The collapse of the Champlain Towers sent shockwaves throughout the world, and throughout the community association industry in particular. Suddenly obscure topics like the recertification process, reserve studies, funding models, special assessments, and more were brought to the forefront of public discussion.
The National Association of Home Builders reports that the median age of housing in the US is 39 years. That means that across the country, condo buildings are coming up on their 40-year recertification requirement.
Many of the condominiums that are up for recertification do not have the necessary resources to pass the recertification process. Homeowners not paying their assessments leads to associations not having adequate capital reserves to be able to afford the hefty costs of the required repairs. New condo legislation in FL aims to solve this.
After what happened in Surfside, regulators felt forced to act to ensure that something like that never happens again. In January 2022, the Florida house advanced a bill (PCB PPE 22-03) after it was unanimously passed by the House Pandemic and Public Emergencies Committee. Bill PCB PPE 22-03 has the support of House and Senate leadership and is expected to become law.
The Bill contains an exhaustive list of requirements. If passed these are some of the new expectations the law will create:
- Reserve Studies: Multi-family buildings over 3 stories must conduct a reserve study every 10 years, and funding waivers are now prohibited.
- Reserve Funds: Beginning July 1, 2024, an association must collect the minimum amount for reserves in an association building that is three stories or more (those collections may no longer be waived or diminished), and reserve funds may only be used for their assigned purposes.
- Phase 2: A new concept introduced by the bill, Phase 2 is an additional rigorous inspection that would be required for buildings in which the initial standard inspection exposes “substantial damage to certain structural or life-safety systems.”
- Recertification: Local officials will contact associations with written notice of when buildings must be recertified. Additionally, recertification timelines will be amended–buildings that are either
- 3 stories or higher,
- Or 25 years old and within 3 miles of a coastline
will be required to be recertified after 30 years, and then recertified again every 10 years after that.
- Reporting: Building officials, unit owners, and potential buyers of a condo unit must be provided recertification and phase 2 reports. Reserve studies must also be provided to a potential buyer.
- Inspections: The Bill requires reserve study inspections and recertification and phase 2 inspections to be performed by licensed engineers or architects.
- Enforcement: The Florida Department of Business and Professional Regulation is authorized to enforce the reserve studies and recertification inspection requirements. Additionally, local building officials now have the ability to assess penalties against condo associations for failing to comply with the requirements for building recertifications and phase 2 inspections.
While these changes to condo legislation in FL will help increase awareness of condo associations that are in trouble before we have to witness that trouble on national TV, it does not actually resolve their structural problems. The bill stops short of actually forcing condo associations to implement the recommendations in their reserve studies – those decisions are still left in the hands of the Board unless the municipal inspectors deem the building unsafe. This means that your board still has a responsibility to make the best decisions when it comes to maintaining your community’s aging infrastructure.
Maintaining a Positive Cash Flow
It is important for the board to regularly spend on proper maintenance even if an issue isn’t immediately apparent. Small issues that go neglected tend to become bigger problems and those problems become costly. Often once the problems become large, stop-gap measures are implemented because full remedies are simply unaffordable. This line of thinking is often rewarded and celebrated as being cost-efficient. Some boards put the budget before the building. And unfortunately, the old saying is true, you get what you pay for.
One of the biggest challenges boards face when it comes to capital improvements is how to pay for it. The reserve fund accommodates for replacement costs and construction, but there are always a plethora of little things that were not accounted for in the reserve, that will become an even bigger issue now that reserve funds must be maintained separately for each component. (No more robbing Peter to pay Paul!)
The extra capital needs to draw from the operating fund if the community has excess funds available, from a capital improvement loan if you are able to get one, or from a special assessment – a very unpopular option that passes the charges to the residents. (This is exactly what happened with Champlain Towers South – when the homeowners were presented with a special assessment for the needed repairs, they voted it down, leading to the ultimate result of the building collapse.)
The best way to avoid these unpleasant results is to maintain a positive cash flow in your community association by keeping legal fees low and making sure you are collecting assessments from all of the owners in your association.
Axela can help you regulate your cash flow by collecting from delinquent owners without resorting to foreclosure. This saves the community in legal fees, prevents writing off bad debt, and gets homeowners current on their association fees. With proper cash flow, you can better prepare to take the steps you need to ensure you can pay for mandated structural repairs.
We’re Here for You
These potential changes to condo legislation in FL can be overwhelming. Axela’s years of experience and trained professionals can help guide you through these uncertain times and get your cash flow on track. Champlain Towers was a heartbreaking tragedy. Together we can ensure it doesn’t happen again.