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Understanding Florida's New Condo and Safety Insurance Reform Bill

Alan Tannenbaum, Esq.:

Okay. Welcome, everybody. This is Alan Tannenbaum of Tannenbaum, Lemole, & Kleinberg. For those of you who don't know us, we are construction lawyers, primarily serving the community association industry. So, we take condo and homeowner associations through turnover, assist them with engineering and accounting analyses. We pursue claims against developers for recovery under those circumstances. We also do repair consulting for older groups that are having major repair projects. We help negotiate the contracts with the engineers and with the contractors. We enforce those contracts on behalf of our groups. We also handle complex covenant enforcement actions that general counsel choose not to take on. We do that as a service to them.

I have with me, John Lemole, who's my partner and Brian Tannenbaum, who's our associate, and we're going to break the presentation up into segments. I'm going to handle the first part of the statute, John, the reserve portion and the roofing issues with insurance and so forth, and Brian is going to present a really helpful timeline at the end that's a good summary of when things have to be accomplished under this new legislation. So, the Florida legislature. When I was in law school in Tallahassee, I worked in the Florida legislature. I know how the process works. It's oftentimes not a very pretty process.

In this particular case, it's our understanding that this bill was formulated, passed both houses of the legislature in special session over a course of two days, affecting the condominium industry, engineering field, insurance construction, and was produced in two days. Which stakeholders were contacted about this bill and the wording of it and so forth is an unknown. I know from talking with a number of community association lawyers that the lawyers who work in the field, for the most part, we're not communicated about this bill or input was not received. We, as a result, got a bill that everybody's questioning from a number of angles that we're going to cover that today. So, why was this legislation passed?

Before I get too far into it, we're not going to talk about co-ops today. But everything we say relative to condos is very similar, has a very similar impact on co-op. So, you should be able to extrapolate what we say to a co-op situation. So, why was this legislation adopted? Because the legislature, as it indicates in the statute, determined that there was a threat to public health, safety, or welfare, which is a fairly easy leap when a condominium building in Surfside collapses and kills more than 100 people. Couldn't be a more obvious threat to public health, safety, and welfare. Well, who's the target of the legislation? As it says in the statute, aging condo and cooperative buildings three stories or more in height. So, that's what the legislature decided to create this legislative work of art to apply the buildings, condo and cooperative buildings three or more stories in height.

So, if you're a condo with two stories, you don't need to worry about this legislation. There's also an exemption, it looks like for condos that are townhomes, they also appear to be exempt, and I'll get to that section. So, Brian, if you can go to the first slide, right at the outset of the statute, the legislature stuck this provision in regarding professional practice standards and liability for managers. It seems to reiterate what is already within a contract for management company, which is you have to actually listen to what the board says. So, I don't think this ended up creating any greater liability for managers or management companies. Basically says, as it relates to these building inspections that are required, the manager or the management firm must comply with these sections as directed by the board. So, that's what usually management companies do. So, none of us are very excited about 468.4334 as creating any additional liability.

The management companies were already obligated to follow board directors that were within the law and the board telling management, "We need to get these inspections done," you're not going to find a manager or management company that will say "No, I'm not going to do it." So, we're not particularly concerned. Brian, if you could go to the next slide. All right. This is where the definitional problems really start because the legislature used a number of words of art that are really not well defined. So, milestone inspection, structural inspection, that's pretty understandable. I know what load bearing walls are. But primary structural members and primary structural systems is somewhat vague. What part of the structure is not primary? It all goes to the support of the building. So, I'm not sure that's a great distinction. They probably should have just said the structural members and structural systems. Not sure what primary meant there.

They're allowing the inspections to be done by licensed architects or engineers. I'm going to get to that issue in a moment as to whether architects are even licensed to do these type of inspections, but I want to get to that next. Now, this is what the engineer has to attest to. So, a test is engineers standing behind it. They're putting their liability behind it. They have to attest to the life safety and adequacy of the structural components of the building, to the extent reasonably possible, only a lawyer can add that to the statute, determining the general structural condition of the building, again, I don't know why general is there, but they put it in there, as it affects the safety of such building. Then there's got to be a determination of necessary maintenance, repair, or placement of a component. But then they add it's not to determine if it's a compliance with building code. Well, the building code sets minimum structural requirements. So, it doesn't have to be in compliance with the building code, the structural code. How is it adequate since that's a minimum standard? That's creating vagueness.

