Even if expensive, by statute necessary repairs cannot be avoided for aging condominium buildings. Allowing the buildings to deteriorate could constitute a material alteration for which a unit owner could take issue. Termination is a cumbersome process, but should it be considered for aging condo properties? Does repairing the buildings no longer make economic sense? Learn what alternatives associations have when faced with aging buildings…Repair or Abandon?
Our topic today is Aging Condo Buildings – Repair or Abandon. We've all been affected by the horrendous circumstances that occurred in Surfside. We actually had planned to give this presentation weeks in advance of what occurred in Surfside. It pointed out some of the issues surrounding this whole thing of condominium repair, obviously in the most drastic way imaginable. We all feel for the people who perished, the families in that terrible tragedy.
From somebody ... And our firm is involved in construction defects and consulting on major repairs of condominiums and homeowner association buildings. I've been working in this field for over four decades, and what occurred in Surfside, from my perspective, was inevitable that at some point there was going to be a collapse and there was going to be loss of life because we're certainly aware that there are a number of buildings, mostly along the coast that have been deteriorating from the environment.
Adequate repairs, investigations have not been undertaken. You have the issues of infighting among board members, owners and boards not being able to agree on repairs and paying for repairs. Unfortunately, in Florida you have the whole issue of reserves. As everybody familiar with the Condominium Act knows, every year a board of directors is obligated to prepare a budget that includes fully funded reserves for all building repair items greater than $10,000.
Then the owners can vote at a meeting to waive those reserves or to agree in decreasing the reserves. Unfortunately, what boards have done time after time is they've accepted that owner vote and reserves have either been waived or decreased. You end up with buildings that need massive repairs and the funds are not there to undertake them. Then the ability of associations then to assess their owners sometimes into the six figures to do major repairs creates a great difficulty.
If you haven't maintained the buildings, adequate reserves have not been funded, you end up with a problem many years on, which is a substantial cost of repair, a great difficulty in a board being able to pass a special assessment [inaudible 00:03:53], a lot of resistance from the owners and sometimes board members and you end up with a tragedy as what occurred in Surfside. You got a substantial cost, you got lack of adequate reserves, but there is a decision to be made.
It's a decision that eventually every condominium in Florida is going to have to make, which is when is the cost of repair so excessive that the actual termination of the condominium should be considered? I use the example of a condominium in Tampa that we represented. They were down maybe a little bit north of [inaudible 00:04:44] Stadium and the owners needed to be assessed about $30,000 each to do repairs, but the land was very valuable.
If the property was sold, every unit owner would have been able to realize $300,000 from the sale of the property upon termination. The question for that association was, do we go through the process of assessing our 54 owners, $30,000 each to do these repairs on these aging buildings, or do we move to terminate the condominium, put the property on the open market, sell it?
Rather than every owner being required to come up with $30,000 to repair the property, in theory they would each get a very sizable six-figure check, but then of course have to find someplace to live other than where they did. That's what the topic that we're going to cover today is, do massive repairs or do we consider termination, and what are the complications of each?
I'm going to invite my partner, Jon Lemole, to talk about what is the statutory of documentary duty of condominium associations to repair their buildings?
Got it. Thank you, Alan. We're going to start with some basics, which will then segue us into the more meaty part of this discussion about the problem of aging condo buildings, but we've got to start somewhere. I expect that most of you on this discussion today are probably come from someplace other than Florida, may have experience owning a single-family home somewhere up in the Midwest or the Northeast or wherever y'all came from initially.
Think about a situation where you own a home. One of the primary responsibilities of home ownership is to take care of your home. It's a big investment, and so we're probably all familiar with things like replacing roofs and painting our homes and replacing siding or clapboard or stucco, if you had stucco up north somewhere.
Those are all the things that homeowners are well aware of, the types of repair and maintenance things that you do to keep your home secure, safe, water-tight, structurally-sound. When you buy a condominium, you're in a type of ownership which doesn't give you complete control over the place that you live. You can maintain certain things within your unit, but you rely upon some other folks and an association in particular to take care of the things that you can't take care of.
The law in Florida, as well as perhaps your documents, your declarations, but let's start with the statute, the statute imposes a very heavy burden on an association and its board, a fiduciary obligation on the board members, to look after the best interests of the property, the common elements that every unit owner owns a share of, but doesn't have the ability to take care of directly. Where do we find that obligation?
Well, we start with the statute. I'm going to share my here so we can all look at some statutory language. For a condominium, we start with Florida Statute, Section 718.113. That's the essential burden on an association where we find the burden of the maintenance of the common elements. You'll see I've highlighted in sub-section one there that the maintenance of the common elements is the responsibility of the association.
That's pretty clear language. The association can't work around that. There's no exception. There's no misunderstanding, no ambiguity there. The association has to maintain the common elements of the condominium. Now, the declaration may include some additional things and some additional burdens and so you always have to consider what the declaration say in addition to that.
