The New Condo Rules. Consequential legislation in effect

Introduction

Years before the Governator had a fling with the ex-housekeeper, some of the Kennedy ethos must have rubbed off on Arnold. Ask not what your country can do for you, fill the Pothole in your own neighborhood!  Not sure if Arnold was smoking Pot (he advocated to make legal in California as Gov), when he decided to take a Pot and fill in a Pothole, but it went viral.  JFK would be proud.  Who knows?  Maybe this will spur Maria to forgive him, and all will be well in Camelot.

Government and politics don’t often get things right. However, this is one time the Florida legislature is getting something correct.  If you are purchasing a condo, live in one, selling one, know someone living in one… you need to know what these changes are.  Some of this will also have spillover effects on demand in the single family home market as well. The reading is dry but it’s important and I will go over it in detail. 

I wrote a blog in December titled  Condo Chaos or Condo Calm.  That article was very timely for what is occurring on the new condo riders that I will go over below. Please reread it for strategies if you are in the market for a condo. One of the other key points of that article, keep in mind that possible assessments coming on condo buildings as a result of the studies, were going to occur anyways.  If a roof is 20 years old on a single-family home or a condo, it has limited time left. Rather than a condominium special assessing it out of the blue, you will now know in advance.  In many respects nothing cost wise in condominiums will change at all. The condo buyer will really have a much better sense of future costs just like a single family homeowner does after doing their home inspection.

The Florida condominium riders being revised is the single biggest change I’ve seen since I’ve been in the business.  On a short-term basis there will be more that Buyers and Sellers need to be aware of. Sellers and Realtors representing Sellers need to be on the ball to get information.  Buyers and agents for Buyers need to know what to put in contracts, what to ask for, and what to look out for.  The changes are basically a result of what occurred in Surfside.  Building collapses have occurred before.  The New Orleans Hard Rock, Chicago Balcony collapse, L’Ambiance Plaza in Bridgeport, and the Knickerbocker Hotel in Washington DC to name a few. Government regulation has its place whether for trains, planes, food, or building structures.

In essence, every building 3 stories and up and 25 years and older will need to get a Milestone study and structural integrity reserve study done by a licensed Florida structural engineer or licensed Florida architect if within 3 miles of the coastline. 30 years if farther out.  In addition, condos will have to have this repeated every 10 years thereafter. Then each building will also have to have its reserves examined to make sure they’re sufficient.  The end buyer is entitled to receive these. 

This will now give the Buyer something they’ve never had which is complete transparency on a building. In some regards not much should change cost-wise as buildings have always had to special assess for roofs, balcony, or elevator costs. However, now they must be organized about it and transparent about it.  The buyer will now know exactly what they are purchasing, and be able to know future costs with more certainty. In addition, more buildings come 2025 (when all buildings have to be in compliance with the studies) should be much more eligible for mortgage programs.  My guess is we will see lots of price jumps come at that time. 

There are tons of items buyers must be aware of regarding what to ask for in contracts, and to be aware of regarding timelines.  Most of the studies have not begun yet.  There will also be moving targets as we think that legislation is going to change a few times through 2024.

From the Florida Realtor Association….  Florida Realtors’ Riders Being Revised

The condominium and cooperative riders were updated on March 20 due to changes in law. The revisions are limited and address new documents that buyers of certain condominiums and cooperatives are entitled to receive from sellers.  See the Redline version below. ORLANDO, Fla. – Following the Surfside condominium tragedy, the Florida Legislature passed new laws overseeing condominium and cooperative safety, including standards for inspections and reserve studies. Part of that overall plan includes new documents some buyers are entitled to receive from sellers.

Redline version:

What’s changing?

At this time, changes took place on March 20, 2023. Documents changing include:

• Rider A. Condominium Rider to Florida Realtors/Florida Bar Residential Contract for Sale and Purchase (and its AS IS companion)
• Addendum F. Condominium Association to Contract for Residential Sale and Purchase (CRSP)
• Addendum to Contract for Sale and Purchase of Cooperative

The language in all forms noted above will be the same, with the cooperative statutory citations being the only difference. The language informs buyers that they now have access to two new documents.

1. The first is the inspector-prepared summary of Milestone Inspection of the condominium or cooperative.
2. The second is a structural integrity reserve study or a statement that the study has not been completed.

Important note: Not all sellers will be required to provide these documents to buyers because a) the law (referenced in the revisions) only applies to certain associations, and b) if the seller’s association has not yet obtained the inspection and/or study, they still have 23 months to do so.  