But let me get to architecture a minute. Brian, if you go to the next slide. So, both for the reserve study and for the milestone inspection, it says they can be performed by an architect. But architects can't practice structural engineering. We've provided a couple of statutes, which basically say that. The first is the architectural statute, 481.229. The second is the engineering statute. What they basically say is engineers can't practice architecture and architects can't practice engineering. The exception is if it's purely incidental to the architectural practice. Well, if an architect is going out and doing a structural inspection, issuing a structural report, that's a stretch to say that's incidental to the architect's practice. What that statute means, in our view, is if an architect is designing a home and there happens to be a structural member that may be incorporated within their design, they can design that structural member because it's incidental to the design of that home.

But you're not going to find an architect who's going to design a high rise building and design the structural elements of a high rise building or a mid-rise building. That would violate their licensure. Well, if they can't do that, they can't inspect those elements and issue a report about them. So, was the legislature trying to make an exemption to these architectural statutes and the engineering statute? That's unclear. But the big impediment for an architect is in my experience, there's no way that their professional liability insurance will cover structural inspections. So, any architect who shows up at your building saying, "I'm ready to perform these inspections per the statute," if one of your requirements is that the architect needs to have professional liability insurance and he says, "I do," your next question may be "Well, can we see a copy of your policy? Because I have an idea that it doesn't cover you as an architect for doing structural engineering or structural inspection."

So, I think the statute is an engineering relief bill. I don't think it's an architect relief bill because I don't think architects, in our view, can do these inspections and issue these reports. But for whatever reason, legislature stuck them in there as a possible author of such a study, and I think it would violate their licensure. But certainly, I don't think they're insured or could be insured for that. Maybe some architect will disagree with me, but I'd first ask them to call their liability insurance carriers to see, in fact, if that's the case. Okay. Let's get onto the next definition. Brian, if you could turn the slide. Substantial structural deterioration. This is where the ... Again if there are any engineers in this presentation today, you'll probably scratch your head just like we did. Okay. Substantial structural deterioration. Substantial structural distress that negatively affects the building's general structural condition and integrity. What the heck does that mean?

It has the generals in there. It has substantial in there. That's way open to interpretation. The next sentence says 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 phase one or phase two inspection determines that such surface imperfections are a sign of substantial structural deterioration. That's a legislative pretzel. But my question is, if an engineer goes up and looks at a balcony slab and it's distorting, sagging, and deflecting, or misaligned, what are the chances that that engineer's going to say, "That's not a sign of substantial structural deterioration"? A sagging slag, or a sagging structural member or a deflecting structural member or a misaligned structural member, what engineer in the right mind is going to say, "Well, I saw sagging deflection misalignment, but I'm not calling it a sign of substantial structural imperfection"? So, I'm sure the engineers are scratching their heads about all of that termination or terminology.

Brian, if you can go to the next slide. Here's the wet, and Brian Tannenbaum's going to cover at the end the timelines on these inspections. But again, for each building that is three stories or more in height by December 31st of the year the building reaches 30 years of age, the milestone inspection has to be done and every 10 years thereafter. But if the building's located within three miles of a coastline, which is an interesting measurement of exactly what that means, I guess it's if there's a portion of the coastline that jets inward, that you're stuck being within three miles, you have to have it within 25 years and then every 10 years thereafter. Now, one of the questions that you might have is we just had an inspection done two years ago. Do we get another 10 years or do we have to do this inspection again?

I don't know the answer to that question. I would go back to the same engineer and say, "Can you reinspect our building and issue a report that complies now with the new statute?" They won't have to reinvent the wheel by doing the entire inspection over again. But it's probably good to get the report that complies with the statute, even if they issued a report because it doesn't have all the criteria that is included in the report. So, you probably will have to bring that engineer back to do it again. The association has to arrange for the inspection to be performed. That's pretty obvious. The association is responsible for all costs associated with the inspection, that's pretty obvious. But this is where there's an exemption for, it looks like townhome buildings that are three-story in height that are part of a condominium regime. It looks like they're exempt from the statute in the way I read this.