But at the very minimum, you've got a statutory prerequisite, a command, an unambiguous command on the association to maintain the common elements. It's very important that each of you, if you're on a board or you're a manager, you're aware of this particular section, you understand what the common elements are, typically building exteriors, roofs, maybe balconies or certain portions of balconies.
There are certain areas that are going to be common elements and that are going to fall within this statutory obligation. There may be other things that are imposed by your declarations and so it's very important that you understand what those declarations are as well, and what the responsibilities of the association are. It's interesting.
I want to jump down here to Section 2A, because you're probably all familiar with the differentiation between maintenance and repair, and then the other section of the statute material alteration. Why that distinction is interesting is because a lot of you probably recognize that the association always having the responsibility to maintain and repair the common elements, doesn't typically need membership approval to do that.
Board can take on that obligation on its own and create assessments to fund that work. You're probably all aware of Section 2A which requires that if you're going to make a material alteration or substantial addition to the common elements or to association property, it has to be done in a manner that's set out in the declaration. The declaration may provide some directives about votes of the membership, what percentage of the membership vote is required.
In fact, in the statute, it gives you a baseline. If the declarations don't provide some method for determining what sort of membership approval is required for material alterations, then the statute provides a baseline of 75% of the total voting interest. Here's where this is interesting. I think many of you may have heard of a case on Longboat Key. It was called the Colony case, is a long and tortured history of a condominium, actually a hotel condominium, that eventually fell into disrepair.
There was a tremendous amount of litigation around that. Eventually it's been demolished and the condominium was involuntarily terminated, and is now being developed by a big real estate developer. One of the things that's interesting about that whole saga is that there was actually a decision in the bankruptcy court and one of the earlier litigations involving the Colony case, where you have a judge ... And this is law in Florida.
You have a judge that said that by allowing the condominium to fall into such significant disrepair and by overlooking its repair and maintenance obligations to such a degree, that the condominium essentially became unrepairable, that that was a material alteration. Therefore, by allowing that to happen without a vote of members, that exposed the board and the association to significant exposure and significant liability.
The association there had to pay a heavy price for that. Let's talk about what happens when the association doesn't perform its maintenance and repair obligations. Let's just jump down to Section 718.303, and a lot of you know this. I've highlighted the relevant language here, that actions for damages or for injunctive relief, injunctive relief being an order by the court for an association to do something, or both, for failure to comply with the provision to maintain and repair may be brought by the association.
Let's talk about what the unit owner can do. A unit owner can bring a claim for damages or injunctive relief against the association. In other words, a unit owner can compel the association to do what it's supposed to do under the statute and to maintain and repair the common elements. If the association doesn't do that or is found to be liable for not doing that, the unit owner prevails, then the prevailing party ... And I'm here in the red.
The prevailing party in any such action is entitled to recover reasonable attorney's fees. There's a case that was recently decided, I'll tell you it's a homeowner's association case, but the statute for the homeowner's association is very similar to the condo association. It's called Gonzalez vs. Coconut Key Homeowner's Association. Recent. A couple of years ago, appellate decision. In that case, a lot owner brought in a claim for damages and for an injunction against the association for failing to maintain a drainage swale.Now, here's the interesting thing about that case. The owner was not able to prove that the failure to maintain the drainage swale caused her lot to be damaged, but she did prove that the association was not maintaining the drainage swale. As a result of that, the court issued an injunction and told the association, "You need to maintain the drainage swale." And awarded the homeowner, the lot owner, the attorney's fees for bringing that action.
Even though the association didn't have to pay damages, they had to pay quite a bit in attorney's fees based upon that action. A unit owner prevailing ... Let's look at the green. A unit owner prevailing in an action between the association and the unit owner under this section, in addition to recovering his or her reasonable attorney's fees, may also recover additional amounts as determined by the court to be necessary to reimburse the unit owner for his or her share of assessments levied by the association to fund its expense of the litigation.
Takeaway there is, if a unit owner sues the association for failing to maintain and repair, and the association passes on an assessment to defend that litigation, the unit owner, if they prevail, is going to get basically credited back for those assessments. Let me end my screen share here for a second.
Jon, just to make it clear, even though 718.303 talks about individual board member liability, there's other sections of the Condominium Act which really strictly limit potential board exposure. To use the example of the Surfside situation, I think that the association under its liability policy is going to have significant exposure under that policy against unit owner claims for their losses, including loss of life and so forth.
It's very questionable whether an action against the individual board members of that condominium association would be successful because the board members were acting on engineering reports. They had actually assessed the owners to undertake the repairs, would be very difficult to prove a breach of fiduciary duty on their part and expose themselves to personal liability. I wanted to say that before any of the board members who may be on this call are saying, "Gee, with that statute, I ought to get off the board."
