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Between a Rock and a Hard Place: Condominiums with Substantial Structural Deterioration

Kevin M. Koushel

For five months now, Florida condominiums with buildings that are three stories or higher have been on notice of F.S. §553.899, a new statute adopted within Senate Bill 4-D (“S.B. 4-D”) that requires periodic milestone inspections. This controversial legislation was enacted in response to the tragic collapse of Champlain Towers South in Surfside, Florida. The premise is that once a condominium reaches a certain age, a licensed engineer or architect will need to perform a milestone inspection of a qualifying building to determine if there is any substantial structural deterioration.

F.S. §553.899(2)(b) defines substantial structural deterioration as:

[S]ubstantial structural distress that negatively affects a building’s general structural condition and integrity. The term does not include surface imperfections such as cracks, distortion, sagging, deflections, misalignment, signs of leakage, or peeling of finishes unless the licensed engineer or architect performing the…inspection determines that such surface imperfections are a sign of substantial structural deterioration.

The milestone inspection consists of two phases. Phase one is a visual examination of the habitable and non-habitable areas of a building, including the major structural components. If the inspector finds substantial structural deterioration, a phase two inspection is required. Phase two may involve destructive or non-destructive testing, and the findings may lead to expensive remediation work. Either way, after each phase, the engineer or architect must prepare and submit an inspection report to the condominium association and the local government with jurisdiction, and the report must:

  • Indicate the manner and type of inspection forming the basis for the inspection report;
  • Identify any substantial structural deterioration, within a reasonable professional probability based on the scope of the inspection, describe the extent of such deterioration, and identify any recommended repairs for such deterioration;
  • State whether unsafe or dangerous conditions, as those terms are defined in the Florida Building Code, were observed;
  • Recommend any remedial or preventative repair for any items that are damaged but are not substantial structural deterioration; and
  • Identify and describe any items requiring further inspection.  

Making expensive repairs, however, may not be a realistic option for many condominiums with substantial structural deterioration. Further exacerbating this financial burden is that, beginning in 2025, unit owners can no longer waive reserves for certain building components. Even condominium associations with reserves on hand may still need to levy special assessments to make up for previously unfunded reserves and those now required by the new legislation—presuming the existing reserves are not fully funded and do no cover the items for which reserves are now mandatory. 

Until the recent legislation, the Florida Condominium Act (and most condominium declarations) allowed unit owners to waive reserves, which was often exercised to keep condominium assessments as low as possible. The risk associated with this practice was illustrated by Champlain Towers South when it needed $15 million worth of repairs but had less than $1 million in reserves. This precarious situation puts condominium unit owners between a rock and a hard place. Should they pay massive special assessments (i.e., to make the repairs and fund reserves) knowing it is unlikely to increase the value of their units? Or should they terminate the condominium to try and capture the value of the land, resulting in the loss of their units entirely? 

For older condominiums built at a low density or located in highly desirable areas, the land may be more valuable than the building itself. In this case, terminating the condominium and selling out to a redeveloper could result in unit sale prices way above market value. For older condominiums located in less desirable areas, however, termination may be the lesser of two evils. Otherwise, these unit owners will not only face insurmountable repair and reserve costs, but also their associations may struggle to comply with the new regulations. 

At this point, it is unclear whether the legislature will intervene before the first milestone inspection deadline on December 31, 2024. There are discussions of a potential glitch bill to fix technical issues with S.B. 4-D, [1] but the consensus is that its underlying substance is here to stay, including the milestone inspection and reserve requirements. The corresponding and additional economic burdens placed on existing aging condominiums is thus likely to result in more terminations as many unit owners simply will have no better alternative.

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[1] For example, the milestone inspection deadline already passed for some condominiums per F.S. §§553.899(3)-(4).

 

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