I don't know what else would be a single-family, two-family, or three families dwelling with three or more habitable stories above the ground. So, it sounds like a three-story townhome building that's a condo probably does not have to comply with the requirements of the statute, the way we read that. Okay, Brian, if you could go to the next slide. There's an exemption for certain buildings where the CO was issued before July 1st of 1992. It gives them until the end of December of 2024 to comply, which is funny because now some of the older buildings have a later deadline than ones where the CO was issued in August of '92, they have to have an inspection quicker than ones that were before. That's just an anomaly in the statute. Okay. Now, here's where you get the building department involved. the building department's got to determine that a building must have a milestone inspection. So, now the building department's got to keep a record of all the buildings and their ages within the jurisdiction of the building department.

They have to provide written notice that the association is required to have the inspection done. So, you have the building department involved. Once that request is made, the association has 180 days to complete phase one of the milestone inspection. Well, you don't wait until the building department tells you got to meet the dictates of the statute, but this, I guess, is a protection to make sure that they do occur, you get the building department involved. But here's the problem. Some engineers, well, they are all very busy. Are you going to be able to get them out within six months when every older condo association in the state is mandated to do these inspections? They don't have enough engineers on their staff to handle the current workload. This imposes an even greater workload on them. You're going to have a hard time getting engineers out to not only undertake the inspection, but to complete it within 180 days. So, that's going to be a real challenge.

Now, here's where they've created liability for directors. I understand it, why the legislature did this, but it's going to create a real burden on getting people to serve on board of directors of older buildings because it says that the officers and directors who will fully fail to have the inspection performed, the failure is a breach of their fiduciary duty to the owners, which could, and John Lemole is going to go into it a little deeper, is going to create potential liability. I guess the message is comply with the statute. Have your inspections done. If your owners protest, pull out the section of the statute and say, "Look, I'm the one who's subjected to the potential liability. If you want to get out there and have the liability, take my seat on the board." So, managers, take this section of the statute, board members, take this section statute. If you're getting resistance among your owners about spending the money to undertake these inspections, you need to pull out this section because it creates significant liability.

Now, what's interesting for your fiduciary insurance that you purchased, make sure that there's no exclusion for this type of liability. So, you should check with your carriers and see what those policies say about potential liability under the section. Again, what happens if you try to get an engineer out under the date sequence that the legislature called for and you just can't get an engineer to be out there, what is it that you can do? Okay. Let's move to milestone inspection. Brian, if you can go to the next phase one. All right. So, this is the first inspection required. Again, it talks about an architect. I don't think they could do them. But again, the architects may disagree. But I don't think their licensure would support them doing this type of examination. So, the phase one is a visual examination.

Now, here's what's odd. How do you do a visual examination that includes the major structural components of a building? Because the major structural components of the building are, for the most part, hidden from view or behind finishes. So, what is a visual examination of the structural components of the building? That means you can see the balconies. You might see a garage column. But you can't visualize the internal columns in a building because they're behind the building finishes. You can't see the roof deck because it's under the roof. So, what really does this visual examination provide? The other issue about it is, and we've been to buildings, let's say wooden structures where the exterior facade looks pretty good. But behind the facade, there's rotted wood. So, the visual inspection may tell you very little about what the actual structural condition of a building is. So, I don't know the great advantage of the milestone inspection.

But here's, again, the problem for the engineers. If they find no signs of substantial structural deterioration, then no phase two inspection is required. What engineer in his right mind is going on a visual inspection, going to attest the fact that, "Hey, I don't see any major structural condition here"? They're going to be inclined almost in every case to say, "You need a phase two because I'm not putting my seal on a report that says it looks great to me only to have a part of the building collapse or a major structural problem show up a couple years later," and then everybody's looking to the engineer about what they missed. So, the impetus is going to be on the engineers to go and recommend the phase two study or not be willing to undertake these engineering examinations at all. So, I question the phasing there.