What is a ‘Milestone Inspection’ and a “structural integrity reserve study”?

• Milestone Inspection: It’s a structural inspection conducted for life safety purposes. Generally, the requirement for associations to obtain a milestone inspection applies to condominium and cooperative buildings three stories or higher which have been occupied 30 years or more or, if located within three miles of Florida’s coastline, occupied 25 years or more.
• Structural integrity reserve study: It’s a study of reserve funds required for future major repairs and replacement of the common areas which must be conducted for condo and cooperative association buildings that are three stories or higher.

(Read on for more detailed information on these.)  

Are other forms being created or updated?

Florida Realtors will create a new disclosure form to reference these latest changes to the law. Additionally, a section will be added to the existing Seller’s Property Disclosure-Condominiums (SPDC) which address these changes. What’s changing?

• Rider A. Condominium Rider to Florida Realtors/Florida Bar Residential Contract For Sale and Purchase (and its AS IS companion)
• Addendum F. Condominium Association to Contract For Residential Sale and Purchase (CRSP)
• Addendum to Contract for Sale and Purchase of Cooperative (COOP-2)

Why? On June 24, 2021, Champlain Towers South, a 12-story beachfront condominium in the Miami suburb of Surfside partially collapsed, causing the death of 98 people. In response to this tragedy, Florida’s Legislature changed our condo and coop laws, and amended the Florida building code for condo structural inspections. The revisions were authorized by the Realtor Attorney Committee and resulted in the requirement of these 2 new documents that buyers of resale condos may be entitled to.  The documents relate to building safety & reserve funding for repairs and replacements of common areas.  

The Law

718.503 Developer disclosure prior to sale; non-developer unit owner disclosure prior to sale; voidability. (2) NONDEVELOPER DISCLOSURE.— (a) Each unit owner who is not a developer as defined by this chapter must comply with this subsection before the sale of his or her unit. Each prospective purchaser who has entered into a contract for the purchase of a condominium unit is entitled, at the seller’s expense, to a current copy of all of the following:

1. The declaration of condominium.
2. Articles of incorporation of the association.
3. Bylaws and rules of the association.
4. Financial information required by s. 718.111.
5. A copy of the inspector-prepared summary of the milestone inspection report as described in ss. 553.899 and 718.301(4)(p), if applicable.
6. The association’s most recent structural integrity reserve study or a statement that the association has not completed a structural integrity reserve study.
7. The document entitled “Frequently Asked Questions and Answers” required by s. 718.504.

To Put it Simply:

Some condo associations are now required to obtain 2 new reports by 12/31/24 at the latest:

Milestone Inspection Report – Report about the adequacy of structural components of a condo building for life safety purposes.

Structural Integrity Reserve Study (SIRS) – Study of reserve funds required for future major repairs and replacement of the common areas of a condo.

• • Because buyers of certain condos are entitled to these reports, Rider A was revised to facilitate this.
  • Buyers of some condos are entitled, after entering into a contract, to a summary of the milestone inspection report; and a copy of SIRS – if those reports exist. If SIRS has not been completed, buyer is entitled to such a statement.

Milestone Inspection

What is it?

On May 26, 2022, Florida Governor Ron DeSantis signed Senate Bill SB 4-D: Building Safety. This statute states that all condominium or cooperative buildings that are 25 or 30 years of age, with three or more floors in height must conduct structural integrity assessments known as Milestone Inspections. All Phase One Milestone Inspections must be filed with the local building departments by the end of 2024. Milestone Inspection Report – Visual inspection by a Florida engineer or architect of the habitable and non-habitable areas of the building. Associations must arrange for the inspection and absorb the cost. There are 2 Phases

• Phase 1- mandatory visual inspection for life safety and adequacy of structural components of a condominium building.
• Phase 2- if substantial deterioration is noted in Phase 1, further testing (including possibly destructive testing) must be conducted, and recommendations made to repair damaged portions.

The inspector is to provide a copy of the milestone inspection report and a Summary to the Association and to the building official with jurisdiction over the condo. So, does the whole report need to be given to the Buyer?  No – the law requires ONLY the Summary to be provided which will contain material findings & recommendations of the report.  

Who needs one?

The Legislature’s focus was on older buildings, that are 3 or more stories in height. “…Legislature finds the imposition of a statewide structural inspection program for aging condo and coop buildings is necessary to ensure such buildings are safe for continued use.”

