a course of two days, affecting the condominium industry, engineering field, insurance construction, and was produced in two days. Which stakeholders were contacted about this bill and the wording of it and so forth is an unknown. I know from talking with a number of community association lawyers that the lawyers who work in the field, for the most part, we're not communicated about this bill or input was not received. We, as a result, got a bill that everybody's questioning from a number of angles that we're going to cover that today. So, why was this legislation passed?
Before I get too far into it, we're not going to talk about co-ops today. But everything we say relative to condos is very similar, has a very similar impact on co-op. So, you should be able to extrapolate what we say to a co-op situation. So, why was this legislation adopted? Because the legislature, as it indicates in the statute, determined that there was a threat to public health, safety, or welfare, which is a fairly easy leap when a condominium building in Surfside collapses and kills more than 100 people. Couldn't be a more obvious threat to public health, safety, and welfare. Well, who's the target of the legislation? As it says in the statute, aging condo and cooperative buildings three stories or more in height. So, that's what the legislature decided to create this legislative work of art to apply the buildings, condo and cooperative buildings three or more stories in height.
So, if you're a condo with two stories, you don't need to worry about this legislation. There's also an exemption, it looks like for condos that are townhomes, they also appear to be exempt, and I'll get to that section. So, Brian, if you can go to the first slide, right at the outset of the statute, the legislature stuck this provision in regarding professional practice standards and liability for managers. It seems to reiterate what is already within a contract for management company, which is you have to actually listen to what the board says. So, I don't think this ended up creating any greater liability for managers or management companies. Basically says, as it relates to these building inspections that are required, the manager or the management firm must comply with these sections as directed by the board. So, that's what usually management companies do. So, none of us are very excited about 468.4334 as creating any additional liability.
The management companies were already obligated to follow board directors that were within the law and the board telling management, "We need to get these inspections done," you're not going to find a manager or management company that will say "No, I'm not going to do it." So, we're not particularly concerned. Brian, if you could go to the next slide. All right. This is where the definitional problems really start because the legislature used a number of words of art that are really not well defined. So, milestone inspection, structural inspection, that's pretty understandable. I know what load bearing walls are. But primary structural members and primary structural systems is somewhat vague. What part of the structure is not primary? It all goes to the support of the building. So, I'm not sure that's a great distinction. They probably should have just said the structural members and structural systems. Not sure what primary meant there.
They're allowing the inspections to be done by licensed architects or engineers. I'm going to get to that issue in a moment as to whether architects are even licensed to do these type of inspections, but I want to get to that next. Now, this is what the engineer has to attest to. So, a test is engineers standing behind it. They're putting their liability behind it. They have to attest to the life safety and adequacy of the structural components of the building, to the extent reasonably possible, only a lawyer can add that to the statute, determining the general structural condition of the building, again, I don't know why general is there, but they put it in there, as it affects the safety of such building. Then there's got to be a determination of necessary maintenance, repair, or placement of a component. But then they add it's not to determine if it's a compliance with building code. Well, the building code sets minimum structural requirements. So, it doesn't have to be in compliance with the building code, the structural code. How is it adequate since that's a minimum standard? That's creating vagueness.
But let me get to architecture a minute. Brian, if you go to the next slide. So, both for the reserve study and for the milestone inspection, it says they can be performed by an architect. But architects can't practice structural engineering. We've provided a couple of statutes, which basically say that. The first is the architectural statute, 481.229. The second is the engineering statute. What they basically say is engineers can't practice architecture and architects can't practice engineering. The exception is if it's purely incidental to the architectural practice. Well, if an architect is going out and doing a structural inspection, issuing a structural report, that's a stretch to say that's incidental to the architect's practice. What that statute means, in our view, is if an architect is designing a home and there happens to be a structural member that may be incorporated within their design, they can design that structural member because it's incidental to the design of that home.
But you're not going to find an architect who's going to design a high rise building and design the structural elements of a high rise building or a mid-rise building. That would violate their licensure. Well, if they can't do that, they can't inspect those elements and issue a report about them. So, was the legislature trying to make an exemption to these architectural statutes and the engineering statute? That's unclear. But the big impediment for an architect is in my experience, there's no way that their professional liability insurance will cover structural inspections. So, any architect who shows up at your building saying, "I'm ready to perform these inspections per the statute," if one of your requirements is that the architect needs to have professional liability insurance and he says, "I do," your next question may be "Well, can we see a copy of your policy? Because I have an idea that it doesn't cover you as an architect for doing structural engineering or structural inspection."
So, I think the statute is an engineering relief bill. I don't think it's an architect relief bill because I don't think architects, in our view, can do these inspections and issue these reports. But for whatever reason, legislature stuck them in there as a possible author of such a study, and I think it would violate their licensure. But certainly, I don't think they're insured or could be insured for that. Maybe some architect will disagree with me, but I'd first ask them to call their liability insurance carriers to see, in fact, if that's the case. Okay. Let's get onto the next definition. Brian, if you could turn the slide. Substantial structural deterioration. This is where the ... Again if there are any engineers in this presentation today, you'll probably scratch your head just like we did. Okay. Substantial structural deterioration. Substantial structural distress that negatively affects the building's general structural condition and integrity. What the heck does that mean?
