From Carr Riggs & Ingram, this is It Figures: The CRI Podcast, an accounting, advisory, and industry-focused podcast for business and organization leaders, entrepreneurs, and anyone who is looking to go beyond the status quo.
Welcome back to CRI Podcast, It Figures. My name is Alan Jowers. I’m a partner with Carr Riggs & Ingram in our Destin office. And with me today is Chad Branson. And Chad, introduce yourself for everybody out there in Cyber Land.
Yes, thanks, Alan. And as he mentioned, my name is Chad Branson with Carr Riggs & Ingram, also a partner audit partner in the Destin Miramar Beach, Florida office. I’m also not a CPA, but also a CAM, a community association manager.
Yeah. And likewise, I’m the same. And we’re here today to talk about condo legislation in the state of Florida. Both Chad and I deal with a lot of condominium and homeowner associations in the state of Florida. I think we work, consult, and do financial statement stuff with over 800 associations, all the way from Perdido Key in the Northwest, all the way down to Key West. So we deal with that a lot.
And we’ve been involved with changes in the legislation that came about during the 2022 legislative session. But I think in order to really understand those legislative changes, you kind of have to go back to the event that was the genesis for these changes. And that event was a tragic event happened around 1:30 in the morning in Miami Beach in a little community called Surfside, where a 12-story condominium building collapsed in June of 2021.
And because it collapsed in the middle of the night, most of the residents and the guests who were staying at the condo were fast asleep in their units, and the building collapsed. And 98 people lost their lives, 40 people were managed to be rescued, most of those from a small part of the condo that did not collapse. There were, I believe, four that were pulled from the rubble. And, of course, that had a big impact in the state of Florida and really nationwide as people started to look at changes that could be made really to make sure that nothing like that ever happened again.
So there’ve been several investigations that have gone on to try and figure out what the cause of that was. Actually, there was a piece on 60 Minutes not too long ago that detailed some of those investigations, including a federal one that may be going on for quite some time, really to try to determine the cause of that collapse. And so that collapse was really the genesis for the legislation that came about in the Florida Legislature. And it was really looked at kind of from two different angles if you will.
And if you remember back to your civics classes from yesteryear when you were in middle school in eighth grade, and you have the two different sides of the Florida Legislature or the two different sides of legislatures in the United States. You have a House and you have a Senate, and each of those sides has their own bills that they can file. And then those bills kind of come together in a reconciliation process, and they hammer out differences. And then once the House and the Senate agree, then it goes on to the executive branch, the president obviously for the US. And for Florida it goes to the governor and the governor signs it.
And once everybody’s happy and it’s all put together, you end up with the new law. And so, really, what the Senate side of this was looking at was trying to identify what the causes were. And one of the key causes from this collapse was obviously defects that had happened over time with the building. And so the Senate really kind of focused on, “We need to inspect our condominium buildings as they age and really look at going through a structural engineering process to look to find if there were outward signs of significant distress or outward signs of significant structural damage that needed to be corrected.”
And really that’s kind of the side that the Senate was pushing to really bolster up that, well, there are programs in Miami-Dade County and also in Broward County of Florida, so that’s your Miami and Fort Lauderdale areas. And both of those counties require inspections when the building turns 40 years old. And so the Senate was looking at that. It was… Senator Bradley was kind of pushing that package through the Senate, and they were really looking at kind of making that program not just effective for those local counties but really kind of pushing it all the way through the state, having something similar going along statewide.
The other side, the House, was looking at it kind of from a different perspective, and what the House looked at was, “We don’t need to focus on inspections because the problem with the Surfside condominium with the Champlain Tower South, it wasn’t that they didn’t know that they had issues. Those issues were documented in reserve studies that the condominium had had in engineering reports. There’s all sorts of documentation leading up to the date of the collapse that shows that the condominium board, the association board, the people that were kind of in charge of the maintenance and the upkeep of the condominium, they knew they had problems.