Because another section of the statute strictly constricts the exposure of individual board members. Frankly, unless you're stealing from your association or giving sweetheart contracts to your brother-in-law or using your power in any kind of vindictive way, mere failure to assure that the association undertakes repairs probably does not open up an individual board member to liability.
The association might have significant liability, but not necessarily a board member. Jon, did you conclude your section? I don't know if you had anything else to add.
That was basically it. Now we understand what the obligation on the association is. We're going to probably take a look here what happens when the association doesn't perform or meet its obligations in a reasonable way. I'm done with the initial primer on association obligation to maintain and repair.
Okay. Thank you, Alan. I've been allocated about 10 minutes for this. I could go on forever, but let me just touch on some of the basic parts of this. As a result of what's happened in Miami with the collapse of this condominium, I've received a lot of calls. I'm sure Alan has and Jon has, from associations concerned about the structural integrity of the building, rightfully so.
Today it may not be an issue for many of them, but as a result, especially with those that have turned over and we have investigations, over time, if these issues aren't addressed, they can become problems. That's what we do. We represent associations to inspect, analyze, address these construction defect issues so that they can be remedied.
With regard to the insurance, for the managers out there, I'm sure that the majority of you, if not all of you, handle the insurance policies, obtaining them, renewing them. You will be receiving the applications. Those applications have various questions on them. Usually, the applications are provided to the manager from the agent that you're getting the insurance from. My advice is read it, read every question because they fill in what they believe to be the factual situation.
Many policies, if there's a misstatement or an untruth or something that was known that was not disclosed in the application, that would be a cost for the insurance company not to insure. I've seen it. I've represented associations where the application stated that a policy was never canceled a revoked. That was not the case. The owners did not fill out that application, the agent did, but they signed it.
They took advice from the agency. They've signed it and ultimately a collapse claim was in jeopardy because of that application. The policy renewal disclosures, those are important. If you don't know the condition, that may not be enough. If you do not investigate it, sometimes the insurance companies will. The insurance companies will come out there, send someone out there. You may know it. You may not.
They may come out and do an investigation and the next thing you know is you get a letter stating that, "We are canceling your insurance because of the condition of your building, or we are canceling your insurance for this other reason, or we are not renewing your insurance." How many of the managers out there have gotten a notice from their insurance company that says, "We won't be renewing your policy unless the stucco cracks are filled and the buildings are painted."
That is one thing that you need to be aware of, that sometimes stucco cracks are not just the drying cracks of stucco over time. Sometimes if you find yourself with uncontrolled stucco cracks, significantly large stucco cracks, these are things you should be investigating. You should be calling in somebody to say, "Let's investigate this." Especially if you're a building under 10 years old, you really want to investigate it.
Or if it's been a repair job that's under 10 years old, you really want to investigate it because you may have a claim against the contractors or the developers, whoever did that work, that may be resulting in a construction defect. The other thing you want to do is you want to look at your policies. Just don't accept the fact that you have a policy and it covers things.
I've seen problems with policies, from those that cover the contractors to those that cover the associations. You want to look at where's the venue? Where is it that I need to address this issue if there's a problem? Some of you have larger associations and you have a Lloyd's of London policy. You might want to read it because it probably calls for these issues if they have to be litigated to be addressed under New York law, in New York.
There's a difference between what New York would require and what Florida would require for example. What is the obligation in that insurance policy? When it comes to the condition of the buildings and what you're insuring and what may or may not be covered, you want to look at those things. The other issue with policies and not addressing the conditions of the building is that if you do have a claim, you will submit it to your insurance company.
They aren't always out there just to pay these claims. They're going to look at their policy very thoroughly, and they're going to send you what may be a reservation of rights letter. They're going to tell you what they cover, but 90% of the policy is what they don't cover. A lot of times they don't cover faulty workmanship, material, construction, installation. I'm reading from a reservation of rights letter. They don't cover from various subs.
They don't cover deterioration, depletion, rust, corrosion, wet or dry rock. Now, they may cover that if it's hidden. There are exclusions and then there are exceptions to the exclusion. Certain weather events they may not cover. It's important that you read those policies, because what will happen is you'll put in your claim and you're going to get a letter back saying it's denied.
I'm going to share for you with these older buildings you really need to sometimes take a look at what's out there and see. For example, you can see ... I'm assuming ... Jon, tell me if I'm wrong, but you're looking at a picture of a balcony out there. Is that what you see?
You're looking at a balcony out there and next, this is a stack condominium. This one is an older building. These balconies look to be in okay condition. I mean, but what's going to happen is ... Let me see if I can get there. Let's see, where did it go? Why is it not moving? Are you seeing ... Nothing changing. Why is this happening? Okay. In that area there, you're seeing that there is an area of the balcony that we're going to concentrate on here.
