UNDERSTANDING FLORIDA'S NEW CONDOMINIUM SAFETY; INSURANCE BILL: General Counsel Perspective
Alan Tannenbaum, Esq.:
All right, I'm going to welcome everybody. This is Alan Tannenbaum and the name of our firm now is Tannenbaum, Lemole and Hill. So I promised last time that there might be little bit of surprise. And this is the first time we're appearing as Tannenbaum, Lemole and Hill. Hill is Cindy Hill, who is with us today prior to last month, Jon Lemole and I were a construction firm, construction law firm, serving community associations around the state. We noticed, in giving these sessions and other educational sessions, that we were asked a lot of general council questions constantly, which we had to defer.
And we made the determination that rather than defer them from now on, we will handle them. And Cindy Hill has joined our firm. She's an 18 year practitioner as a general counsel, highly regarded in the Sarasota-Manatee market. And she has joined us as a partner. She's a member of the Florida Bar Condominium and Planned Development Committee, which are the general councils around the state who meet periodically to discuss all the issues that might affect general counsel. And this legislation that we're going to discuss today has been very much on that committee's mind. So what Cindy's going to do is she's going to insert comments based upon what all of the general counsel are grappling with, with this legislation as we go through the various topic areas. Chad McClenathan, who is a 35 year general counsel, condominium homeowner practitioner has joined our firm as council.
So we now have two very experienced general counsel that are on our team. So we are a community association, general council and construction firm going forward. So let's talk about the legislation. And Jon, if you'll go to the first slide, I personally paid a visit to the site of Champlain Towers this past Saturday, and took this photograph. So, there's a Memorial being built on the site, but this is the current presentation out there. It's very eerie. It reminded me of going the World Trade Center site, after all the destruction there, it's now an empty site. This is actually what drove, obviously, the legislation that we're going to deal with today. It was a year ago, June 21st that, that building came down and resulted in the legislature act in this past session, the special session in creating the legislation. So terrible tragedy, terrible... Lives were lost. It did instigate some changes, which we're going to discuss.
Maybe we have saved, or maybe the legislature has saved some lives going forward. So I think, the greatest Memorial to the folks who lost their lives and the families who lost people is, have things now changed to avoid this kind of tragedy for others? I would say from my perspective, yes, as painful as it may be. Okay, let's get into the guts of it. And I'm going to go through the first section as quickly as possible because most of the questions we've seen have been on the reserve side. So Jon, if you can go on the next slide. Quickly on this, this set a new parameter, supposedly for community association managers. It's pretty innocuous. It basically says, "If you're a community association manager and the board directs you to comply with this statute, you should do it." Big news. Like your licensing already required that, your contracts already required that. So the legislature felt that they had to tell you that as the board tells you to comply with the statute, you should do it. So, did it increase your liability... Yes, Jon.
Jon Lemole, Esq.:
There's an interesting question. That's come up a couple times about this and it's converse. And the question is, if the manager tells the board that the board has to comply with these provisions and the board refuses to do it, what are the manager's obligations at that point?
Alan Tannenbaum, Esq.:
Maybe to resign. That might be a good idea.
Cindy Hill, Esq.:
That's what I would recommend, actually, that if the board is not going to act as directed or as recommended by management on such a large issue... I mean, we don't give advice to management companies, but they might want to think about having something in their contract that lets them automatically resign in these events. But I do like that, it's clear that the management must comply as directed by the board. Meaning if they don't get direction, the argument can be made, they didn't have any other obligation.
Alan Tannenbaum, Esq.:
Right. All right, Jon, next. So this is the first inspection requirement and these slides will all be available to you. So don't think that you have to write all of this down. Anybody who wants the slideshow, Michelle can provide it. So all kinds of definitional problems, the engineers don't know what these words mean. I certainly, as a construction lawyer, don't know what the words mean, but difficult words. Load-bearing walls, I think I know what that means. Primary structural members, not so much. So there's going to be a lot of debate about what that means. I think most engineers probably could figure that out.
The licensed architect and engineers. Now what the legislature did is they said, "Well, we're going to allow for both architects and engineers to perform the functions that are called for in the statute." I have a big question about whether architects can actually perform that function, whether they're licensed to, that's going to be a debate issue. But maybe more importantly, are they even insured to do structural inspections? And if you look at a liability insurance policy for an architect, it really restricts their coverage to architectural functions. And if they're doing something outside of an architectural function, there may not be coverage for that activity. So the legislature may have overstepped a bit.
And some of the associations may be calling architects out to do these inspections and find that the smart architects are going to tell them, "Sorry, no. It's outside of our licensure and outside of our insurability." Again, there's a definition about determining the general structural condition of the building. I don't know what the general structural condition of the building means as it affects the safety. Go ahead, Jon, to the next one.
Jon Lemole, Esq.:
One thing to note before we go onto that, Alan. So, these provisions regarding milestone inspections, as opposed to the other inspections that we'll talk about later, they're not in the Condo Act, they're in Chapter 553. And I've gotten a lot of questions from folks that are saying, "Well, where does it say this in the Condo Act?" It doesn't say it in the Condo Act. So if you're looking for it's in Chapter 553, so just make a mental note of that.
Alan Tannenbaum, Esq.:
Thank you, Jon. Again. And for anybody who's interested, this is a licensure requirements for architects and engineers. It basically says, "Engineers, can't practice architecture and architects can't practice engineering." The only exception for architects is if it's incidental to their architectural practice. So in theory of an architects designing a home, and there happens to be a load-bearing wall in the plans, the legislature gives them some leeway to do potentially that portion of the design. But it would be very tough to argue that being called out to do a inspection of a building in place is incidental to architectural services. So I have a big question about whether architects by licensure are even able to do what the legislature has apparently saying that they're now allowed to do. But again, I worry about the insurability issue.