It has the generals in there. It has substantial in there. That's way open to interpretation. The next sentence says the term does not include surface imperfections such as cracks, distortion, sagging, deflections, misalignment, signs of leakage, or peeling of finishes unless the licensed engineer or architect performing the phase one or phase two inspection determines that such surface imperfections are a sign of substantial structural deterioration. That's a legislative pretzel. But my question is, if an engineer goes up and looks at a balcony slab and it's distorting, sagging, and deflecting, or misaligned, what are the chances that that engineer's going to say, "That's not a sign of substantial structural deterioration"? A sagging slag, or a sagging structural member or a deflecting structural member or a misaligned structural member, what engineer in the right mind is going to say, "Well, I saw sagging deflection misalignment, but I'm not calling it a sign of substantial structural imperfection"? So, I'm sure the engineers are scratching their heads about all of that termination or terminology.
Brian, if you can go to the next slide. Here's the wet, and Brian Tannenbaum's going to cover at the end the timelines on these inspections. But again, for each building that is three stories or more in height by December 31st of the year the building reaches 30 years of age, the milestone inspection has to be done and every 10 years thereafter. But if the building's located within three miles of a coastline, which is an interesting measurement of exactly what that means, I guess it's if there's a portion of the coastline that jets inward, that you're stuck being within three miles, you have to have it within 25 years and then every 10 years thereafter. Now, one of the questions that you might have is we just had an inspection done two years ago. Do we get another 10 years or do we have to do this inspection again?
I don't know the answer to that question. I would go back to the same engineer and say, "Can you reinspect our building and issue a report that complies now with the new statute?" They won't have to reinvent the wheel by doing the entire inspection over again. But it's probably good to get the report that complies with the statute, even if they issued a report because it doesn't have all the criteria that is included in the report. So, you probably will have to bring that engineer back to do it again. The association has to arrange for the inspection to be performed. That's pretty obvious. The association is responsible for all costs associated with the inspection, that's pretty obvious. But this is where there's an exemption for, it looks like townhome buildings that are three-story in height that are part of a condominium regime. It looks like they're exempt from the statute in the way I read this.
I don't know what else would be a single-family, two-family, or three families dwelling with three or more habitable stories above the ground. So, it sounds like a three-story townhome building that's a condo probably does not have to comply with the requirements of the statute, the way we read that. Okay, Brian, if you could go to the next slide. There's an exemption for certain buildings where the CO was issued before July 1st of 1992. It gives them until the end of December of 2024 to comply, which is funny because now some of the older buildings have a later deadline than ones where the CO was issued in August of '92, they have to have an inspection quicker than ones that were before. That's just an anomaly in the statute. Okay. Now, here's where you get the building department involved. the building department's got to determine that a building must have a milestone inspection. So, now the building department's got to keep a record of all the buildings and their ages within the jurisdiction of the building department.
They have to provide written notice that the association is required to have the inspection done. So, you have the building department involved. Once that request is made, the association has 180 days to complete phase one of the milestone inspection. Well, you don't wait until the building department tells you got to meet the dictates of the statute, but this, I guess, is a protection to make sure that they do occur, you get the building department involved. But here's the problem. Some engineers, well, they are all very busy. Are you going to be able to get them out within six months when every older condo association in the state is mandated to do these inspections? They don't have enough engineers on their staff to handle the current workload. This imposes an even greater workload on them. You're going to have a hard time getting engineers out to not only undertake the inspection, but to complete it within 180 days. So, that's going to be a real challenge.
Now, here's where they've created liability for directors. I understand it, why the legislature did this, but it's going to create a real burden on getting people to serve on board of directors of older buildings because it says that the officers and directors who will fully fail to have the inspection performed, the failure is a breach of their fiduciary duty to the owners, which could, and John Lemole is going to go into it a little deeper, is going to create potential liability. I guess the message is comply with the statute. Have your inspections done. If your owners protest, pull out the section of the statute and say, "Look, I'm the one who's subjected to the potential liability. If you want to get out there and have the liability, take my seat on the board." So, managers, take this section of the statute, board members, take this section statute. If you're getting resistance among your owners about spending the money to undertake these inspections, you need to pull out this section because it creates significant liability.
Now, what's interesting for your fiduciary insurance that you purchased, make sure that there's no exclusion for this type of liability. So, you should check with your carriers and see what those policies say about potential liability under the section. Again, what happens if you try to get an engineer out under the date sequence that the legislature called for and you just can't get an engineer to be out there, what is it that you can do? Okay. Let's move to milestone inspection. Brian, if you can go to the next phase one. All right. So, this is the first inspection required. Again, it talks about an architect. I don't think they could do them. But again, the architects may disagree. But I don't think their licensure would support them doing this type of examination. So, the phase one is a visual examination.