But then we go to phase two. So, if the engineer says in their phase one report, "Oh, I have to look deeper. I can't make an analysis. I think that there could be signs of structural deterioration that I can't see," then you go into the phase two inspection and it may involve destructive or non-destructive testing at the inspector's direction. Inspection may be as extensive or as limited as necessary to fully assess areas of structural distress in order to confirm that the building is structurally sound and safe for its intended use and to recommend a program for fully assessing and repairing distress and damaged portions of the building. Okay. So, if an engineer does a phase two and doesn't go far enough and structural problems occur after that, they're going to get blamed for that. They're going to get sued for that. So, what the statute has set up is really, the impetus on the part of the engineer to direct the most extensive destructive testing possible so that when they put their seal on that report, they're very, very confident that the building is structurally sound.

So, it creates a massive liability. Their bias is going to be, "We need to go much deeper into this," or, "I don't want to do these inspections at all because there's too much liability potential." Now, here's a strange section that somebody stuck on to this paragraph. When determining testing locations, the inspector must give preference to the locations that are the least disruptive and most easily repairable while still being representative of the structure. Okay. So, again, I don't know exactly what that means, but it sounds like it's an open door for owners to complain about the extent of the engineering inspection and to go to court and say, "The engineer who's doing our building is not complying with the section because they've chosen locations that are disruptive and not easily repairable and therefore, we're allowed to stop this job or this inspection process because it doesn't meet that condition of the statute." So, there's a lot of danger in the legislature having added that section in as to exactly who can enforce it.

But let me go quickly into the next section, milestone inspection, and I'm sorry, we're going to be limited on the questions that we can take because we have a lot of material to go through. The milestone inspection report. There's got to be a report for phase one. If you go to phase two, there's got to be a report for phase two. It's got to be sealed, it has a summary, and the summary requirements, what has to be in it is in the section. It has to identify any substantial structural deterioration within a reasonable professional probability, based on the scope of the inspection, has to describe the deterioration, identify recommended repairs, state whether unsafe or dangerous conditions exist, which the bias is going to be to say that they do because if you don't say that and the building has a problem two years later, you're going to get sued for that, recommend remedial measures, and then the report has to be distributed to the owners. It has to be available in association records. It has to be posted.

So, you have all of those requirements for this report. If you go quickly to the next slide, Brian, the milestone inspection local enforcement agency can prescribe timelines and penalties. But then it switches to the board of county commissioners. So, now, the county's involved and not the cities, and the county can adopt an ordinance requiring schedules for the commencement of the repairs. But in either case, the repairs have to be commenced within 365 days after that phase two report is received, which again, is it possible even in today's market for that timeline to be met? Then if you can't submit proof that the repairs have been done, the enforcement agency can review and determine the building's unsafe for human occupancy.

So, I'm going to hand the ball off to John Lemole at this point to talk about reserves. But what you're going to be hit with is engineering firms who are willing to even do this work are going to give you limitations of liability in their contracts. More importantly, they're going to ask for indemnification. They're going to require that the association indemnify them against any liability if they want these to be done and the associations need to talk to their liability carriers to make sure that your liability insurance covers an indemnification that you may give to the engineer who's doing these inspections. Otherwise, it may not be covered by your liability insurance policy, the indemnification and the owners are going to be exposed for defense costs and potentially great liability. So, right now, I'm going to hand it off to John Lemole to talk about reserves.

Jon Lemole, Esq.:
Morning, everybody. Brian, can you flip? Thanks. So, we're going to talk about a whole different type of report. Despite the similarity in its name, Structural Integrity Reserve Study, sure sounds like the type of thing that's also contemplated by the milestone report. I don't want anybody to misunderstand that this is a separate report that condominiums and co-ops are going to have to undertake, and they have somewhat different timeframes. Whether these can be done by the same person, by the same engineer in conjunction together with a milestone report, it's all going to depend upon the age of the buildings vs. the age of the condominium itself because a structural integrity report, a reserve study, as you'll see, is tied not to the time that the building was completed, but tied back to the creation of the condominium.