Here we go. This area of the balcony that you see shows a hole in the structure, the ceiling above the balcony. Here's a closer look at it. What you're going to find is this is the condition under there. This is what's holding these things up. You're seeing the structural steel that is supposed to be holding this balcony up, that it's not even there. This is what you have with regard to those ... Stop the share here. With regard to the conditions.
It's not just enough to paint the buildings. It's not enough to just look at these buildings. No. At the time of construction of this building, it's important to have an engineering study because what may be disclosed in the engineering study is that there are defects in the construction that are going to allow water intrusion. These are covered areas, the structural steel. There's no reason they should be rusting like that.
It's important with any new building to look at that, because over time, what is sold to you as a beautiful, nice project with a beautiful clubhouse area and pool is something that underneath you're not seeing what the issues are. Unlike a person, when you're having problems inside your body you might feel pain, the people in Miami know that they aren't feeling any pain until it's too late.
That's important. It's important to address the buildings, have them inspected, be proactive about that. I will end that part of it with that.
The question was asked about the policy defenses in the Surfside situation. Those policies will have an exclusion for long-term construction defects, so I'm sure the insurer will defend the case based upon the fact that this was not a spontaneous occurrence. This was a result of long-term deterioration of the building, and therefore not covered under the policy. They probably would also establish a defense that the association making application failed to disclose these engineering reports that they had.
Again, the practicality is knowing that that case is going to end up in front of a circuit judge in Dade County, who is not going to give the insurance company a summary judgment, and might eventually end up in front of a Dade County jury. I'm very sure that that case is going to end up settling, even though the insurer on its face, may have some valid defenses. Before I get into termination, there's a few questions that have come by.
Louise has asked, "What if the board tries to address issues, hold votes, but only 74% of the owners approve, can the owners who vote to sabotage the actions be held responsible in some way?" Usually, a owner vote is not required to undertake maintenance and repair obligations and pass a special assessment for the undertaking of those. I don't know what vote that you're talking about. The way a repair worked is the board gets the investigation done, maybe it gets a determination from an engineer as to what repairs are necessary.
The owners need to be noticed at any meeting where a special assessment is going to be considered, but other than have a say at the meeting, it's actually up to the board to vote on passing that special assessment. The owners under most condominium documents should not be able to block the board going through with necessary repairs. Thomas asked, "Will the 40-year requirement for inspections be adopted statewide and how soon may it be adopted?"
I don't know if that's going to occur. Right now it's only in Dade County. I think waiting 40 years is too long. I would like to see it at a minimum have to occur after 20 years. There are groups that actually get an engineering inspection done every few years on their own, so having regular engineering inspections is the best way to go, but when the legislature will act, I don't know.
There was one question out there about, does what we viewed just now constitute a criminal liability? I think that had to do with the photos we showed just now of the structural steel. I think that that's not really a question that we could answer specifically. There are many factors that would go into what would be criminal liability. We don't really address the criminal statutes. We do know that if you're aware of a problem, you do have the obligation to maintain. I think Alan can address that more because that issue was brought up in this Colony case.
Probably not there being criminal liability. Unless you're a board member stealing from your association or using your powers vindictively, I don't see a base for either civil or criminal liability on the part of a board member. The last question I'll answer because I want to get into the termination side, somebody asked, "Can a board member still be sued even though there's not liability? Is there exposure for attorney's fees and costs?"
Frankly, that's the main reason why every board should have a fiduciary liability insurance, mostly to cover the defense of an action. Most of the actions are not going to be successful, but it is going to cost money to defend them. That's primarily why you need that insurance in order to cover the defense cost. I'm going to get into termination. The statute in Florida is very cumbersome when it comes to termination. It's not easy to terminate a Florida condominium.
I want to go through fairly quickly the processes. It's all covered under 718.117. It's a fairly likely statute. There's one section that talks about termination because of economic waste or impossibility. It's a very difficult threshold to terminate under that portion of the statute, because the estimated cost of construction or repairs actually has to exceed the combined fair market value of the units after completion of the construction or repair.
It's very doubtful whether any condominium in Florida is going to meet that threshold. The second requirement. It has to be impossible to operate or reconstruct the condominium in its prior physical configuration because of land-use regulation. That particular section of the statute, economic waste or impossibility is likely only to be utilized where let's say a condominium is substantially destroyed in a hurricane. You'll have termination under that section.
That only requires if you do it under that section, that the amount of the membership vote is what's required in your documents to amend the documents. It might be 75% or less, or if there's a specific termination section in your documents. Most groups will not qualify for termination because of economic waste or impossibility. In a project termination, most groups are going to look at 718.1173. This is where a board of director submits a termination plan.