The carriers are not going to go along with this or at least haven't yet. So, you may find, again, a lot of architects are just going to refuse to do what the legislature has allowed them apparently. Go ahead, Jon. All right, again, definitions. These are not terms that they necessarily teach in engineering school. And now you're having the engineers having to make these calls. Substantial structural distress that negatively affects the building's general structural condition and integrity. Again, if you go to a engineering textbook, you're not going to find that type of language. So now the engineers have to determine what these means.
Now, it says what it doesn't include. Doesn't include cracks, distortion, sagging, deflections, misalignment. Well, if a slab is distorted, sagging and cracking is an engineer going to say, "Well, I see all of that, but it doesn't mean that's structural distress." No, they're not going to say that, so I don't even know why they have that disclaimer. If there's a sagging slab you're not going to find a structural engineer in the state of Florida's going to say, "Yeah, well that's okay. That one passes." No, that's not going to happen. And then it gets into Phase One and Phase Two, which we're going get on next ahead. Go ahead, Jon.
All right. There's a really good slide at the end of the program so that you don't have to memorize all this. But this says when the inspections have to occur, this milestone inspection, it's a shorter time period for buildings, 30 years of age. If the building is located within three miles of a coastline, whatever a coastline is. That's not easily defined. There are inlets. There may be a coastline that... Where there's a river going out to the coast, where does the river end and the coastline start? A lot of questions about that. Where's that measurement to be taken from for any particular condominium? Legislature doesn't really help with that.
But 25 year old condos have a different deadline. Again, these are all summarized at the end of the program. The condominium association agent has to arrange for the inspection and ensure compliance with the requirements of the section. That's understandable. And the condominium is responsible for all costs. Now it says here, "Does not apply a single family, two family or three family dwelling with three or more habitable stories above ground."
Jon Lemole, Esq.:
Three or fewer.
Alan Tannenbaum, Esq.:
Yes. So everybody in condo world, lawyers, engineers, insurance, people are all saying that a first floor parking with two residential floors above it is a three story building. So the legislature hasn't given us guidance on that, but everybody in the industry is calling that a three story building. So, if you're managing a condo on a barrier island and the first floor is not occupied, but the other two floors are, it's a condominium. You better comply with the statute until the legislature says otherwise. And if you're in a homeowner's association, it doesn't apply. And if you're a condo or a co-op that is two stories, it doesn't apply. But if you're a condo, three stories, this all applies. Go ahead, Jon.
Jon Lemole, Esq.:
And just also to reiterate a point that bears reiterating. So these milestone inspections have to be done every 10 years and the starting point for these, unlike the other inspections we're going to talk about in a few minutes, is the completion of the building. And that would be tied to the Certificate of Occupancy. And there is a definition of coastline elsewhere in Florida statutes, it's equally confusing. I don't know what the answer is. You're going to have to sit down with your general counsel and decide whether you fit within the 30 or the 25 year mark. But Cindy, she'll probably tell you, there's a lot of ambiguity in that because the coastline definition is where the mean low tide mark on land meets the sea. So what is the sea? So, that's open for a lot of interpretation.
Alan Tannenbaum, Esq.:
Yeah. No, Jon, we could take the position that all of the condos on the Gulf Coast are exempt because they're on a gulf and not a sea. So-
Jon Lemole, Esq.:
Yeah, I don't know. I don't know if it only applies to the east coast or if it-
Alan Tannenbaum, Esq.:
Then nobody take that at phase value because we will not make that argument. Cindy, is there a reporting requirement to the state for three story buildings?
Cindy Hill, Esq.:
Yes, there is. In the middle of all of this more complex and expensive legislation that's coming down. It can be easy to forget that part of the legislation includes that condos that have buildings... Now, not just owner buildings, but any buildings, three stories more in height have to report that information to the division before January 1st, 2023. And I had to look at my notes on that and I don't have the best memory for numbers, but that information includes the number of buildings that are three stories, more in height. And again, buildings not just residential, the total number of units in all buildings, whether or not there are units in it. The addresses and of course, the counties in which it's located.
Cindy Hill, Esq.:
And then the division in turn has an obligation to then put that information on its public website. So that's a compliance that if you need any guidance with do get with your general counsel, but if you already know you have four or five buildings that are five or six stories, for instance, you need to be looking to report that to the division because you would not want to end up non-compliance with such a really relatively easy thing to do.
Alan Tannenbaum, Esq.:
And I'm sure the division's going to set out a mailer to all the condos in the state or email them.
Cindy Hill, Esq.:
I'm sure they'll do something, what they'll do... But yes, I'm sure they'll do something because they're going to want this information coming in as fast as they can so they can turn around and get it processed. That's a lot of work to put on the division and I didn't see any additional funding given to the division to do this.
Jon Lemole, Esq.:
Let's just talk about a question really quickly, because it's apropos of this section here. And Joyce asks about the exception for single family, two family or three family dwellings with three or fewer habitable stories above ground. And I think what that's getting at is a Villa style, let's say, a Villa style condominium that maybe three stories, but only has up to three. So, like a connected kind... A Villa or a town home kind of building under a condominium regime where the maximum number of dwellings is three. And if there's a three story dwelling... Building that has three or fewer dwellings in it, that is an exemption that was carved out. So it's not the clearest thing in the world, but I think that's what that's getting at. And I hope that answers Joyce's question. No, Cindy?
Cindy Hill, Esq.:
It's a terrible provision.
Jon Lemole, Esq.:
Oh, okay. Yeah, it is. It is very confusing.