So, let's talk about what a structural integrity reserve study is. Really, this study is directed at the financial end of the issues that emanated out of the Champlain Towers collapse, which is the financial mismanagement perhaps, the lack of reserve funding for providing major structural repairs and all of the problems that have been determined and we've seen arise when associations waive or reduce reserve funding. That's really what this is intended to fix. So, 718.103, that's where the definitions are in the Condominium Act and it shifted some things around. So, it creates this new subsection 25. I don't want anybody to think that it replaces what was already previously there as 25. It just kind of moves everything beyond past 25 down a little bit. Then it adds as a new definition, a structural integrity reserve study.

What is it? It's a study of the reserve funds required for future major repairs and replacement of the common areas based on a visual inspection of the common areas. Okay? So, similar to the phase one milestone report, this is a report that's solely based on visual inspection, and it's a structural integrity reserve study may be performed by any person qualified to perform such study. However, and this is important, the visual inspection of the portion of the structural integrity reserve study must be performed by an engineer licensed under chapter 471 or an architect licensed under chapter 481. Why do they make that distinction? Well, because you may have portions of a reserve study, which really are more CPA driven or functions that ... We know that there are certain companies that are out there that perform reserve studies and look at the financial aspects of how to project out what needs to be assessed for reserves.

But because this is now tied to an inspection of the property, the visual part of the inspection upon which the reserve calculations are going to be determined has to be done by an engineer or an architect. I'm not going to go into what Alan talked about before about the difference between what an architect can do and an engineer can do because theoretically, that might be the same problem here. What needs to be contained in the structural integrity reserve study at a minimum, it must identify the common areas being visually inspected, it has to state the estimated remaining useful life and the estimated replacement cost or deferred maintenance expense of the common areas being visually inspected, and provide a recommended annual reserve amount that achieves the estimated replacement cost or deferred maintenance expense.

I've highlighted this language because I think it's going to be very important of each, and I want you to pay attention to the word each, of each common area being visually inspected by the end of the estimated remaining useful life of each common area. Folks, it's one little word in the statute. They changed the to each, and I think that's going to be important because a lot of folks have been asking question about component funding vs. pooled reserve funding. I'm going to talk about that in a second, but I think that's an important distinction. Can we go to the next slide? What gets inspected in a structural integrity reserve study and when must it be done?

So, a structural integrity reserve study must be completed every 10 years after the condominium's creation. Pay attention to that language that I've highlighted, after the condominium's creation. When is a condominium created? In the statute, a condominium is created when the declaration is recorded. Okay. So, this isn't tied to building CO. This is tied to when the condominium came into existence. So, you have to complete this study every 10 years after creation for each building on the condominium property that is three stories or higher in height. So, three story buildings every 10 years after creation and the study has to include, and there's a list at subsection G, it's what will be the new 718.112, subsection G. The things that need to be included in this reserve study are a little bit more expansive than what used to be in what continues to exist for under two story buildings, but now has changed for three story or higher buildings.

So, this study has to look at the roof, load bearing walls, other primary structural members, we already talked about that a little bit about milestone inspections, the floor, the foundation, fireproofing and fire protection systems, plumbing, electrical, waterproofing and exterior painting, windows. Then again, it has the catchall of any other maintenance, any other item of that has a deferred maintenance expense or replacement cost that exceeds $10,000 and the failure to replace or maintain such item negatively affects the items listed in the above paragraphs. So, if it's more than $10,000 to maintain it and it may negatively impact the roof or the floor or the foundation, that's got to be included.

These are determined by the engineer or the architect performing the visual portion of the structural integrity reserve study. So, really the professionals, the engineer and the architect, is going to be driving what are they going to look at in their visual inspection that they're going to be doing for your structural integrity reserve study. Okay? So, if you got to do these studies, it's a study that's going to involve a professional, an architect or an engineer, there's going to be a very detailed visual inspection of your buildings, and you got to do it every 10 years after creation of the condominium. Now, go to the next slide, please, Brian. Let's talk about how this is going to be phased into existence. First of all, the act is effective on July 1st of 2022. So, a little less than a month from now.