Now, here's what's odd. How do you do a visual examination that includes the major structural components of a building? Because the major structural components of the building are, for the most part, hidden from view or behind finishes. So, what is a visual examination of the structural components of the building? That means you can see the balconies. You might see a garage column. But you can't visualize the internal columns in a building because they're behind the building finishes. You can't see the roof deck because it's under the roof. So, what really does this visual examination provide? The other issue about it is, and we've been to buildings, let's say wooden structures where the exterior facade looks pretty good. But behind the facade, there's rotted wood. So, the visual inspection may tell you very little about what the actual structural condition of a building is. So, I don't know the great advantage of the milestone inspection.
But here's, again, the problem for the engineers. If they find no signs of substantial structural deterioration, then no phase two inspection is required. What engineer in his right mind is going on a visual inspection, going to attest the fact that, "Hey, I don't see any major structural condition here"? They're going to be inclined almost in every case to say, "You need a phase two because I'm not putting my seal on a report that says it looks great to me only to have a part of the building collapse or a major structural problem show up a couple years later," and then everybody's looking to the engineer about what they missed. So, the impetus is going to be on the engineers to go and recommend the phase two study or not be willing to undertake these engineering examinations at all. So, I question the phasing there.
But then we go to phase two. So, if the engineer says in their phase one report, "Oh, I have to look deeper. I can't make an analysis. I think that there could be signs of structural deterioration that I can't see," then you go into the phase two inspection and it may involve destructive or non-destructive testing at the inspector's direction. Inspection may be as extensive or as limited as necessary to fully assess areas of structural distress in order to confirm that the building is structurally sound and safe for its intended use and to recommend a program for fully assessing and repairing distress and damaged portions of the building. Okay. So, if an engineer does a phase two and doesn't go far enough and structural problems occur after that, they're going to get blamed for that. They're going to get sued for that. So, what the statute has set up is really, the impetus on the part of the engineer to direct the most extensive destructive testing possible so that when they put their seal on that report, they're very, very confident that the building is structurally sound.
So, it creates a massive liability. Their bias is going to be, "We need to go much deeper into this," or, "I don't want to do these inspections at all because there's too much liability potential." Now, here's a strange section that somebody stuck on to this paragraph. When determining testing locations, the inspector must give preference to the locations that are the least disruptive and most easily repairable while still being representative of the structure. Okay. So, again, I don't know exactly what that means, but it sounds like it's an open door for owners to complain about the extent of the engineering inspection and to go to court and say, "The engineer who's doing our building is not complying with the section because they've chosen locations that are disruptive and not easily repairable and therefore, we're allowed to stop this job or this inspection process because it doesn't meet that condition of the statute." So, there's a lot of danger in the legislature having added that section in as to exactly who can enforce it.
But let me go quickly into the next section, milestone inspection, and I'm sorry, we're going to be limited on the questions that we can take because we have a lot of material to go through. The milestone inspection report. There's got to be a report for phase one. If you go to phase two, there's got to be a report for phase two. It's got to be sealed, it has a summary, and the summary requirements, what has to be in it is in the section. It has to identify any substantial structural deterioration within a reasonable professional probability, based on the scope of the inspection, has to describe the deterioration, identify recommended repairs, state whether unsafe or dangerous conditions exist, which the bias is going to be to say that they do because if you don't say that and the building has a problem two years later, you're going to get sued for that, recommend remedial measures, and then the report has to be distributed to the owners. It has to be available in association records. It has to be posted.
So, you have all of those requirements for this report. If you go quickly to the next slide, Brian, the milestone inspection local enforcement agency can prescribe timelines and penalties. But then it switches to the board of county commissioners. So, now, the county's involved and not the cities, and the county can adopt an ordinance requiring schedules for the commencement of the repairs. But in either case, the repairs have to be commenced within 365 days after that phase two report is received, which again, is it possible even in today's market for that timeline to be met? Then if you can't submit proof that the repairs have been done, the enforcement agency can review and determine the building's unsafe for human occupancy.
So, I'm going to hand the ball off to John Lemole at this point to talk about reserves. But what you're going to be hit with is engineering firms who are willing to even do this work are going to give you limitations of liability in their contracts. More importantly, they're going to ask for indemnification. They're going to require that the association indemnify them against any liability if they want these to be done and the associations need to talk to their liability carriers to make sure that your liability insurance covers an indemnification that you may give to the engineer who's doing these inspections. Otherwise, it may not be covered by your liability insurance policy, the indemnification and the owners are going to be exposed for defense costs and potentially great liability. So, right now, I'm going to hand it off to John Lemole to talk about reserves.