And they were undergoing that 40 year inspection at that time, correct? I think they were right at 40 years old.
That’s correct. Yeah. That building was… It was built in the early ’80s, and we’re talking about the year of 2021. So it was certainly in that process. And so what the House talked about wasn’t the fact that we didn’t know what the problem was. It was the fact that there wasn’t enough money. That the association had not saved up enough money to address the issues that they knew about.
And if you’re not familiar with condominium and homeowner association operations in Florida, there are rules on the books that say that these associations are supposed to save up over time for their future major repairs and replacements. So think about we’re going to need to replace the roof in 10 years, and it’s going to cost us a million dollars, so therefore, we need to save $100,000 a year for the next 10 years so that when the roof needs to be repaired, we’ve got the money there to make those repairs.
A lot of associations in the state of Florida, they exercise their right to waive that funding, so they save relatively little. They don’t save up for the roof repairs that are needed or the painting that is needed. And instead, what they do is they fund that through a mechanism called special assessments at the time when they need the money. So rather than saving up $100,000 a year over 10 years, they get to the point where they need the million dollars to re-roof, and then they collect that million dollars at that point through a special assessment. The problem was, and Chad, you know this. The problem was with respect to Surfside. The amount was such a large amount that when they went to special assess, the people that were in the condominium that owned the units complained that the amount…
Was too high.
… was too much.
See it a lot.
Right. And so, from the House’s perspective, the issue was not that they didn’t understand the problem. The issue was they didn’t have the money to fix the problem at the time when they needed it. And well, we’ve seen the financial statements from the Surfside Association, and I can’t remember exactly. But I think they had determined that they needed to save approximately $850,000 each year to meet their savings goals, if you will, to save up for those future major repairs.
And I think one year they had saved maybe 150, and then in 2021, they had actually budgeted to save nothing that year. Understanding that there are pressures that the people that own those condominiums, some of them may have been on fixed incomes, some of them may not have been able to afford higher assessments. And so there’s real pressures on that.
But one thing too I think we’ve all learned is that waving reserve funding is a recipe for disaster similar to what we saw in this case.
Definitely for sure. So you have those two very different vantage points if you will. The Senate looking at the milestone inspections, the House looking at assessment funding, and funding for those future major repairs. And they could not come to an agreement by the time that the regular session of ’22 had ended, and I believe it was mid-March is when the regular session ended, and they could not reach an agreement. The House and the Senate couldn’t negotiate the Bill to be what they both wanted.
And so it kind of looked like we weren’t going to have any sort of condo reform, even though we had had such a catastrophic event. And then the governor, as he can do, he called a special session of the Florida Legislature in May for a couple of very specific topics. And actually, this topic was one of the ones that was added to the list for that special session that happened in May.
And in the meantime, between the end of the regular session and the start of that special session, the House and the Senate were able to negotiate. The members were able to meet. They were able to negotiate kind of a compromise, if you will. And when it came to the time for the special session of the Florida Legislature to take place, they were able to pass that legislation really, really quickly. In fact, it was passed unanimously in both the House and the Senate, and the governor signed it pretty much right after that.
And so it became effective as a law at that point in May of 2022. It was almost kind of like world record speed to get a Bill through the House and through the Senate and to the governor. And I think it was important to do that. It was important to have a response to the tragedy that occurred. It may not be a perfect response. I’m sure that as we move forward into future legislative sessions, there’ll be tweaks, and there’ll be things that will be fixed like there typically are in legislative sessions.
But really, when the Bill was crafted, when it was passed, it really made two major changes to condominium rules and regulations to the statutes as it relates to condominiums. And those two major changes really kind of reflect the two different viewpoints, the one from the House and the one from the Senate. So from the Senate side, we have this new requirement now to do milestone inspections. They call them milestone inspections for condos throughout the state.
