It’s been a little over two months since the sudden collapse of Champlain Towers South in Surfside on June 24, which killed 98 people.
The tragedy has prompted many condo associations, lawyers and consumer advocates to reassess Florida’s laws surrounding inspections and maintenance funding, after it was revealed that Champlain Towers South had just over $777,000 in reserves to pay for what was estimated by inspectors as a $16.2 million repair bill.
But even if the laws on the books are inadequate for protecting residents, many condo associations still aren’t following those standards, said Kathleen Reres, a Tampa-based partner in the community associations business sector at the Shumaker, Loop & Kendrick law firm. Her clients are from all over the state but many are located around Tampa Bay, she said.
Reres spoke with the Tampa Bay Times about how her clients are reacting to Surfside and what challenges community associations face. This interview has been edited for length and clarity.
Has the Surfside tragedy increased the number of questions your firm has gotten from Tampa Bay-area condo associations?
We’ve seen a substantial uptick in communications both from existing clients and potentially new clients who are concerned about whether they’re doing what they need to do to avoid their own Surfside situation. We’ve seen a number of questions about, ‘What sort of engineering reports are we required to obtain? What do we need to do to make sure that we have sufficient money in our reserve account to address structural integrity problems when they arise? What do we need to be giving to our members, to make sure that they feel safe and that they understand that we’ve looked at the building, and that we’re making sure the building is taken care of?’
We’re getting these calls all the time. Even existing clients who have in the past utilized legal resources sparingly in an effort to save money, they’re relying on professionals in a way that they didn’t before Surfside.
Has your team added people as a result?
We’ve hired two new attorneys just since Surfside. In the last year I think we’ve hired four new attorneys.
Our newer hires are handling some of the routine collection and enforcement work and it’s opening up some of our more senior associates and partners to handle these general counsel-type questions from communities that are concerned after Surfside.
So now that all these community associations and condo associations are approaching you, have you been finding that most of them were doing all that they needed to do by the law?
No, unfortunately I’m finding a lot of holes.
I’m finding a lot of communities, especially 55-plus communities, where previous boards maybe did not necessarily understand the association’s obligation to collect money to reserve for these future repairs and replacements. We’re seeing communities that haven’t hired an engineer to do a reserve study in over five or 10 years.
Just so we’re on the same page, a reserve study is what a condominium or homeowners’ association will obtain. It’s a report that has an engineer come out to the property, inspect all the common elements, inspect the things that the association owns and is responsible for maintaining, and then figure out what’s the remaining useful life on each part of the building, or each recreational facility, or whatever it is that the association is responsible for maintaining. So the engineers tell you when you need to do maintenance, and when you need to replace these different components of your common elements.
Our boards for condominiums and homeowners’ associations are volunteers. They are not paid, and my clients on these boards, they come from every walk of life. I’ve had extremely intelligent folks with zero background in business, and zero background in construction and engineering, everything from, a-stay-at home parent to an executive of a Fortune 500 company. These people are not really qualified to determine, ‘What is the remaining useful life on my roof? What is the remaining useful life on the elevator that takes these seniors up to the 20th floor?’ And so these reserve studies are absolutely essential, so that the community can make sure that all of these parts of the building are being maintained when they need to be maintained and repaired and replaced as needed.
What I’m finding is a lot of my communities haven’t been getting these reserve studies, and they maybe haven’t had an engineer out to look at the property in 10 or 15 years. Sometimes it’s not a major problem. Sometimes I’ll get a very well-informed board who has a 15-year-old reserve study, but has been methodically consulting with professionals to make sure that their 15-year-old reserve study is still okay. But I would say the majority of my communities that are not getting reserve studies are not prepared. They haven’t had these components of their buildings evaluated or looked at by professionals. They haven’t been funding their reserve accounts and they usually don’t have the money that they need to perform these repairs and replacements when they need to be done.
To clarify, what is the legal requirement for how often a reserve study needs to be conducted?
There isn’t one. That’s part of the problem.