First has to be cleared by the division of land sales and condominiums, but it requires 80% of the unit owners agreeing to the plan of termination. It's not 80% of the voting members at a meeting where a quorum is present. You're talking about a full 80% of the membership have to agree on the termination. It's a very high threshold in order to undertake termination.
The real problem with the statute is that even with greater than 80% approving the termination, 5% of the membership can block the termination. In the condominium I talked about before, it was a 54-unit condominium in Tampa. The bulk of the membership wanted to terminate, collect a large check rather than pay $30,000 a unit to repair. There were more than 5% of those 54 owners who did not want to terminate. Of course the same people didn't want to pay the assessment either, but that's besides the point.
Those few owners were able to block the entire termination. Now, even if there's an impetus to terminate, you have the approval of more than 80%, there's a lot of due process requirements that are built into the statute. The mortgage holders are entitled to be protected. All of the obligations of the association have to be taken care of and accounted for, and you have a big problem with the provision in a termination plan of how the money in the eventual sale is going to be allocated.
There are a few different ways under the statute that valuation is determined. The key is that all of that is subject to challenge by any objecting owner, which then will send the termination valuation into mandatory arbitration. Then you have a full trial on whether the valuation was appropriate, the determination of how much each owner will end up with upon termination that will be entitled to. It may take quite a long time.
We did a termination where it was a 20-unit condominium, all the owners agreed to terminate, and it still took six to eight months to complete the termination process with really no objectors. The process will likely ... If there's anybody objecting, the process could take a year, a year and a half, or two years. Here's the problem. While the termination is proceeding, the association still has an obligation to maintain and repair.
It creates a situation where there is this period of time where the association still has some substantial exposure and it's going to take time for the process to conclude. There also may be a period of time where the units are no longer occupiable and the sale hasn't closed, which may take several months. You may have a situation where people are going to have to be housed or find housing and where they still haven't realized the proceeds of the termination.
There's a lot of issues in carrying it out. I personally think that the statute needs some revision. I think the percentage maybe needs to drop down from the 80%. I think that a higher percentage would be required to block the termination, but right now, 5% of the membership can block it. I think there needs also to be greater protection for people who are caught in the middle before the termination actually closes of how they're going to be taken care of as far as their living conditions and so forth.
It's quite a cumbersome statute. Now, there is a one-paragraph statute, 718.118, and it's called Equitable Relief, but I call it a judicial termination. This is the way the statute reads, "In the event of substantial damage to, or destruction of all, or a substantial part of the condominium property and if the property is not repaired, reconstructed or rebuilt within a reasonable period of time, any unit owner may petition the court for equitable relief, which may include termination of the condominium and a partition."
Now, it seems like that statute, again, was created for a hurricane situation where a substantial part of the condominium was actually destroyed, but it talks about substantial damage to, or destruction of all, or a substantial portion of the condominium. Now, in the Colony situation, you had the condominium buildings were under state of disrepair. A unit to actually used that statute, 718.118, brought an involuntary termination proceeding.
Again, there was no major hurricane damage, the buildings were just in disrepair and the owner was able to successfully terminate that condominium by judicial decree. You may see under 718.118, where you have a situation like the Surfside situation, where the building is in the state of disrepair, the board is not taking appropriate action. You may get into circumstances where 718.118 judicial termination is going to be utilized by a unit owner to request a circuit judge to actually terminate a condominium where the board is not following through on its maintenance and repair obligations.
Now, in the Colony it was pretty drastic. The buildings had deteriorated to the point where they couldn't be occupied anymore and the board was taking no action to repair. In fact, in a fairly unusual circumstance, the president of the association went to the town, invited the town out to do inspections, hoping that the town would actually condemn the buildings. The reason that occurred is the association could not garner the 80% vote that was required to voluntarily terminate the condominium.
It ended up actually the association through its court cooperated with that one owner who filed the judicial termination. They joined in that action and they circumvented the statutory requirement for approval by utilizing a judicial determination under 718.118. You may see more of those efforts coming, but right now the termination statute is difficult to work with, but eventually every condominium in Florida is going to reach the point.
It may occur this year or five years from now, or 10 years from now, or 20 years from now, where the cost of repair is going to be that excessive and the exposure of the association is going to be that great, or the building's reached a point where they're uninsurable because there's no insurance company, based upon the status of the condition, who's going to be willing to insure that building. That there's really going to be no choice on the part of the association, but to consider termination.
It ends up being that rather than face an assessment that may be six figures per unit owner, that it's going to make economic sense to terminate that condominium, sell it to a new developer who's likely going to raze the building, raze being R-A-Z-E, not R-A-I-S-E, raze the building and build a new development on that property. The proceeds of that sale will then be distributed among the membership who will then have to find a new place to live. That's basically how termination works.