Alan Tannenbaum, Esq.:
All right. We're not going to dwell a lot about this. Again, this is a time period. And this gets the Building Department. I don't know if they were communicated with, they are also very busy these days, but now they have some obligation. So, looks like they're going to have to determine whether inspection's required and they have to provide written notice to the condo association. Condo association has 180 days to act. Again, how they know about it. I guess they'll have to go through their records and survey all the condos within their jurisdiction and figure out which ones meet the requirements of the statute and themselves send out notice. So they're, again, putting an additional burden on building departments that wasn't funded. Now really important is this last bullet point. This is a change in the law.
Alan Tannenbaum, Esq.:
All the cases that interpreted board of directors. Individual liability interpreted the statutory sections as saying that and I'll paraphrase it basically, "If you weren't stealing from your association or using your power for discriminatory purposes or vindictive purposes, or giving a benefit to your brother-in-law's company by buying services at greater than market value, there was no means of being personally responsible for bad business decisions and even neglect."
That was a line of cases that came down on individual liability, even to the extent of ignoring necessary building repairs. There were cases on that.
Cindy Hill, Esq.:
Yes.
Alan Tannenbaum, Esq.:
This changed it. This section, "If they willfully and knowingly fail to have the inspection performed." It's a breach of that fiduciary duty, which opens up personal liability on the part of a director that didn't exist before. So this is a change from the common law. Now that's bad news because there's liability. What's good news about it is, again, it's another talking point to give to the owners who are complaining about special assessment and complying with the statute. And don't want to do that show them this statute and say, "Fine, you take my seat on the board, you have this responsibility because the legislator's saying that I must do this and I have personal liability, even though it's protected by insurance and we have no choice, but to do this." And actually I think that's going to be helpful for board members and managers in order to actually do the job legislatures telling you to do it by having included this.
So I want to look at it on a positive sense that this is a talking point to say, "Look, we have no choice. And it's too bad that you have to pay the special assessment, but you got to do it." So bad news and good news at the same time. Go ahead, Jon. All right, this is a Phase One inspection, and it's a required inspection. Again, if you are three stories and more in height and don't meet that exception for single family or two family dwelling for condo or co-op, first they got to do a visual inspection. Now, the problem with it... There's a couple problems with it, one problem with it is, what can you tell from a visual inspection? Sometimes not a lot. And then they got to make a determination of no substantial structural deterioration. And there doesn't have to be the Phase Two. Well, what engineer in his right mind is going to pass a building and say, "It doesn't have to have a Phase Two."
Maybe some of them will under certain circumstances, but think of the liability, if they don't call for a Phase Two, and that building comes down or a portion collapses a year after. So their insurance companies they're not going to say, "Say a building passes okay on a visual inspection without doing the Phase Two and see if we insure you next year." So I think a lot of engineers are going to say, "The heck with it. I'm going to say the Phase Two is necessary." They don't need more business, but it also to be cynical, the choice will get them another inspection of a much greater value. So that's just kind of a strange thing than you put in there. Go ahead, Jon. I'm going to get through the rest of its equipment as possible. All right, Phase Two, engineer comes back and says, "I see some signs of trouble. I need to dig into this building." It gives the engineer the full discretion as to what needs to be done.
Look at the second sentence of the second paragraph, "As extensive or as limited as necessary to fully assess areas of structural distress. In order to confirm that building is structurally sound and safe." So on and so forth. And the program for assessing it, boy, that gives an engineer a lot of power, looks like they make the call. The board can't say, "Look, we don't want you to go that far." And the engineer says, "Sorry, statute says, I got to go as far as I need to go. That is my discretion." Very interesting transfer of power to a professional that the association is hiring but that's what they did. And it's going to create some very interesting scenarios when an engineer says, "We're going to have to rip apart this whole building in order for me to reach that Phase Two determination. And I'm sorry, folks, it's going to cost you $150,000 for my examination." So troublesome. Go ahead, Jon.
All right, then there's this report and it says what it's got to have in it, pretty heavy conclusions. But look at nine, it has to be distributed to each condo owner. And it says how, and it has to be available and put on your website. So forget hiding anything about your building. Once this Phase Two comes out, it's open for public view. And again, that's controversial, but it's going to have to go up there. You don't control what the findings are, whatever it says you're stuck with them, gets published. You have no choice. That's going to cause some interesting issues. Go ahead, Jon. All right. Again, this is the building department and now the county's involved.
So the legislature, I don't know if they called the building officials and the county officials and say, "We're about to put some burdens on you." But the building department can give penalties and timelines. What's really strange is that they move what the Board of County Commissioners does, which doesn't make a lot of sense because you can have four municipalities with their own building department functions within your county. And now the county has got some responsibility over what the building departments are doing, which is a mess even of itself. And gives county for some reason, now, jurisdiction over what may be a localized building of responsibility. A lot of confusion there. Go ahead, Jon.
Jon Lemole, Esq.:
Cindy, have they talked about... Because the big takeaway in this section is that if there are repairs recommended after your Phase Two milestone inspection, you have a certain amount of time, 365 days, to start to make those repairs. If any of you have performed a major repair project recently, I'm sure you've run into problems with delays because of the lack of materials, price escalations, things like that. Is there any kind of safety valve here, if you can't commence your project within 365 days, because there are labor shortages or supply shortages? Has that been discussed in your committee?
Cindy Hill, Esq.:
No. Well, it has because there are no protections in what's written here. The committee is putting together what they call a list of glitches, which are not necessarily the more substantive issues that come up in these conversations, but they are the, "Hey, wait a minute. Common sense, let's put something in here." And this is one of the glitches. What happens if there's a supply chain problem? What happens if there's a labor shortage? There's no cushion here for reasonable efforts from a board not being able to meet this requirements. That's definitely something the committee is put together and going back to the legislature with their list for the next session to fix without, again, trying to argue about some of the substantive provisions, but more just the, "Guys, you got to give us some guidance here."