Jon Lemole, Esq.:
Morning, everybody. Brian, can you flip? Thanks. So, we're going to talk about a whole different type of report. Despite the similarity in its name, Structural Integrity Reserve Study, sure sounds like the type of thing that's also contemplated by the milestone report. I don't want anybody to misunderstand that this is a separate report that condominiums and co-ops are going to have to undertake, and they have somewhat different timeframes. Whether these can be done by the same person, by the same engineer in conjunction together with a milestone report, it's all going to depend upon the age of the buildings vs. the age of the condominium itself because a structural integrity report, a reserve study, as you'll see, is tied not to the time that the building was completed, but tied back to the creation of the condominium.
So, let's talk about what a structural integrity reserve study is. Really, this study is directed at the financial end of the issues that emanated out of the Champlain Towers collapse, which is the financial mismanagement perhaps, the lack of reserve funding for providing major structural repairs and all of the problems that have been determined and we've seen arise when associations waive or reduce reserve funding. That's really what this is intended to fix. So, 718.103, that's where the definitions are in the Condominium Act and it shifted some things around. So, it creates this new subsection 25. I don't want anybody to think that it replaces what was already previously there as 25. It just kind of moves everything beyond past 25 down a little bit. Then it adds as a new definition, a structural integrity reserve study.
What is it? It's a study of the reserve funds required for future major repairs and replacement of the common areas based on a visual inspection of the common areas. Okay? So, similar to the phase one milestone report, this is a report that's solely based on visual inspection, and it's a structural integrity reserve study may be performed by any person qualified to perform such study. However, and this is important, the visual inspection of the portion of the structural integrity reserve study must be performed by an engineer licensed under chapter 471 or an architect licensed under chapter 481. Why do they make that distinction? Well, because you may have portions of a reserve study, which really are more CPA driven or functions that ... We know that there are certain companies that are out there that perform reserve studies and look at the financial aspects of how to project out what needs to be assessed for reserves.
But because this is now tied to an inspection of the property, the visual part of the inspection upon which the reserve calculations are going to be determined has to be done by an engineer or an architect. I'm not going to go into what Alan talked about before about the difference between what an architect can do and an engineer can do because theoretically, that might be the same problem here. What needs to be contained in the structural integrity reserve study at a minimum, it must identify the common areas being visually inspected, it has to state the estimated remaining useful life and the estimated replacement cost or deferred maintenance expense of the common areas being visually inspected, and provide a recommended annual reserve amount that achieves the estimated replacement cost or deferred maintenance expense.
I've highlighted this language because I think it's going to be very important of each, and I want you to pay attention to the word each, of each common area being visually inspected by the end of the estimated remaining useful life of each common area. Folks, it's one little word in the statute. They changed the to each, and I think that's going to be important because a lot of folks have been asking question about component funding vs. pooled reserve funding. I'm going to talk about that in a second, but I think that's an important distinction. Can we go to the next slide? What gets inspected in a structural integrity reserve study and when must it be done?
So, a structural integrity reserve study must be completed every 10 years after the condominium's creation. Pay attention to that language that I've highlighted, after the condominium's creation. When is a condominium created? In the statute, a condominium is created when the declaration is recorded. Okay. So, this isn't tied to building CO. This is tied to when the condominium came into existence. So, you have to complete this study every 10 years after creation for each building on the condominium property that is three stories or higher in height. So, three story buildings every 10 years after creation and the study has to include, and there's a list at subsection G, it's what will be the new 718.112, subsection G. The things that need to be included in this reserve study are a little bit more expansive than what used to be in what continues to exist for under two story buildings, but now has changed for three story or higher buildings.
So, this study has to look at the roof, load bearing walls, other primary structural members, we already talked about that a little bit about milestone inspections, the floor, the foundation, fireproofing and fire protection systems, plumbing, electrical, waterproofing and exterior painting, windows. Then again, it has the catchall of any other maintenance, any other item of that has a deferred maintenance expense or replacement cost that exceeds $10,000 and the failure to replace or maintain such item negatively affects the items listed in the above paragraphs. So, if it's more than $10,000 to maintain it and it may negatively impact the roof or the floor or the foundation, that's got to be included.
These are determined by the engineer or the architect performing the visual portion of the structural integrity reserve study. So, really the professionals, the engineer and the architect, is going to be driving what are they going to look at in their visual inspection that they're going to be doing for your structural integrity reserve study. Okay? So, if you got to do these studies, it's a study that's going to involve a professional, an architect or an engineer, there's going to be a very detailed visual inspection of your buildings, and you got to do it every 10 years after creation of the condominium. Now, go to the next slide, please, Brian. Let's talk about how this is going to be phased into existence. First of all, the act is effective on July 1st of 2022. So, a little less than a month from now.
So, who's going to have to do these and when? Well, developers are going to have to do one now for buildings require a structural integrity reserve study. I think we're probably all going to be calling this a SIRS in no short order. So, again, three story buildings. Before the developer turns control over to unit owners, the developer must have a structural integrity reserve study completed for each building on the condominium property that is three stories or higher in height. Okay? So, every turnover is going to involve one of these reports now. For associations under unit owner control and which exist before July 1st of this year, so if you've got an association that has buildings three stories are higher, it's under unit owner control, it was created before July 1st, those associations are going to have to have their structural integrity reserve study completed by December 31st, 2024, again, for each building on the condominium property that is three stories or higher in height. Okay. So, that's how we're going to phase this in. Okay?