What all these buildings are facing is undertake the proper engineering studies, listen to what the engineers say about what's necessary in order to prolong the building and make it safe, and either undertake those repairs and assess the owners to do so, or consider the possibility of termination. Then you get into that very difficult period of, what does a board do as far as maintenance and repair and occupancy while the termination is proceeding?
Again, the termination could take a year, a year and a half. There may be some statutory amendments that need to be made to the termination statute to make it a little bit more user-friendly on how it's undertaken. Let's see if we have any questions that we can face. There's a question from Christopher, "How about loss of property due to dissolution of the condominium?" Again, there should end up being an upside. I don't know what property Christopher you're talking about.
The question about insurance companies taking a hit, all of the boards and management know that there's just been a tremendous increase in the premiums that you're facing. Unfortunately, I think the Surfside situation is just going to make your insurance situation even the more difficult. That's why you're going to find, and based upon what Sal indicated, that you may find that there's more insured ... insurance companies are going to step up and refuse to actually issue insurance policies to some of these older properties, which is a problem. Let me see.
Alan, there's a question from a property manager that she wants to know what is the like ... Basically ... I'm sorry, I'm trying to find it now. From Pat, it's, "What is the responsibility of management company to recommend qualified vendors and follow through on work being performed?"
Okay. Any question that starts as, "What is the responsibility of a management company?" I always hesitate to answer that because their management contracts are written so wisely that management companies identify themselves against most kinds of liability. It certainly is part of a duty of a management company to help the board locate vendors, certainly to advise the board on the best way to undertake it.
I mean, one of the services that we provide as construction lawyers is that management companies bring us in to support the board in the contracting for repairs, for enforcing of the contract while repairs are going on, and if a repair job goes south, to help the board enforce the project. That is generally a role that the management company's taking on. What legal responsibility they have is dependent on what their contract would indicate.
This could be a question for either Sal or Jon. What is the description of the inspection that you ask for structurally maintenance-wise and which licensed professionals can do these? Then somebody else asked if they know of some issue, what is the obligation of the engineer to report the issue?
Well, as far as the type of inspection, it all depends on what you're doing. If you have a newly constructed condominium or homeowner's association that was turned over, you would want an investigation by a qualified engineer to do an investigation of the common elements. Now, would that start out with a visual inspection and then possibly a destructive investigation? None of you can really look at something and say what is beneath it.
We don't have that X-ray vision, so sometimes ... And I actually just received a call today from someone who is in the insurance business, who has an issue with a home that has water intrusion. They're aware of what goes through with this issue and the problem is, is that you don't really know where problems are coming from. If you see a symptom, if you have water intrusion or something, then you know, "Okay. There's a problem. I need to find out what the answer is."
You would ask for possibly ... And this is why, if it's something where you can address it to hold the potentially liable parties responsible within the statute of limitations or statute of repose, we always like to be involved in something like that, because we are able to direct you to the appropriate engineer. What it's called, there really is no name for it.
If you're not certain, then you should contact someone to help walk you through it. Don't take it on alone is always our advice, because sometimes you bring in somebody and they're going to give you an opinion. You may bring in somebody that's a roofer, but they're going to tell you about roofs. They're not going to tell you about the framing that may be causing the problem or other issues that are causing the problem.
Now you have an opinion in there that's going to hurt you if you don't know who the proper person is to bring in. That's one issue. I did see a question here that was, "Say the pool is an amenity and is leaking and to repair it is very costly. Can the board just decide to close the pool without an owner vote?" That was from George. Thank you, George.
No. I mean, the pool in all likelihood is an amenity that to take it out or to discontinue it would be a material alteration and cost is not a determining factor. Although it does play a role as Alan talked about, whether or not that cost would be considered economic waste. Sometimes you need to put in a whole new pool. To just say, "No, we're just going to close it up unilaterally." I think would be a problem.
Hey, Sal, I mean, just to jump in and take the next step on something you had said about engineering. Folks, we're focusing on aging buildings today, and finding out whether there are things that need to be addressed or should have been addressed, but there's a huge opportunity and I bet there are some folks on here who are in newer buildings. It always struck me as odd. If I bought a house, I'm going to get a home inspection done.
I'm not going to have the seller give me their inspection or have the seller do an inspection report and hand it to me. For those condominiums going through turnover, think about what typically happens under the statute that the developer gives you an engineering report and says, "Here's our engineering report. The building's great." That's not always the case.
I'm not saying that it's not the case, but sometimes there are issues, which if you had uncovered them during or shortly after turnover, you'd be able to address them early on, perhaps get the developer to pay for it and not exacerbate a problem, or find that the problem over 10 or 15 years has been exacerbated and now you have a really big problem to deal with and no recourse.