Jon Lemole, Esq.:
Good. Well, hopefully they listen.
Cindy Hill, Esq.:
They don't traditionally do so, but the committee's trying. And again, we're trying with these soft serve requests, so to speak.
Jon Lemole, Esq.:
Oh, okay, good. All right. So now we're going to get into the condo statue portion of this. And this is where, I think, there's a lot more ambiguity here. And I think that's because as Alan said at the beginning, and we've heard as well from other folks the legislature was really focused during its special session on the safety issues and making sure that buildings were inspected. And that the state had and local officials had a good census of buildings, their ages, and what problems maybe on the horizon with some of these older buildings that may have been neglected. And so I think there's a lot more overall clarity in the milestone inspection provisions. There's definite timelines, and so that's a little less ambiguous. But then the second step that the legislature took, and this is really because how do you fund this stuff? The money has to be available. And for a lot of older communities, as you probably all know, there are problems with reserves. There are old buildings that are in need of repair and not enough money to repair them.
And so the legislature crafted this second shoe, if you will, in the Condo Act, which relates to reserve studies and reserve funding. So we're going to talk about that now, and I think you'll see there's a far more ambiguity here. And these are all areas where it is highly recommended, highly recommended that you sit down with your general counsel and look at these issues because there are going to need to be some interpretations made and some tough calls, in some instances.
Jon Lemole, Esq.:
So to jump into it, you have a whole second set of investigation for buildings that are three stories or higher. So the same buildings that fall under the milestone inspection also need to, every 10 years, perform something called a Structural Integrity Reserve Study. And there's a definition it's defined at a new section 718.103(25), subsection 25. Now what used to be in 25, wasn't taken away. It was just kind of shifted down, so that's where they've inserted this. But what is a Structural Integrity Reserve Study, we'll call it SIRS for short. That seems to be what everybody's gravitating towards as an abbreviation. 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. Huh? That sounds like a typical reserve study, right? That's what everybody's kind of familiar with doing.
However, they've added an extra little layer to this in a Structural Integrity Reserve Study. Can be performed by anybody who typically has performed them in the past. However, the visual inspection portion of the Structural Integrity Reserve Study must be performed by an engineer or an architect, licensed Florida engineer, or licensed Florida architect. So they've added this layer to the reserve study process where you actually have to have a licensed engineer or architect, who's looking at the building and evaluating the integrity and the estimated remaining useful life of a number of different components, and we're going to look at those in a second. But before we get to that, let's talk about what that engineer or architect has to do. It must identify, the study, must identify the common areas being visually inspected, state the estimated remaining useful life and estimated replacement cost or deferred maintenance expense of the area being visually inspected. Provide a recommended annual reserve amount that achieves the estimated replacement cost or deferred maintenance expense of each common area being visually inspected.
And so, it's a very detailed reserve study that is being done, but here's where the rubber really meets the road. The old statute had a couple of areas that reserves needed to be calculated and assessed for. Buildings three stories or higher, are now going to have to broaden the list. A little bit of the things that must, A, be visually observed and inspected by an engineer or architect and then reserved for. And that list, you'll see it here, includes roof load-bearing walls, or other primary structural members. I don't know exactly what that means, but I guess the engineers will determine what a primary structural member is for the building. Floors, foundation, fireproofing, fire protection systems, plumbing, electrical systems, waterproofing, and exterior painting. And here's the one that everybody gets up in arms about windows. And let's put a pin in windows for a second, we'll come back to that.
And then the catch all, any other item that has a deferred maintenance expense or replacement cost that would exceed $10,000 and the failure to replace or maintain such item negatively affects the items listed in sub-paragraphs A through I, as determined by the licensed engineer or architect performing the visual inspection portion. Okay. So as Alan said earlier, this legislation gives the architects and engineers, very broad discretion in how they do these inspections, what they recommend. And the same is true here because it's the architect or the engineer who is determining what things need to be inspected in that catchall section and whether or not they need to be reserved for. So let's talk about windows. Yeah, Alan.
Alan Tannenbaum, Esq.:
Well, one important point is that what's in J here, the $10,000 amount. It was always in the statute. So the statute had three discrete areas, roofing, painting, and pavement resurfacing had to be reserved for, and anything. In addition to that had a $10,000 more deferred maintenance or expense replacement cost. Now that always included the condominium structure. The problem is that very few reserve studies ever had a figure in for that, because it was so difficult to determine. You have a high-rise building, what number do you put in for balconies that may be deteriorating over time? The total replacement cost of replacing all the balconies, very few condos ever included that as a reserve item. The key now is that it's specifically required.
But again, how does an engineer determine that number? What is it? Is it, again, the full replacement cost? Is it repairs? Some very tricky determination by engineers to try to now meet the requirements of specifically reserving for things like foundation? What does that mean? How do you reserve for a foundation that you can't see and you don't know that really the condition of it, unless you do some very substantial destructive work under the building? So very tough engineering challenges by already very overburden engineers in the state of Florida. Go ahead, Jon. Sorry.
Jon Lemole, Esq.:
So the questions that I've seen about this Structural Integrity Reserve Study and what has to be inspected and reserved for, there are two things that keep coming up. There's the issue of windows and because in most condominiums, the windows are part of the unit. And so that's not a common area that the association has to maintain. So, how do they inspect windows and why should they inspect windows when the condo association is not the one that needs to reserve for replacement of windows. And the second thing that I've heard frequently is like, in the old statute, before this, you had things like pavement was specified, right? So that's not in this list. So, does this take priority and preempt what was in the old statute for buildings three stories or higher or not. So I'm going to throw that to you, Cindy, and ask if there's been any discussion about, A, the windows issue. And do you still have to also reserve for the things that you used to have to reserve for it, but that are not necessarily in this list?