Associations required to obtain a Milestone Inspection:

• For each building 3 stories or more in height AND
• If the building is either 30 years of age or more or building is 25 years of age or more and located within 3 miles of the coastline.
• When: By 12/31/2024 except if the association is noticed by local enforcement agency requiring an inspection, then 180 days from receipt of written notice.

***Note that some buyers will not be entitled to the Summary if the building either does not fit the above criteria or the time for the association to have the inspection performed has not passed. ***  

SIRS Integrity structural Reserve Study

What it is and who needs one.

A Structural Integrity Reserve Study (SIRS) is a newly developed form of reserve study, required by Florida Senate Bill SB-4D, that is designed to ensure that Condo Owners Associations are reserving funds for the long-term maintenance and necessary replacement of critical structural elements in their buildings. This act is similar in many ways to other standards including the Miami-Dade 40-year recertification that has been mandatory in S. Florida for many years. SB-4D however adds teeth to the rule and enforces early funding and enforcement attributes while also taking the law statewide. Study of reserve funds required for future major repairs and replacement of common areas (visual part performed by engineer or architect).

What’s covered?

Roof, primary structural items, load bearing walls, floor, foundation, plumbing, electrical, fireproofing, waterproofing, windows, and items where the deferred maintenance expense exceeds $10,000.00. The study also includes the estimated remaining useful life and the estimated replacement cost or deferred maintenance expense of the common areas being visually inspected. It provides a recommended annual reserve amount.

What does the buyer get?

Buyer is entitled to a copy of the SIRS if:

• The association is required to complete a SIRS and has completed one.
• If not completed, then Buyer is entitled to a statement that the association has not completed the SIRS.

Note that this is different from the Summary of Milestone Inspection in that either an actual report or a statement of nonexistence is required. Associations required to obtain a SIRS: (1) Those existing on or before July 1, 2022, which are unit owner controlled in buildings which are 3+ stories (2) Developer turnover requirement, if  applicable.

DEADLINE – 12/31/2024  

Buyer Entitlement Recap

• Summary of Milestone Inspection
• If association is required to obtain the inspection and has received the Summary – Buyer gets the Summary.
• If association is required to obtain the inspection but has not yet received the Summary – Buyer gets nothing.
• Structural Integrity Reserve Study
• If association is required to complete a SIRS and has done so – Buyer gets SIRS
• If association is required to complete a SIRS but hasn’t – Buyer gets Statement from Seller

Penalties for Non-Compliance

• • If association fails to complete a SIRS such failure is a breach of an officer’s and director’s fiduciary relationship to the unit owners.
  • If officers and directors of an association willfully and knowingly fail to have a Milestone Inspection performed, such failure is a breach of the officer’s and director’s fiduciary relationship to the unit owners.
  • CAM’s also have responsibility related to obtaining the reports.
  • HOWEVER – the current statute is SILENT as to consequences for parties if the Buyer does not receive the SIRS / Statement or the Summary. 

Summary Thoughts

• Due to the newness of these laws, we are not likely to find many reports out there yet.
• Experts predict that between now and 12/31/2024, we are likely going to see special assessments being levied by associations that realize that they have maintenance concerns or reserve shortfalls.
• Expect possible monthly, quarterly, and maintenance assessments to go up if there wasn’t reserves or if the building has repairs.  Some increase in costs can be due to insurance increasing which is happening in the single family home market as well.
• How is this going to affect the condo market? My analysis is that in the short term it will result in a lot of work on the condo associations and buildings.  Some buyers will wait until all the studies and reserves are in before doing anything.  This will result in some short term good buys for condos that don’t have lots of reserves.  Come 2025, I see a frenzy of activity in the condo market that could result in a jump in prices. On the Sell side, Sellers need to get as much as information upfront for Buyers. On the Buy side, Buyers can try to negotiate holdbacks if appropriate to protect themselves for any special assessments that will come out of the studies.

 Jeff Lichtenstein, originally from Chicago, got his start in the home furnishings textile business where he traveled over 35 weeks a year selling fabrics. After the family business was sold, Jeff moved to Florida and became a real estate agent. Today he is the owner and broker of Echo Fine Properties, a luxury residential brokerage voted best brokerage of the year. Jeff manages a non-traditional model of real estate that mimics a traditional business model. Echo has 80 agents, an average of one million dollars per transaction and over 500 million in annual sales. Between traveling for work and annual family trips to national parks with his wife and 2 now adult children, Jeff has visited 49 states. He is also one of the few Chicago White Sox fans you’ll ever meet.  Some publications he has been quoted in.

Feel free to ask him a question directly at [email protected] including a complementary  valuation of your home.