I just wanted to take a second to underscore that the real importance here, for even newer condos, when you go through turnover and that board takes on the responsibility for maintaining millions and millions of dollars of property ... And these folks may be well-meaning educated people, but don't know much about roofs and stucco and building, waterproofing and roads and parking lots and asphalt and drainage systems and so on and so forth.
There's a huge opportunity to take and get an independent forensic engineering report and make sure you have a baseline of knowing what your building may have to deal with down the road. If there are problems, you can address them now, possibly get compensation for them, that they don't become bigger problems in the future and result in this situation where now you have a huge assessment to fix something that could have been fixed years ago, and what are we going to do about it?
Now you're dealing with that situation of an assessment versus termination. Don't overlook that possibility for you folks that are in newer buildings.
Good point. Folks, we're going to stay on because I know there's a lot of questions that haven't been answered yet. We'll stay on for a few minutes. Darlene had asked a question, if she's still here, "What inspection rights does a prospective purchaser of a condo unit have? Can the purchaser review engineering/structural inspection reports?" A very important distinction. A prospective purchaser's entitled only to a very limited amount of information.
There's a question and answer sheet that they can see. They also will receive an Estoppel letter about the assessments that are due, but they're not entitled to engineering reports or board minutes and so forth. The appropriate thing for a prospective purchaser to do is have the seller of the unit secure that information for them. The seller's entitled to get that information, not the prospective purchaser.
We get calls all the time from managers and board members saying, "We got this request from a realtor for a prospective purchaser for a whole list of items." It's our general advice that that information not be supplied, if not for the fact that, number one, managers would be spending half their day responding to those types of inquiries.
Secondly, then the unit owner seller comes back and says, "Why are you interfering with my prospective contractual relationship on the sale? I didn't ask you to supply that information." It's really a second reason not to doing it. There's a question from Elizabeth, "We're in the process of repairing our EIFS system. That's a wall system. We have owners who are refusing to buy windows, which is holding up the project. We started arbitration, but anything else we can do?"
Number one, I would probably consider amending the document so that window replacement is not within the purview of the individual owners. There're some documents that are written that way, where the association is responsible for the exterior wall system. The owners are responsible for replacing their windows. Long-term, that's a very poor combination because it's very difficult to control the quality of work that an owner's doing, as in your situation.
It's very difficult to force an owner to do the window repair. I don't think that ... Apparently that arbitration was filed. It doesn't seem like an arbitratable issue, but I will leave that to your association's counsel.
All right. There's a question about engineering liability. Is the engineer liable if he says that the building is in danger of collapse and it does not? Well, frankly, I think out of the situation in Surfside, you're going to have a lot more engineers who are going to err on the conservative side and say that, "Based upon my evaluation, there is a risk of collapse or some major structural issue occurring."
I don't think an engineer is going to be liable for saying the building is in danger of collapse. I think the potential for greater liability, unfortunately, for the engineer is in somehow saying the building's not in danger and then a few days later a major problem does occur. Probably for the engineers, their exposure is going to be greater by not red-tagging a building than it is if they did. A question-
Sal, did you want to add anything to what Alan was saying?
No. I was just looking at another question here about, are insurance companies obligated to satisfy a total loss claim when the building is deemed unsafe via an inspection as in the Crestview Towers in Miami? Well, always read the policy and what it covers and what it doesn't before something happens as you're getting those policies. What we're talking about here is would an insurance company cover a collapse claim? Different policies have different language.
Some defines a collapse as an abrupt falling of a building or a part of a building. It states if a certain part of it is standing, then that would not be considered. Going back to the question Alan just answered, and if you have an engineer deem a building unfit or unsafe, that doesn't kick in coverage. What that kicks in is that you associations haven't been taking care of your building, unless there was some construction defect in there, in which case then maybe an inspection wouldn't uncover it or something like that.
The insurance companies are going to answer it like that. You have an obligation to maintain. What you find is the policies, some that will cover collapse as a result of hidden damage or vermin or rot or decay. It will cover that if there's a collapse and then it kind of defines collapse as a part of a building. Well, what's part of a building? Is it just one framing member?
If it's vague, I think you have a good argument, but will they just cover and say, "Oh, you're in danger of collapse, so now we're going to give you all this money to repair your building." Highly unlikely. That's why it is important to get inspections. I did see another question. What type of inspection should a 23-year-old two-story unit should do and how often? The answer is, it depends.
If you've had inspections over the years, you can look to those and see if there were any warnings within those inspections. If you have symptoms of problems, then you should address them. If your construction is weather-resistant versus wood frame and sheathing, then you have other issues. It depends. I think the owners on the board and the management know the history of the building.
If you're repairing the same thing over and over again, or maintaining it over and over again, then probably you should have an inspection. It depends on the building. It depends on what you're doing, but if you're concerned and you wanted to do something like that, then possibly just hire an engineer to do a walk-around.