So, developers need to do it. Unit owner controlled association's existing created prior to July 1st, they're going to have until December 31st, 2024. Anything that's unit owner controlled and existing after July 1st, 2022, you're under the 10 year regime. Okay? So, you're going to have to look back and see when your condominium was created in order to determine when you're going to need to comply with this. Now, the other thing that the legislature did in implementing this is they made a major overhaul of reserve funding requirements. So, let's talk about that. Before turnover of control by the developer to the unit owners, and the statute doesn't make a distinction here between any type of condominium, doesn't talk about whether there are three story higher buildings or not, doesn't talk about whether it's a building that requires a structural integrity reserve study or not, before turnover control of an association by a developer to unit owners other than developer, the developer controlled association may not vote to waive reserves or reduce funding of the reserves.
Effective December 31st, 2024, a unit owner controlled association may not determine to provide no reserves or less reserves than are required. That's an important thing that's changed in this statute. Then effective December 31st of 2024, the members of a unit owner controlled association may not vote to use reserve funds or any interest accruing there on for purposes other than their intended purpose. Now, the question has come up about component funding vs. pooled funding. Let me start by saying, we're construction lawyers. We don't typically get involved with budgeting. We really don't ever get involved with budgeting decisions. These are really questions that you should be directing to your general counsel. So, I want you to take that very important point back with you. Go talk to the general counsel that represents your association and ask them for their opinion on the funding issue. It appears that because of the word each common element area or each area that needs to be reserved and the change of the to each, it appears as though the legislature is intending for component funding.
That's not clear in the statute. So, you're going to need to go back to your general counsel and when you're making these budgeting decisions, you need to consult with them and get their opinion and their recommendation on that. I would also say that it appears that the legislation is intended to require that that you can't borrow reserves from a different reserve fund for a different element to pay for something for ... You can't borrow from the roof reserves to pay for a foundation reserve or an electrical reserve. But that's not entirely clear in the statute. So, I really want you to take this very important disclaimer and takeaway. When you're sitting down to do your budgeting and make your budgeting decisions and start looking at your reserve requirements, sit down with your general counsel, get their take on what this legislation intends.
Certainly, there may be some additional guidance that we'll get from the legislature going forward. Maybe some case law will come down interpreting this. So, I think the jury's still out, as they say, on that issue. Next statute. Next slide. Sorry. Just like with milestone inspections, the legislature has put an important provision in here about fiduciary duty. So, if an association fails to complete a structural integrity reserve study pursuant to this paragraph, such failure is a breach of an officer's and director's fiduciary relationship to the owners. Now, again, that's not entirely clear what that means, and certainly, you should be talking to general counsel and getting their perspective on this. As you all may know, there's a section in 718.111, which defines a officer or director's fiduciary duty and when that is breached, and there are certain limitations on that.
Generally, they involve self-interested dealings. They involve reckless acts or an act or omission that was in bad faith or with a malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property. Now, we'll tell you that in this section here on fiduciary duty, it refers in the actual statutory language, it does refer back to the corporate fiduciary duty language and statute. So, I think there's a tie in there to this structural integrity reserve study and the part of the original and existing statutes regarding fiduciary duty, which talk about, and in particular, a breach which exhibits wanton and willful disregard of human rights, safety, because that's what this is directed to, safety, or property. So, I think the legislature here was trying to further define where officers and directors have a fiduciary duty to make sure that these studies are being done. Okay?
So, that's reserve studies. That's structural integrity reserve study, reserve funding. Now, I've been asked this and there's probably questions in the chat if I look at them. Okay, I have a building that's not three stories or higher. Then what do I do? Well, the legislature kept the same reserve budgeting language in there and then added the structural reserve study language. As we know, that applies to buildings that are three stories or higher. So, if you have a building that's not three stories or higher, it would appear that the same old statute that you've been dealing with all along in terms of what needs to be reserved for is undisturbed. Again, it's not entirely clear. There's a little ambiguity there. So, again, talk to general counsel, get their perspective on it when you sit down to start doing your budgeting and reserve calculations.
But it's definitely clear that waving reserves and/or lessening reserves, regardless of the building, are going to be a big no-no in the future. All right. So, that's the condo safety portion of this presentation concluded. Now, what was also included in this special session and what came out of it is some relief under an insurance bill that provides some insurance relief and some provisions regarding roof repairs and replacement. I don't want to get into all the particulars of the insurance bill except as they may relate to roof replacements because that's been a really, really difficult issue for associations lately. This applies to all associations.