Cindy Hill, Esq.:
I'll start with that. This is a different list. The list that exists currently before these laws were changed is still reserves that have to be scheduled and continue to do business as you've been doing with that. This is now a different box, so to speak, and there may be some overlap, and that's going to require some conversation with professionals. But it's not a replacement list, I want to be clear about that. Windows, and then plumbing and electrical are both part of the committee's glitch request because windows and also other glass enclosures on units. For instance, if a balcony's glass enclosed or something may not be at all the Association's responsibility. So we are seeking clarification on that issue, that to the extent the windows are not the Association's responsibility, why should they have to have them be part of reserve study?
And then the other concern the committee has of the plumbing and electrical systems, even though Jon, you've probably not got questions about that yet. Our concern is how do you save for the wholesale replacement of plumbing or electrical systems, when that's a rare event, usually plumbing is fixed ad hoc, as needed and electrical too. So, the committee is seeking clarification on that and hopefully the windows will be one that we get some clarification on. In the meantime, I would take the position, generally, that if windows are not the Association's responsibility, there's no way they can be trying to put together reserves for them. It'll be inconsistent with the Condominium Act and their documents.
Jon Lemole, Esq.:
Again, that's a conversation you all should have with your individual general counsel. And let them make the call and the recommendation on that for you. But obviously you can see that's a very confusing area right now. Now real quickly, let's talk about the timing of the Structural Integrity Reserve Study. So unlike the milestone, which is tied to the completion of the buildings, which we understand now to mean issuance of a Certificate of Occupancy. The Structural Integrity Reserve Study is timed towards the creation of the condominium. And so that would indicate that... When the condominium is created is generally with the recording of the declaration. And so, these inspections may be on different paths and timelines. They may not line up, although you would like them to line up, because it would be certainly more efficient and less expensive, unfortunately, that may not be the case.
And the other thing to keep in mind for the Structural Integrity Reserve Study is that it only applies to buildings that are three stories or higher. So if you have multiple buildings in your condominium, and some are lower than three stories. You don't necessarily need to include that reserve study for those buildings. It's almost on a building by building basis. Now, I don't know whether it has to be a separate reserve for each of those buildings or whether you can lump all that together. But I think that's probably another open area.
Cindy Hill, Esq.:
That's definitely another ambiguity.
Jon Lemole, Esq.:
Now, while requiring these studies and setting out the timing of the studies and what must be included in the studies. The legislature also made some provisions regarding assessment and collection of reserves. And so a couple of things are key about this, first of all, before... Now, after July 1st of this year, before a developer turns over control of an association. So if you've got a turnover that is that happened after July 1st, 2022, or is on the horizon here, the developer must now provide and complete and do that Structural Integrity Reserve Study. And so if you're going through turnover, in addition to all the other things that the developer is statutorily required to provide to you, you should be looking for this study because it now is required to be done. If you had an association which existed before July one and was under unit owner control at that point had turned over... It was created, turned over before July 1st, 2022. You have until December 31st of 2024 to complete your first Structural Integrity Reserve Study.
Okay. So, there's no avoiding this like with the milestone inspection, you can say, "Well, my building's not 30 years old yet. Or our buildings were only completed five years ago and we turned over two years ago, so do we need to do this?" And the answer to that is, "Yes, you have to do this and you have to do it by December 31st, 2024." Now hand in hand with this, in addition with the obligation on a developer to do the study before turnover, there's also now a requirement that the developer cannot vote to waive the reserves or the funding of the reserves that are required under that subsection G. All of that list of items, which must be included in the Structural Integrity Reserve Study.
So the developer cannot waive or reduce reserve funding for those items. So that opens up another opportunity for an association that has recently turned over, or will recently be turned over to take a look at the financials closely and make sure that you have full funding of reserves. Now, effective December 31st, 2024. So, they've given those folks that have turned over and are under unit owner control. They've given you a little runway here, not much of a runway, but they've given you a little runway. Once you get that reserved study done, after that, you've got to reserve fully. You cannot waive or reduce or use those reserves for purposes, and the interest on them, for purposes, other than their intended purpose. Now, this has created a lot of questions. There's a lot of ambiguity here, and Cindy can probably comment on that. And the question that most comes up is, whether you can do pooled reserve funding, whether you have to do individual full reserve funding for each of those components. Cindy, is that stuff come up in your discussions?
Cindy Hill, Esq.:
Oh, absolutely. This is completely unclear, in terms of it doesn't... And this leads to actually what you were bringing up earlier, that a lot of folks are confused about whether this is replacing reserves or whether the statutory traditional reserves are staying. There was no real attempt for the legislature to try to recognize the overlap there. So we have total lack of guidance as to pool reserves, whether you can pool them under the SIRS requirements now, whether it's okay to continue pooling as you have been under traditional reserves. The only good news I can, potential good news, I can say about that is the committees reached out to the division condominium, which does have rule making authority regarding reserves. And the hope is that rather than wait for the legislature to act on this rather complex condominium driven issue, the division will step in and create a rule that will provide the guidance everybody's looking for.
Alan Tannenbaum, Esq.:
Cindy, let ask you this question. The recommendation... So, this particular budget year, there could still be a waiver of reserves, correct?
Cindy Hill, Esq.:
Yeah.
Alan Tannenbaum, Esq.:
Okay. Knowing that you're going to have a mandatory requirement coming down the road, does the committee discuss what's the best practice for groups that have always waived reserved? Would it be a good idea, this particular season tom, number one, not waive reserves. Or recommend to the owners that if they're reduced, that they not be reduced to nothing. Do you have any thoughts about that?