If you're concerned about that, again, if it's within 10 years of any work being done, then I would suggest calling a construction defect attorney to get a recommendation from them as to who they would want to do that walk-around. I know for example, I have plenty of associations that will contact us and I will get in touch with the appropriate engineer and in no charge they'll just do a walkthrough and say, "These are areas I'm looking at that may be a concern and they need further investigation."
Sometimes there's no charge to that. Sometimes there's a reasonable minimal charge to that walk-around. It depends how in-depth you want to do it.
Yeah. As far as Henry's question about how the insurance companies are going to respond to a Crestview Tower situation, where before there was a collapse the building say was condemned, the owners were forced out, versus the situation in Surfside. You're going to have a much more aggressive defense likely by the insurance company in Crestview Towers to dispute the claim than you are going to have in the carriers who are involved in the Surfside situation.
Again, the fact that there was loss of life or the fact that there was an actual collapse may set a much more difficult case to defend for the insurance carrier than a situation where there was not an actual collapse and there were no, fortunately in Crestview Towers, no personal injury. I think you're going to see a different approach by the insurance companies in Crestview Towers versus the situation in Surfside.
I'm getting a very persistent question from John about material alteration versus maintenance and repair. We actually give a full presentation on this, John, if you're still there. If a repair is required for the maintenance and repair of the building which alters the common element, there's an argument that the repair obligation will supersede the material alteration restriction.
You get into situations where let's say a particular portion of the building needs to be repaired and in order to do so, you can't recreate what was installed originally, either because the building codes have changed or because a particular product or material is not available. It's very likely under those circumstances that the material alteration restriction is not going to block that repair, but it will be on a case-by-case circumstances.
A question from Donna and we're going to cut it off shortly, "What type of report is needed for an older building, 50 year, five stories?" In Dade County, it would be a very comprehensive report, but no matter where you are, there should be a very thorough structural examination. It should be mechanical and electrical. A 50-year-old building that's five stories tall, it would be prudent for that board of director to get a full-blown inspection, mechanical, electrical, structural in order to know what's necessary for the repair.
All right. Louise, this is the last question we'll cover. Window question comes to the issue of what is necessary report that board can ... I guess the repair the board can mandate and assess without a vote? What is merely a material change the owners have to vote on? The difference is unclear. All right. Louise, I can cover this very ... The primary obligation of the association is to maintain and repair.
It may be in undertaking the repair that there will be an incidental material alteration. If it's incidental to the repair, it's likely not going to require the vote. If it's a significant alteration and not justified necessarily by a repair, then you're going to probably need the vote. In each circumstance, it's going to be a very careful analysis of the particular facts.
Frankly, if you have enough of the vote in order to get a material alteration passed, you might as well have the vote, but if it's necessary for repair, the association may go ahead without the vote. It depends on the facts and circumstances. All right. Was a lot of questions. All right. Elizabeth has asked a question about arbitration. Again, you're probably best to go back to your association counsel.
I'm not quite sure why that issue is being arbitrated, but I can't, without seeing the documents, help you. Last question, Martin, "Who would want to become a director given what is unfolding at Surfside?" That's a very tough question. It is going to impact the ability of folks who are going to want to be directors. Fortunately, as I indicated before, the liability exposure for an individual director is very, very narrow under the Condominium Act.
I don't think the individual directors are going to have liability at Surfside based upon what we know about the news reports. The board was ... they gathered the engineering reports. They had assessed the owners for the repair. They had no indication from any engineer that the building was at threat of imminent collapse. I don't see it as a situation where the individual board members have liability exposure.
With knowing that the personal exposure is a very narrow window, then I don't think it's a great risk, but yes, you raise a good point.
Let me just add something to that. That is a concern and one of the things you can do as the individual board members, when you have these meetings, you have minutes, you can make your positions known in those minutes. However, and we caution about what goes into minutes, if you are going to bring these issues up, and there is a potential claim, then understand that all these things that you put into the minutes can trigger a statute of limitations if you have to address a construction defect issue.
If you're finding a symptom or you're talking about possible problems with your building, and you're getting that into the minutes, you're building a record that says you knew about a problem, or you should have known about a problem at this particular time. If your dog starts barking, then the statute of limitations will end four years from when you should have taken some action on it.
When you get this information and you build your minutes, keep in mind that you should seek some consultation as to what you should do if there's a potential of addressing a claim against somebody to recover for it.
All right. Folks, past 12:50. We're going to call this one a wrap. Anybody who has any questions can ask us offline. We'd be happy to answer some additional questions. This is a wide topic. We probably could talk about it all day. Thank you for your attendance today. We will try to answer as many questions as we can offline. Everybody, be safe on the West Coast as this tropical storm passes by.
We will see you for the next one. Michelle will take care of all the managers CEU credits. We're going to say goodbye at this point. Thank you for attending.