It used to be under the Florida Building Code that if you had to repair or replace more than 25% of an existing roof, you had to redo the entire roof. Okay? We're all pretty familiar with that. What the legislature did in the condos, in the new bill is that they've relaxed that a little bit. If your roof was installed under the 2007 Florida Building Code or later and you have a roof replacement or repair that impacts more than 25% of your roof, you're not required to do the whole roof. You can repair or replace the portion that needs to be repaired or replaced. So, that's a very different thing than we've been dealing with for a long time in Florida. I will tell you that there's a lawsuit that was just filed challenging the constitutionality of this provision and some other provisions. So, we'll see whether this survives a judicial review.
Now, everybody's talking about, "My carrier won't renew my insurance because my roof is 15 years old." So, there's some relief in this bill if you're starting on July 1st, 2022. So, if you've had this problem before July 1st of 2022, I'm sorry, but you may still have to deal with the difficulties that you've been dealing with. But the takeaway here is that an insurer may not refuse to issue or refuse to renew a homeowner's policy insuring a residential structure with a roof that is less than 15 years old solely because of the age of the roof. Now, they can come in and say, "Well, there are all kinds of other problems with the roof," but they can't non-renew you if your roof is under 15 years of age just because of the age of the roof. If your roof is more than 15 years old and they come in and they say, "We're not going to renew you because your roof is over 15 years old," well, you can now get an inspection.
As long as that inspection is done by an authorized inspector and those folks are a licensed home inspector, a licensed general building or residential contractor, a professional engineer, an architect, and the statute says, or anyone approved by the insurer, if you can get that inspection done, and it says, and the inspector concludes that the roof has five or more years of useful life remaining, then the insurer cannot refuse to renew your coverage on the basis of the roof being more than 15 years old, as long as you have a report that says that the roof still has five or more useful years of life remaining.
Alan Tannenbaum, Esq.:
It should be noted that there's already been two lawsuits filed by the roofing industry attacking that particular requirement about the 15 years. Roofers want the 15 year replacement provision to remain in and they've already filed suit to attack it on the basis that the legislation covered too many topics. It was not a single topic legislation. So, that's up already up for challenge.
Jon Lemole, Esq.:
No, and the other part of that challenge is the roofing industry is concerned that in situations where they think the roof needs to be replaced that the insurers are going to resist that because they can use this section as a proverbial sword instead of a shield and say, "Well, we're not going to provide insurance funds because the roof doesn't need to be completely replaced under this new statute. We can replace only part of it," and a contractor may think otherwise and say, "Well, no. We really need to have the entire roof replaced." Obviously, the roofing industry has some self-interest here because they'd rather do full roof replacements than partial replacements. So, they're challenging that. We'll see what happens with that challenge and how the court rules on it.
Alan Tannenbaum, Esq.:
Okay. So, what we've provided here, and again, this outline's available. Just email us. But Brian did this very effective timeline that will need to be followed. So, it's a good checklist to have. So, just email us and we can provide it. We'll go a little bit of overtime because I know there are a lot of questions and we tried to cram in all the material to fit within the 55 minutes. John, I'm going to let you handle the reserve questions because they're the toughest one and you studied in a little bit closer than mine. I'm going to answer Robert Smith's question. Does a licensed engineer or architect need to do a visual inspection on buildings two stories or less for purposes of a reserve study? What do you say to that one, John? You're on mute.
Jon Lemole, Esq.:
Sorry. What was the question again, Alan?
Alan Tannenbaum, Esq.:
Two stories or less, do they have to do a reserve study?
Jon Lemole, Esq.:
No. The structural integrity reserve study's for three-story buildings or higher.
Alan Tannenbaum, Esq.:
Okay. But you got to do your normal reserve requirement.
Jon Lemole, Esq.:
You got to do your normal reserves. Correct.
Jon Lemole, Esq.:
After 2023, starting in 2024, this is for all buildings, you can't reduce or waive reserve funding.
Okay. Alan, this is June from Sunfish Bay. I have a question. The way our condo is set up, there's a bottom floor where people live and then there's a second floor. The second floor has an upstairs. Is that considered a three-story building?
Alan Tannenbaum, Esq.:
You're probably okay. But that's an interesting question. But you're probably okay. It's not a full story. So, it sounds like it's less than three stories. But who knows? Let somebody challenge it and we'll see what a court says. Let's see. [inaudible 00:56:59]. Is a three-story multiple-family condo.
Is a three-story multi-family condo subject to milestone inspection requirements? Yeah. So, if it's multi-family, yes. The only exception would be condos that are townhouses probably would not be required if they're three-story. But if it's a condo building that has more than three families in it and it's three stories, it would be required to have an inspection. Let's see. Will the milestone inspection report suffice as the inspection for the structural integrity reserve study and then a reserve specialist can complete the remaining life and cost estimates? Darlene, that's a difficult question.