And then the second major change that they have is that now we’ve introduced a new concept called structural integrity reserve studies, and then we have some required funding as it relates to those structural integrity reserve studies. So Chad, tell us a little bit about the first one, the milestone inspections, and kind of what some of that has led to for condos in terms of new regulations and new statutes.
Yes, and I think the biggest challenge with the milestones inspections is, is there enough engineers out there to complete these milestone inspections. And there will be two levels, one light and the other one [inaudible 00:15:18] we say heavy, I guess.
Phase one and phase two.
Phase one and phase two. And so, with the light study, an engineer is required to go out on property and perform visual inspections of the buildings and determine if there’s any potential visible problems. And that level one is crucial that it’s done correctly by a licensed engineer. And if the entity passes that level one, then they don’t have to go to the level two. Is that correct?
But if they spot issues that are potentially behind the walls, then they will move into the phase two, and then an engineer would go in and actually dig core samples into concrete. Actually, it’s more of an intrusive study to be able to determine what’s the extent of the damage, focusing on structural integrity.
I think our biggest challenge will be is there enough people, engineers in the state of Florida to be able to form this milestone studies that’s right by the deadline. And the deadline is…
Well, it depends on how old your building is and how close it is with proximity to the coastline. So all condominium buildings in the state of Florida that are three stories or taller are subject to this requirement. The new milestone inspection requirement. If you are located within three miles of a coastline, and the coastline is defined in the Florida Statutes. If you’re within three miles of the coastline, you have to have that milestone inspection done by the time your building turns 25.
So if you’ve got a building that’s 25 years old and three stories or more in height, then you’re on the hook. If you are outside of three miles from a coastline, then you have until your building turns 30. So you have, it’s 25 years and three stories. If you’re within three miles, it’s 30 years, and three stories if you’re outside of the three miles. And then that milestone inspection has to be redone or updated every 10 years.
And you’re 100% right. There’s like 30,000 condominiums in the state of Florida and 800 structural engineers. And it can be an engineer or a licensed architect that can perform that. But that requirement is coming on board. And if your building is already 25 years old or 30 years old, depending on how close you are, then you have until December 31st of 2024 to have your milestone inspection completed.
And one of the things that’s interesting about that milestone inspection is not only does the condominium have to provide that to its unit owners, positively provide it, they also have to provide that inspection report to the local building authority, either the county or the city or whoever it is that has authority over the building code. They get a copy of that report as well.
And any of those things that you talked about, like the structural damage, anything that gets identified by the engineer, in reality, they have 180 days to fix that. And if they don’t, then the building authorities have a responsibility to take action. And so we’ve seen instances where condominiums have been condemned by local building authorities because they have what are perceived to be significant structural issues.
I think there’s a couple of them in the Daytona Beach area that the last time a hurricane came through, it kind of washed out all the sand from underneath the condominium. And those condominiums, I think there were three or four of them right next to each other. They were all condemned until they fixed the problems because they didn’t want a recurrence of what happened with Champlain Towers. So those milestone inspections are very important. That’s going to be something new going forward.
Many associations are going to have to have that by 12/31 of 2024. And if you’ve got a newer building, you know what your deadline is, either 25 years or 30 years, depending on how close you are to the coastline. And then the second thing that came through really came through from the House side, and that’s the Structural Integrity Reserve Studies. I think some people call them SIRS. Some people call them SIRS. It’s not a department store, so I call it SIRS. But what you have is there are certain components that are integral to the structural integrity of that building.
So things like the roof, the load-bearing walls, the exterior painting to keep the salt water out from decaying the rebar, doors and windows, foundations, things that are part of the structural integrity of that building. The association is now going to have to have a licensed engineer or architect come out and have a reserve study done that’s going to estimate when are they going to have to repair or replace those structural items and how much is that going to cost.