Cindy Hill, Esq.:
Yeah, absolutely. This is an opportunity to bring to the owner's attention, what the waiving of reserves does for the long term. The Piper is calling, so if you continue to fully not fund reserves the next year, you're just setting up a bigger bill for the following year. So I would not recommend that as a practice. Now granted, every community has a different dynamic, I'm not giving specific advice. But the other concern you're going to have is this is now on all the radars of the real estate market is whether buying a unit into a condominium, has it been funding the reserves, is it in good shape? Am I making a sound investment? Is the mortgage holder even going to give me a mortgage on this?
So the sooner that a condominium can get itself in compliance with what's coming and anticipate the fees that are coming, the better. But that being said, I know some communities have had unexpected large bills over the last few years, unfortunately, that have already hurt them. There's a lot of complexities to that, but the best industry standard would be get yourself lined up for the fact that bills are going up.
Jon Lemole, Esq.:
Okay. Good. Good advice. Now we have a section in here on roof... There was some roof insurance and roof replacement issues. I'm going to skip that today because A, most of it doesn't apply to condominiums. I'll just say real quickly that there's a change to the old 25% rule. So, where you have a storm and if more than 25% of your roof needs to be replaced, the old building code required a full replacement of the roof up to the existing code standards that are in effect right now. That's changed. If your roof was constructed under the 2007 code or later, and you have 40% of your roof that's damaged in a storm, you now can replace the 40%. You don't have to bring the whole roof up to the new code standards and you don't have to replace the whole roof.
That's under challenge right now. The roofing industry has brought a challenge on that, so we'll see whether that's going to stay or not. At the end of our presentation. And if anybody wants this, you can email Michelle Colburn, and she will send this to you. But we put together a little timeline here for the major highlights and decision points and deliverables that need to take place under this new regime. Folks, here's some practical advice, okay. Alan and I deal with engineers all the time, we talk to them, we review their consulting agreements for homeowners and condo associations. There are some engineers that are not jumping into this pool right now, because they're uncertain as to what their obligations are. There are some engineers who have taken this on and they're ready to run with this. But as a lot of you probably have experienced, if you've tried to engage an engineer recently, they are stretched really thin.
So the practical takeaway here is, number one, if you've got to do these inspections, especially, milestone inspections, don't wait, because you're going to have a hard time finding engineers who, A, will do it, and B, can deliver it on time. So don't wait till it's like on the Eve of when this thing is due. Secondly, you got to be prepared. This is a big, additional, professional liability burden on engineers. Their prices are going to go up mostly because their insurance premiums are going to go up. And they're going to be looking for ways to insulate themselves from that liability in their consulting agreement. So, when you're presented with a consulting agreement for these studies, I would urge all of you take a good look at them, talk to your general counsel about them, talk to a construction lawyer about them and have those contracts reviewed.
Because what we're seeing is that in these engineering consulting agreements, there are all kinds of interesting provisions that engineers are putting in there to limit their liability. And that's never good for an association. And the goal of every association is to transfer as much risk away from itself as possible. So call us. [inaudible 00:53:31] Call your general counsel and take a good look at those things. So that's it for our presentation.
Alan Tannenbaum, Esq.:
Jon, I have a point on that. So what engineers are starting to stick in are indemnity clauses to say, "If we do these inspections and we get sued. Even if we're negligent, the association has got to indemnify us against that liability, including attorney's fees and so forth." We recommend that you go to your own liability carriers and say, "Is there insurance or a writer that we can purchase that will cover that indemnity of the engineer?" Because if you don't have it, you're now exposing the unit owners to substantial liability for the negligence of the engineer in performing the inspections. So the insurance industry is going to need to adjust to the risk. And it's fine for the association to have the risk of these inspections, if the association in turn is insured for that risk. Otherwise, the enormity of the exposure that the association, by assessment uncovered by insurance may be absorbing, could be very substantial.
So time to have a discussion with your agent, if you see an indemnity clause and you have no way around it, because every engineer has it, that you make sure that you can't purchase insurance to cover that indemnity exposure. So I can't emphasize that enough. So with that, we're now going to get into your questions. So if anybody wants to hang on, the official session is over for you managers. You've now cleared your CEU requirement by having attended the full session. But if you want to hang on while we go through some of these questions, then stay on with us. All right, I'm passing the Howdy Doody questions. I think we've hit the three stories or more. Jon, you want to look at-
Jon Lemole, Esq.:
She's concerned about the language, about three stories high and three miles from the coastline. Look, every building three stories or higher has to be studied. The only difference about whether you're within three miles of the coastline is whether you need to do that on a 30 year schedule or a 25 year schedule. So, it's a both. In other words, you start with three stories or higher and then look to see where you are related to the coastline to determine when you have to do those milestone inspections.
Alan Tannenbaum, Esq.:
All right, let's see. There's a question. The PE we use said he will not do the inspection until the regulation is better defined. He also says that many engineers are taking this. That's a problem. Again, the legislature didn't go to the Board of Engineers.
Cindy Hill, Esq.:
No.
Alan Tannenbaum, Esq.:
Or the Engineering Society and say, "We're about to impose this major burden on you with language you probably never heard before. What do you think about it?" There wasn't that type of discussion. That's one of the reasons I mentioned the indemnity clause because when all else fails and the engineers' taking out an assignment that they have, absolutely no idea how much exposure they're absorbing. The simple answer for them is, "Well, just have the association of deify you against any liability that may arise from this and go ahead and do it." And that's why somebody's got to assure this risk, if it does get transferred. But again, the legislature set these mandatory deadlines and what if an engineer won't do it? And what if the architects say, "We won't do it because we're not insured for it. And we may get our license taken away." And then what do you do?