Yes. I would say that if you did both at the same time if you did the milestone inspection report, that probably could serve as the basis for the portion of the reserve study that has to do with the structure. So, I guess I think you can combine that information and it would suffice. Then the reserve specialists can do the rest of it. Yes. The question is, what is considered three miles from the coast? Because our coast is not a uniform line. So, if it's normally three miles from the coast, but there's an inlet that juts in, are you now qualifying as being within three miles of the coast? The legislature did not define what the coast was. So, people are going to be getting their measuring tapes out.
Brian Tannenbaum, Esq.:
It is actually defined as the line of mean low water along the portion of the coast that is in direct contact with the open sea and the line marking the seaward limit of inland waters as well.
Alan Tannenbaum, Esq.:
Okay. Brian has pointed out they do have a definition, but he uses the word, sea. So, I guess the Gulf of Mexico is not required to meet the requirements because it's not a sea. Then somebody says is the coast a major river? No. I don't think it would apply to a major river. It's talking about the coast of Florida, not the coast of our inland river. For roof replacement and insurance over 15 years, does it have to be inspected by an engineer? I think John answered this. It's a qualified roofing inspector. So, it does not necessarily have to be an engineer.
Jon Lemole, Esq.:
Alan Tannenbaum, Esq.:
The Question is, our windows are not common area on our docs. How do we handle that? That's a good question. I don't know if you would have to reserve for them, even though the statute does require it. By the way, every time anybody asks us whether it's a good idea for your windows to be maintainable by the owners, I will tell them no. In every situation where you have documents that have the owners maintaining their own windows, those properties have had problems because if an owner doesn't maintain their windows, where does the water go? It goes into the unit below or maybe the two units below. But that's an interesting question. I'll let your general counsel tackle that one in your documents. I don't have immediate clarity on that question. John, why don't you answer this one from Aaron? If a condo over three stories performed a reserve study last year and if what was covered meets the requirement of the current reserve requirement under the statute, do they have to do a new one anyway?
Jon Lemole, Esq.:
Well, again, if we're talking about the structural integrity reserve study, it's tied to when the condominium was created. I'm presuming it's unit owner-controlled. So, if it existed before July 1st, 2022, it's under unit owner control, then by December 31st, 2024, and it's in three stories, you have to comply with the structural integrity reserve study requirement. Now, is your existing reserve study compliant with that new structural integrity reserve study? It depends. Was there a visual inspection by an engineer or architect of the components that need to be required in the study?
Jon Lemole, Esq.:
So, you're really going to have to go back to who did the study, talk to your general counsel, look at the study, and determine whether it hits all of the items that need to be in there, whether it's based on a visual inspection by an engineer, and importantly, whether it sets out a ... Again, this gets back to the component vs. pooled. How are we calculating reserves? Because there are very different ways of calculating what the reserves should be, how they're allocated, and how the association's going to assess them. So, these are all kinds of technical issues and I can't really say whether that report's going to qualify or not. I would tend to believe it probably it might not.
Alan Tannenbaum, Esq.:
Okay. Does a one-story building within three miles on the coast ... Is it affected by the statute? No. But again, you still have to do your normal reserve study, but nothing is affected by this particular legislation. If an inspection discovers a structural defect, it would need to be repaired and replaced immediately, regardless of cost? I have to say yes to that question. We have a whole different presentation on condo termination, and what's going to happen with some of these older condos, frankly, is that the owners are going to see the price tag on repairing an older building or older buildings that need an enormous amount of money to revitalize and meet the conditions of the report and the owners are going to have to think seriously in some cases about voting to terminate the condo, selling the property, and dividing the proceeds rather trying to keep a very old patient alive, except the fact that every condo in Florida, especially the ones on the coast, at some point in time are going to be terminated at a point when they're no longer repairable.
Alan Tannenbaum, Esq.:
Now, where [inaudible 01:04:42] I don't know. But yes. If the report says you got to repair it, you got to raise the money and repair it, and there's going to be situations where owners cannot afford that. You're going to have banks taking back some units and we're going to have a real mess in some properties. So, to avoid that, groups may have to think very seriously about termination and very drastic circumstances. Are a building that has a ground floor as a parking garage and three floors of condos above considered to be a four-story building? I would say yes. For two-story condos, are pooled reserve calculations still allowed? I would say yes. Will the requirements of the reserves, based upon the new statute increase cost requirements, trump the documents regarding the limit of an increase in the assessment of 115% without the approval of the membership?
Alan Tannenbaum, Esq.:
I would say that, yes, the requirement for maintenance and repair is a statutory requirement, which has predominance over any restrictions in your documents. So, if there's an assessment that increases by 150% and an owner attack it saying this violates our documents, in my view, if they're going to the circuit court with that, they're going to lose because of the statutory requirement for repair predominates over any documentary restrictions. So, I think that would be a very poor attack by those owners and frankly, a very poor excuse by the board to say, "Well, we want to comply with the statute, but we can't because our documents don't allow us," just pull out that fiduciary duty section. Again, that's going to predominate.