And that has to be done for all associations, three stories or more, again, by 12/31 of 2024. So all associations, three stories or more, are going to have that reserve study in place. And then what comes after that is really what the House wanted, which is starting after 12/31 of ’24. Those associations can no longer vote to waive the funding of those reserves. So the funding of the reserves to repair the roof, to repaint the building, to repair any damage that might occur to walls or floors or foundations, those associations will have to start saving up for that so that at the point when they need the money to make those repairs, in theory, they will have that money.
And so that’s really the other big change is having those associations needing those reserve studies. And then once they have those reserve studies in place, they’re going to have to start funding those amounts… saving up for those future major repairs and replacements.
And I kind of think that’s going to be a shock and awe moment for many associations that have deferred assessments for many, many years. And we see that. Some associations are well-funded. In some associations, year after year after year, they defer crucial maintenance.
And I think the initial studies will start to open up the eyes of many owners. That deferred maintenance is no longer going to be accepted by this Florida State legislators. That association owners and boards will be held accountable to fully fund their reserves going forward.
That’s right. That’s right. And you think about it, there are people who live in those associations who have the mindset of, “I will fund that repair at the time when the repair is needed, but I don’t want to fund it today because what if I don’t own the association unit when it comes time to repair?” And there are a lot of retirees in the state of Florida, and they will say, “I probably won’t even be on this earth when the time comes for those repairs to be made. So why do I need to fund them today?” And that’s been a thought process that’s pretty common across the state.
And I think what the state has said now is, “We’re not going to give you that opportunity. You’re going to have to start setting aside the money.” It is going to be a big increase, I think, in the monthly costs to live in one of those associations. And there’ll be, I’m sure, some weeping and gnashing of teeth as it relates to that because you’ll see significant increases in the cost of ownership. But that’s part of, I think, condominium life is saving up for those future major repairs.
And I do think this will give boards more leverage. I think, sometimes, like in Champlain Towers, everyone knew that they needed to levy a special assessment. It was quite substantial, and they were getting pushback. Even in our own area we have an association that’s made the news that the board wanted to levy a special assessment, and immediately the homeowners wanted to recall the board and say, “No, you can’t do this.” And you’re thinking, “But is this structural integrity type items that need to be fixed?”
So I do think it will be good. It looks like the laws are holding boards more accountable than they ever have before. If they don’t act when they are given information, they have specific timeframes that they will need to act and be held accountable. So hopefully, it sounds like this is going to be a positive change to help prevent us from ever having another collapse like we saw on Surfside.
Right. And I think that’s really the ultimate goal of the Florida Legislature, and everybody involved in the process is 98 people lost their lives that early morning in just a tremendous tragedy. And we don’t have the stomach for another incident like that. And so, what can we do today from a policy standpoint to make sure that something like that really never happens again?
So again, just to give you a real quick recap of these significant changes. The first item is that associations will need these milestone inspections going forward. The deadline is December 31st, 2024, or when your building turns 25 or 30 years old, whichever is later. And those milestone inspection reports will be presented to the unit owners, and they’re going to show what issues could be and what needs to be fixed with your condominium building. So milestone inspections is number one.
And then the second item is the Structural Integrity Reserve Studies, where we’re going to have an engineer come out and assess those structural integrity components. There are nine of them, plus a catchall. And the associations will have to take those reserve studies and fund those without being able to waive funding for those specific critical structural integrity pieces. So with that, Chad, any last words?
No, I think a lot of boards and associations will have a lot of questions in the near future to be able to discuss things like reserve studies and understanding that the reserve studies performed in the past are going to look different going forward in that we may even have multiple reserve studies, some for items that are not structural integrity items such as pools and paving and other items that aren’t specifically relevant to the actual building itself. But we’ll see. We’ll have a lot of questions, potentially even law changes for all we know. We’ll see what the future holds.
Great. Great. Yeah. And so, thanks, Chad, for being with me today. Anybody who’s listening to this, if you have questions, please reach out to CRI. We can help you if we can. And thank you for tuning in to the podcast CRI, It Figures.
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