And we've also heard associations say, "Well, we think we'll wait until legislator clarifies before we even try to get an engineer out to do any of these things." We don't think that's a good idea. At least have your record that you tried to find an engineer.
And then if somebody tries to sanction you, that's probably a pretty good defense. There's a defense for you lawyers out there that's called Impossibility of Performance. It usually applies to contractual requirements, but it's probably a decent defense to sub-governmental entity trying to sanction you, that your response is, "We've tried and we can't comply with what you're requiring. So we can't do the impossible." Let's see.
Jon Lemole, Esq.:
I'm trying to get back to where we were. Two story building, where second story has a loft. I don't believe the consensus that, is that a loft is another story?
Cindy Hill, Esq.:
That is one of the questions that's on the glitch list for the committee, by the way, the loft was considered, not just beneath parking.
Alan Tannenbaum, Esq.:
All right. There's a question. These items are for the Structural Integrity Reserve Study, [inaudible 00:59:29] Pavement is that under the $10,000 reserve requirement? I guess, no. Pavement is not structural. Okay. Cindy, clarify this again. I'm being told one and two story condominium buildings are required to have a reserve study and fully fund the reserves. Correct. And is it correct that they're not required to have a reserve study, but they are required to fully fund or to provide a budget that has a fully funded reserves under the original statute?
Cindy Hill, Esq.:
I'm looking at the question now, because I think there's some overlapping that's happening here. The SIRS study applies to the building that are three stories. The one and two stories do not have a SIRS requirement. So I'm not entirely following the question. I'm sorry. No,
Alan Tannenbaum, Esq.:
Well, they don't have to have a reserve study because that's discretionary. What they have to do is a budget that has fully funded reserves under the prior statute, if they're a one and two story building. They still have to present a budget that has fully funded reserves, meaning the prior statute. But there's no requirement necessarily, although, it's a good practice, that they utilize a reserve study in order to come up with their numbers.
Cindy Hill, Esq.:
Correct. Yes. They don't have to utilize a reserve study. That is right. They can continue the manner in which they've been operating to determine their reserves.
Alan Tannenbaum, Esq.:
Right. But they have to at least show in their budget fully funded reserves, like they always did.
Cindy Hill, Esq.:
Yes, I'm following now. Thank you.
Alan Tannenbaum, Esq.:
Question. If the entire board resigns, because the owners do not want to pay for compliance with these provisions then who is liable under this statute? So this is what happens, if the entire board resigns and it could be for any reason, there's a provision under both 718 and 720 for the appointment of a receiver. So an owner can go to the Circuit Court, say, "Nobody's on the board and nobody's running for the board." And the court can order a receiver to be appointed to take over the operation of the association. That receiver in-turn should comply with the requirements of this act. And as a receiver, hire the engineers and get all this done. Now the next question would be, does that receiver then have individual liability if it doesn't get done? And that's not covered by the statute, but there is a provision for a condo association in Florida that loses its entire board and the owners don't don't want to comply. Now, the other part of it is, and Cindy, you can indicate that, the board passes a special assessment. It doesn't need the owner's approval for that.
And if they go on strike and say, "Well, we're not paying it." Then the association needs to hire its lawyers to lien and foreclose on all those units.
And what you're going to find once you do that is that these folks who are very brave to protest are now with the prospect of facing the loss of their units by a lien foreclosure are now not going to be as brave. And they will comply. So, there's going to be some cards that's going to be necessary on the part of board of directors to call the bluff of owners who say, "Well, we're not going to do it, or we're not going to pay for it. Or..." And rather than resign, let them take you out of office by recall. And if they don't do that, then raise the money, pass assessment. And then you'll see a lot of, in my experience, you'll see a lot fewer or now have the courage to continue their protests. So there's going to be a need for some courageous board members and managers to step up and take on owners who just want to bitch about what's going on.
Jon Lemole, Esq.:
Alan, interesting question. David Troy asked about conversions. So he says, "Building built in 1962, but was converted to a condo in 2015."
Alan Tannenbaum, Esq.:
Be careful because he represents the association, so just give a really good answer to this one.
Cindy Hill, Esq.:
No pressure.
Jon Lemole, Esq.:
Well, taking the conversion generically, it's an interesting question because I think the milestone inspection is tied to the Certificate of Occupancy. So, I don't think the conversion really affects that if the building is more than 30 years old and it's now a condominium, at least, my interpretation... And Cindy, I don't know whether you agree with this, but my interpretation is that you still have to do the milestone inspection, because your building is 30 years old. Now it gets interesting with the Structural Integrity Reserve Study because that's tied to the creation of the condominium and typically in a conversion, there's a conversion engineering report.
That would've preceded the conversion or had been in tandem with the conversion. And there are certain reserve requirements that are a little bit different or warranties that are given if reserves aren't funded. So I wonder whether the Structural Integrity Reserve Study needs to be done on a converted condo that, say, is only five years old as a condo.
Alan Tannenbaum, Esq.:
Well, I think the argument would be tied to the declaration of condominium being filed, which would not occur until the conversion.
Alan Tannenbaum, Esq.:
And then that would set that time period.
Cindy Hill, Esq.:
That's the position I'd take as well.
Alan Tannenbaum, Esq.:
Okay. All right. There's a question. Is a 12/31/23 deadline for condos that have met the... I don't know what CO means there. Certificate of Occupancy timeline, definitely, in effect. We've been told from various sources that 12/31/24 will be the actual timeline for everyone. I don't know if either of you can interpret that question.
Jon Lemole, Esq.:
Well, for buildings built before 1992 so, i.e, buildings that are already 30 years old as of July 1st, they have to do their first milestone inspections by December 31st, 2024, three story or higher buildings. Okay. So, that is going to apply for any building built before July 1st of 1992. Sorry. The reserve study, Structural Integrity Reserve Study for buildings that are three stories or higher. Doesn't matter when they were built.