Alan Tannenbaum, Esq.:
What's always interesting too, is that if you get financing and don't assess, does that trump any assessment increase requirement? That may be a way out. If your defaults on your assessment collections are very low and you can get financing, now you probably could get around that 115% requirement anyway. Is there anywhere where the details of the milestone inspection are defined? Yes, in the statute, and the definition is pretty vague. So, good luck. Maybe the legislature will help with that, or maybe there'll be a court decision one day. But right now, you're stuck with what the statute says. Can we hold a board meeting, executive session, or something similar to discuss these issues before firing up the owners? I like that terminology.
Alan Tannenbaum, Esq.:
There's no such thing in condo-land as an executive session. It's the unicorn of condominium operations. There are only board meetings where anytime the majority of the board gets together to discuss association business, it's a board meeting, that has to be noticed. If it's less a majority of the board, let's say you have a management committee that has a five-person board, you have two board members and three non-board members, you could probably get away with that as a committee without noticing. But there's no such thing as an executive session on the board. It's a board meeting either way.
Alan Tannenbaum, Esq.:
The only exception is you call your general counsel and say, "We want to discuss possible claims," and you can have a session with them without the owners being involved. But maybe the owners should be fired up. Here's a question. Should we wait until all the lawsuits and ambiguous language are fleshed out before enacting inspection? Not a good idea because a lawsuit could be filed against you and your association. So, I wouldn't wait until there's been lawsuits and adjudications or legislative changes to comply with the statute if that was the implication. Are two stories over parking considered three stories? I would think it is. Yes. If the first story of parking is a full story, then that's a three-story building, in my view. All right.
Brian Tannenbaum, Esq.:
Can I just clarify the pooled reserves issue? What the statute says is that members of a unit owner-controlled association may not determine to provide any reserves or fewer reserves than required for items listed in paragraph G, which is the structural reserve study. It doesn't limit it to three-story and above. So, it would appear that any of those items or reserves cannot be waived for and they need to be kept separately.
Alan Tannenbaum, Esq.:
Michelle says to email our questions. It looks like she wants us to get done. John, do you want to answer that one last question from Chrissy Nelson? Do you see it? Where a roof is more than 15 years old? Do you see that one?
Jon Lemole, Esq.:
Can you read it to me?
Alan Tannenbaum, Esq.:
Where a roof is more than 15 years old and an insurance company is threatening the discontinued coverage based on the age of the roof and then the event that an engineer certifies that the roof has at least five more years of remaining life, how much longer does the insurance company have to continue coverage? Does that make sense to you?
Jon Lemole, Esq.:
Well, that's a good question. You get renewed year over year. So, the statute simply says that if your non-renewal is solely due to the age of the roof and your roof is over 15 years, and if the report says you have five more useful years of life, then the carrier cannot non-renew you that year. So, that's a pretty good question. Does that give you a five-year pass? I don't know. It doesn't say. It's kind of up in the air. Do you have to then go back next year and say, "Okay, I need another inspection that says I have five more years of useful life"? Well, number one, the insurance carrier will probably say, "Well, that can't be because you had a report last year that said you had five years," or whatever it says, six years.
So, I honestly can't tell you that the legislation is clear on that. But presumably, if you have that inspection and if we were engaging in interpretation of an ambiguous statute and you have a report that says my roof has got five years of useful life, then the carrier's not going to be able to come back over that next five years and say, "All other things being equal, no other change conditions, there hasn't been a major storm, and your roof hasn't been impacted somehow in that five year period of time," then presumably, you would be able to make that argument. But that's a big, big leap because year over year, what can the carrier come back and say? "Well, within the last year, we had two major storms or we went back and looked at it and conditions are a little bit different now." So, good question. I don't know that there's an easy answer to it.
Alan Tannenbaum, Esq.:
Yeah. The insurance agents will chime in. Well, we're going to close up shop shortly. The one question that I wanted to respond to was is there a chance that the legislation's going to stay on the basis of a court challenge? Maybe portions of, it's possible, like the insurance portion, but with what happened in Surfside and the pressure that got put on legislators, I don't think any circuit court judge is going to stay the entire legislation based upon an attack because again, circuit judge doesn't want to be the one to have said these things can't go into effect and all of a sudden, there's another collapse and everybody looks at that judge and says, "It's only because of you that this occurred." So, I don't think that's going to happen.
Get prepared to comply with the terms of the statute. I want to thank, as usual, Michelle Colburn for being the engineer behind the scenes of this presentation, and John and Brian for their efforts in preparing this. Brian does all our PowerPoint work. So, he id a fine job of that and we thank him for that? So, we're going to close off. Any questions that you have, you can email them to us. The ones that we can answer, we'll answer via email. If your question is too far in-depth, we'll probably tell you to contact your general counsel, especially if it's outside of our field of expertise. But thanks, everybody. Hope you know a little bit more about this statute than you did before and are very sorry if we scared anybody, but that's our job as lawyers, right? Okay. All right, everybody has a great day. Thank you.