In June of 2021, a structure in the Surfside Condominium in Palm Beach collapsed, killing 98 people. That tragedy led to a serious look into the maintenance and upkeep laws relating to condominium associations and ultimately led the Florida Legislature to pass new legislation mandating stricter rules. Governor DeSantis signed the bill into law on May 26, 2022. This blog is intended to give a very high-level review of the new requirements and to discuss the implications that the law may have on condominium purchasers, owners, and agents moving forward.
What are the New Requirements?
The new law sets out inspection requirements for condominiums and impacts the manner in which a condominium association is required to maintain reserve accounts. In short, the law now requires condominium associations to perform a first “milestone inspection” of the structural components of the building 30 or 25 years after the Certification of Occupancy is issued for the building (depending on the building’s distance from the coast). After that, it is a requirement for them to get follow-up inspections every ten years. The inspections are required to be performed by licensed engineers or architects, and depending on the outcome of the professional’s visual inspection, more comprehensive testing and inspections may be required. Finally, the association and the local government’s building department receive the professional report. The intention above is to ensure that life-safety issues are caught early and addressed before they become catastrophic.
In conjunction with the new inspection requirements, the legislature has mandated that condominium associations begin to maintain reserve accounts that are sufficient to address any future repairs to major structural items (think: roof, foundation, waterproofing, etc.). Periodic structural integrity inspections are required, and the report that is generated from those inspections is required to recommend an annual reserve amount that is sufficient to meet the future replacement cost of the big items that are inspected. Previously, associations were allowed to “opt-out” of creating and maintaining a reserve account … no more. Associations will now be required to have professionals tell them what big repairs are likely, and will be required to collect sufficient funds to meet those future needs.
The new requirements place additional responsibilities on the boards and officers of condominium associations. If they fail to adhere to the new statutory requirements, they run the risk of breaching the fiduciary duties that they owe to unit owners. In other words, the new requirements are sort of a big deal.
How will the Changes Impact Condo Sales?
- Condominium ownership is about to get more expensive. The periodic inspections require associations to hire professionals to perform them. Expanded liability for officers and directors will likely lead to higher D&O premiums. Reserve funding requirements will cause many associations to increase their periodic assessments. For some associations, those expenses may be significant.
- Buyers looking to purchase a unit that is a stretch for their budget may need to reconsider. They cannot rely on historic assessment amounts as an accurate gauge of what will be owed in the future. The new law will certainly impose more expense on unit owners, and what that price increase will look like remains to be seen. In any case, prudent buyers will build more cushion into their budget for association expenses until this law shakes out a bit.
- As inspections are performed, it is inevitable that owners will discover negative information about the condition of condominium structures. That information must be provided to potential buyers to avoid “failure to disclose” claims. This applies to agents also: if you are made aware of information in an inspection that negatively impacts the value of a unit, you are obligated to ensure that information is disclosed to buyers.
The above summary is not meant to be an exhaustive run-down of the intricacies of the new law. Condominium association boards must consult with their counsel to learn the intricacies of the new requirements in detail. For agents, be aware that condo fees are likely to rise in the future (and that may have some impact on your buyers in terms of planning), and that it will become more likely in the future that owners will become aware of negative information that they have a duty to disclose.
Contact your local attorney if you have any questions about the new legislation.
Dan Guarnieri is a partner at Berlin Patten Ebling. He has a broad range of civil experience, including complex commercial litigation, real property disputes, contract disputes, commercial collections, commercial foreclosures, local government representation, construction litigation, and maritime litigation.