Sunday, August 14, 2022

The Clock is Ticking

Condo owners take notice. The first deadline required by the new Florida condo legislation is less than five months away on Jan. 1, 2023. Condo associations with buildings of three stories or more must file a report with the State by the end of this year. This new mandatory report is simple and can be done online. The registration form can be found here. The required information on the form is listed below.

718.501(3)(a), F.S./Senate Bill SB4D requires all condominium and cooperative associations with buildings 3 stories or higher to report the following information to the Division of Florida Condominium, Timeshares and Mobile Homes on or before January 1, 2023.

  • The number of buildings on the condominium property that are three (3) stories or higher in height.
  • The total number of units in all such buildings
  • The addresses of all such buildings.
  • The counties in which all such buildings are located.

The next deadline for the association is Jan. 1, 2024 by which time the milestone inspection and structural integrity reserve study must be completed. Considering that there are a limited number of engineers and architects who can perform the milestone structural study, it would be prudent for associations to be making steps now to arrange and schedule the inspections. Once inspections have been done, a structural integrity reserve study must be done. The amount being contributed to the structural integrity reserves can't be an arbitrary amount as many associations in our area do for the traditional reserves but must be 100% of the estimated repair costs by the time of the expected repairs. This reserve study will best be done by a specialist in reserve studies.

Compliance is mandatory and, as specifically spelled out in the Statute, Board members may be considered to have violated their fiduciary duty if the association does not comply. I have heard an opinion from a Florida condo association attorney that condos whose by-laws limit fee increases above a certain amount or percentage will likely not be protected should they use this as an excuse to not raise the fees enough to fully fund the structural integrity reserves. The same attorney opined that, as written, the law might be interpreted to include buildings of less than three stories to be required to maintain 100% funded structural reserves even though they are not required to do a milestone inspection or structural reserve study. The law as written is hazy but it would be prudent for owners in buildings less than three stories to consider beginning to reserve for upcoming concrete and other structural maintenance. The days of shoestring monthly fees offset by big special assessments for repairs not included in the budget are coming to an end. It is the new paradigm for Florida condos and the bottom line is that by 2025, monthly fees should be closer to what is actually needed to maintain a condo building. I'll repeat what I've been saying for a while now, condo fees are going up and in many cases are going up substantially. 

Sellers of condo units are going to be required to furnish copies of the milestone inspections and structural integrity reserve study to buyers or, in lieu of, written notice that the association has not done them yet. I think it's reasonable to expect the new transparency about condition and higher fees to cool demand for condos. A substantial pull-back from current prices to reflect the increased carrying costs of condos would be a rational response to the new reality. Sellers who wait until the reserve study quantifies the additional reserve amounts will have waited too long. Anyone thinking of selling would be well-advised to consider doing it prior to the reserve study.

Buyers should pay close attention to the financials of condos they are considering and since none have done their newly required inspections and reserve studies yet, the physical appearance and condition of the building. New buyers of condos should expect today's fees, whatever they may be, to increase by the Jan. 1, 2025 deadline. There is no reason to be surprised by a big increase in fees by then. It's coming and just a matter of time.

"If we want something enough, our tolerance for risk goes up fast. When it’s midnight at the airport, you’ve been on the road for a week, and the line for licensed taxis home is 40 minutes long, the driver hanging around baggage claim looks increasingly trustworthy. Desire offers rationalizations instead of rationality:" __Prof Galloway

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