The Legislature tried to impose a mandatory reserve study requirement a few years ago, and there was a lot of objection from communities because it was such a major expense. You get a lot of communities in Florida that are reserved for people who are 55 years of age and older. And in a lot of those communities, the people are a lot closer to 80 or 90 than they are to 55. In those communities, you get a large number of people who are saying, ‘Why are we spending $10,000 on this reserve study now and collecting for components that won’t need to be replaced until I’m no longer living? I don’t want to pay for that.’ So the fact that there’s no mandatory requirement is leaving a lot of discretion.
Now, down in Broward and Miami-Dade counties, there’s a local requirement that requires a structural engineer to look at the building once it’s 40 years old and every 10 years thereafter, but that is only a requirement in Broward and Miami-Dade. The rest of the state of Florida, that’s not a requirement, and even in Miami and Broward, the practitioners down there have reached the conclusion that that may not even be enough. You take a building that’s sitting next to saltwater in a high velocity wind zone that’s the frequent subject of flooding, hurricanes, things along those lines, and you’re going to see substantial deterioration in the structures of these buildings sometimes after 20 years or 30 years, and waiting until the 40-year mark may be too late.
I know that that’s one of the things that the task force that the Florida Bar put together to look at condominium laws is considering: What should the requirements be for obtaining both reserve studies and structural integrity reports from a certified structural engineer? And that’s one of the other issues that’s being talked about now after Surfside - there is not a license in Florida that is specifically given to engineers who specialize in reviewing the structural integrity of buildings. So you might have an engineer whose background is in something completely different, who just feels that he or she is able to analyze the structural integrity of the building, but there’s no licensing bureau that makes sure they’ve taken a test and they really know what to look for.
I’ve read there’s essentially a loophole in state law that allows condo boards to avoid keeping enough money in reserves to cover maintenance. Is that also headed for a change?
I wouldn’t be surprised if the changes that the Legislature proposes substantially limit the ability of the unit owners to waive full funding of reserves, or to put less money in their reserve accounts than they really need in order to replace these items.
The way it works now is condominiums are required to put enough money into these reserve accounts every year so that they have the money that they need in the year that they need to perform repairs and replacements. That amount of money is supposed to be based on the reserve study that they get from a professional engineering company. But what they can do if they don’t want to fully fund those accounts, is they can hold a membership vote to waive full funding of reserves. The board can propose any number that the board feels would be acceptable to membership. If you get 51 percent of the members that show up and approve that decision, then you won’t have a fully funded reserve account and you’re not going to have the money that you need in order to replace the items in the building that need to be replaced when the time comes.
I see communities all over Florida giving their members the option to waive full funding of reserves because they just don’t want to come out-of-pocket to put that money in a safe place for a rainy day when they’re not sure that it’s going to benefit them.
There’s a flip side to this argument. Some people say, ‘If I want to live in a community and I want to take my money and invest it in the stock market and get a higher rate of return than the association is going to get by stockpiling it in a reserve account, I should be able to do that. And when you need the money, just ask me to pay it and I’ll have it.’ There are a lot of people in Florida that take that approach. There are a lot of communities where there are investors.
But that becomes a problem in other communities, low-income communities, or maybe 55-plus communities where others might just not understand how it works, and they may not have the money saved away. And if you can’t afford to pay this special assessment when it’s levied, when the board realizes, ‘Hey now, it really is time to replace the roof’ — people lose their homes over these special assessments. You might have a special assessment of $30,000, if you realize all of a sudden that ‘We haven’t been funding our reserve accounts and the stucco of our building is falling down.’
Any last pieces of advice?
If board members are unsure, if they don’t understand how these reserves work, they really shouldn’t just be relying on their management company. They have an obligation, a fiduciary duty to make sure that their community is doing what they need to do to be legally compliant, and even in some situations, go beyond what’s legally required. Right now there is no obligation under Florida law for the board of directors that are responsible for maintaining a 40- or 50-year-old building to do anything about it. But I would urge them to consider that sometimes going above and beyond what’s legally required is really necessary.
I would encourage people to reach out and ask a professional, and don’t wait until you’ve got that report from the engineer that says you’ve got $15 million’s worth of damages like they did in Surfside.