Jon Lemole, Esq.:
If they were turned over prior to July, first of this year, they're going to have, to have that first Structural Integrity Reserve Study for each building that is three stories or higher by December 31st of '24. So, that you cannot get out of, as I read the statute.
Alan Tannenbaum, Esq.:
All right, there's a question. What about town homelike structures classified as condos, four units per building. First floor is garage with additional living, but insurable area. Then two floors above that. However, no units are on top of each other. The floors are all from the same unit. You wanted to get that one, Jon? I don't know.
Jon Lemole, Esq.:
Well, the exemption for the milestone reports is one or two or three family dwellings that are three stories or less. And if we're saying that a story includes ground floor parking, if you've got a four family townhome dwelling, that's operated as a condominium.
A fourplex that is three stories two ground floor garage, two habit habitable floors above that. I would think that falls within the milestone inspection and reporting statute. It's funny. They don't say anything about that same exception in the SIRS section. So, there's another open item.
Jon Lemole, Esq.:
But taking the literal reading of the milestone inspection language, that would seem to me to mean that yes, that is going to need to be inspected.
Alan Tannenbaum, Esq.:
All right. There's a question from Dale, "Our engineer advised us to wait on the inspection till after the legislature tweaks, these new regulations." So this is why you don't rely on engineers for legal advice, and you don't rely on lawyers for engineering advice. I worked in the Florida legislature back when I was in law school. And I was in the inner workings of the process and the predictability of what a legislature might do in the next session or the session after, or the session after is kind of like predicting whether the Mets are going to win the Pan Am, they have one once or twice, but whether they're going to win it this year, nobody knows. And that would apply to even the Phillies. Anyway.
So, no. Don't wait, because they may not do a glitch bill at all in the next two years, they may fix some glitches and not others. So the key for association is if you have a statute to comply with, it's on the books, comply with it. If, again, the engineers refuse to act and you can't find anyone to fulfill it. At least you've made a record of an attempt to comply as best you can. So, if then a governmental entity or an owner comes at you and says, "You didn't do your job." You have a record that says, "You made the attempt, with the best advice from lawyers who are competent in the field. We attempted to follow the statute as best we possibly could. And we just were unable to do so, or meet a deadline." And so forth.
But if you don't try at all, you're, you're actually maximizing your potential exposure. And again, imagine if the very unfortunate circumstances that there's some sort of building collapse in the next couple of years. And you're on one of the boards that decided to wait to see, based upon what some engineers said, and you waited to do anything, because you wanted to see if the legislature would clear up the ambiguities. You're going to get sued individually. And the defense that the statute was confusing and some engineer told us to wait is not going to help you. So I don't recommend that. So whoever that engineer was sue them for legal malpractice, because that was a bad answer. And then I'll say, "Well, I'm not a lawyer. So you had no right to rely on my legal advice, anyway."
Cindy Hill, Esq.:
I see a question here. Is there mandatory, full reserve funding for items not considered of a structural nature? And the answer to that is, no. It's these new structural components that are mandating full reserve, your other not structural components can still be treated in the way they've been treated traditionally. Now there's overlap there. So I'm not giving specific advice, but just answering that question generally.
Alan Tannenbaum, Esq.:
Okay. I think we talked about windows. There's a question. Are sliders considered a window?
Cindy Hill, Esq.:
Well, that goes back to the issue I brought up that the committees discussed is to what extent is something, a window or something glass. This is very document driven. Windows are not a given in terms of, I can tell you what your documents are going to say about who's responsible for your windows and what is considered a window. What is considered an opening? What is considered a covering? These are all document driven issues, unfortunately.
Alan Tannenbaum, Esq.:
All right. And this will be the last one. Sorry to interrupt. This will be the last one. Wouldn't the windows and sliders be covered because they would cause damage to the building itself if water intrusion. So although not a funding requirement, would the association be required to force an owner to maintain? Well, I personally think that any set of condo documents in a midrise or high-rise building that leaves the maintenance and repair of the windows and sliders to the owners, in my view, should be amended to make that a common element or if not a common element, least the responsibility association. Because having individual owners repair their own windows, getting potentially, equipment to get up there. And then if somebody doesn't maintain their windows, it could damage to the building and the unit below. I was called in recently on a project where it was actually the president's unit, their windows were linking causing damage below.
And I figured out early on why the general council was bringing us in because we could sit on the president and not worry and not be worried about losing the account, but that's what exactly what we had to do. First of all, the president was sitting in on the board meeting at which his obligation to repair his windows were being discussed. I said, "Not a good idea. Excluded him from the meeting and the rest of the board needs to make the business decisions relative to how to handle that." And they listen to it, but it causes all kinds of complications. So, if you happen to have documents where the sliders and the windows are maintainable by the owners, you better be brave enough to start enforcing the requirements of the documents and bringing injunction actions, if you need to, in order to require that those repairs be done properly.
Otherwise, you're going to have damage to the rest of the building. You have the owner underneath now probably suing the association for failing to require that, that owner act. A lot of confusion. So I don't think you should reserve for the windows, but I think you should take action against the owner whose windows are not being maintained and make sure that they fulfill their requirements. That's my long-winded answer to that very difficult question. But my preference is that you just amend your documents to make it an association responsibility, which would clear up a lot of issues, funding-wise and otherwise.
Well, it is 12:20. Thanks, everybody. You guys hung on. This whole video will go on our website within a matter of days. So you can review it. You can send it to your other board members or other managers. And anybody who wants the written materials will let Michelle know and she will send them to you. If you're a manager, make sure we have your licensure information so we can get your CEU credit and we'll have another informative program next month and look forward to announcing it. Thank you.