So, who's going to have to do these and when? Well, developers are going to have to do one now for buildings require a structural integrity reserve study. I think we're probably all going to be calling this a SIRS in no short order. So, again, three story buildings. Before the developer turns control over to unit owners, the developer must have a structural integrity reserve study completed for each building on the condominium property that is three stories or higher in height. Okay? So, every turnover is going to involve one of these reports now. For associations under unit owner control and which exist before July 1st of this year, so if you've got an association that has buildings three stories are higher, it's under unit owner control, it was created before July 1st, those associations are going to have to have their structural integrity reserve study completed by December 31st, 2024, again, for each building on the condominium property that is three stories or higher in height. Okay. So, that's how we're going to phase this in. Okay?

So, developers need to do it. Unit owner controlled association's existing created prior to July 1st, they're going to have until December 31st, 2024. Anything that's unit owner controlled and existing after July 1st, 2022, you're under the 10 year regime. Okay? So, you're going to have to look back and see when your condominium was created in order to determine when you're going to need to comply with this. Now, the other thing that the legislature did in implementing this is they made a major overhaul of reserve funding requirements. So, let's talk about that. Before turnover of control by the developer to the unit owners, and the statute doesn't make a distinction here between any type of condominium, doesn't talk about whether there are three story higher buildings or not, doesn't talk about whether it's a building that requires a structural integrity reserve study or not, before turnover control of an association by a developer to unit owners other than developer, the developer controlled association may not vote to waive reserves or reduce funding of the reserves.

Effective December 31st, 2024, a unit owner controlled association may not determine to provide no reserves or less reserves than are required. That's an important thing that's changed in this statute. Then effective December 31st of 2024, the members of a unit owner controlled association may not vote to use reserve funds or any interest accruing there on for purposes other than their intended purpose. Now, the question has come up about component funding vs. pooled funding. Let me start by saying, we're construction lawyers. We don't typically get involved with budgeting. We really don't ever get involved with budgeting decisions. These are really questions that you should be directing to your general counsel. So, I want you to take that very important point back with you. Go talk to the general counsel that represents your association and ask them for their opinion on the funding issue. It appears that because of the word each common element area or each area that needs to be reserved and the change of the to each, it appears as though the legislature is intending for component funding.

That's not clear in the statute. So, you're going to need to go back to your general counsel and when you're making these budgeting decisions, you need to consult with them and get their opinion and their recommendation on that. I would also say that it appears that the legislation is intended to require that that you can't borrow reserves from a different reserve fund for a different element to pay for something for ... You can't borrow from the roof reserves to pay for a foundation reserve or an electrical reserve. But that's not entirely clear in the statute. So, I really want you to take this very important disclaimer and takeaway. When you're sitting down to do your budgeting and make your budgeting decisions and start looking at your reserve requirements, sit down with your general counsel, get their take on what this legislation intends.

Certainly, there may be some additional guidance that we'll get from the legislature going forward. Maybe some case law will come down interpreting this. So, I think the jury's still out, as they say, on that issue. Next statute. Next slide. Sorry. Just like with milestone inspections, the legislature has put an important provision in here about fiduciary duty. So, if an association fails to complete a structural integrity reserve study pursuant to this paragraph, such failure is a breach of an officer's and director's fiduciary relationship to the owners. Now, again, that's not entirely clear what that means, and certainly, you should be talking to general counsel and getting their perspective on this. As you all may know, there's a section in 718.111, which defines a officer or director's fiduciary duty and when that is breached, and there are certain limitations on that.

Generally, they involve self-interested dealings. They involve reckless acts or an act or omission that was in bad faith or with a malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property. Now, we'll tell you that in this section here on fiduciary duty, it refers in the actual statutory language, it does refer back to the corporate fiduciary duty language and statute. So, I think there's a tie in there to this structural integrity reserve study and the part of the original and existing statutes regarding fiduciary duty, which talk about, and in particular, a breach which exhibits wanton and willful disregard of human rights, safety, because that's what this is directed to, safety, or property. So, I think the legislature here was trying to further define where officers and directors have a fiduciary duty to make sure that these studies are being done. Okay?

So, that's reserve studies. That's structural integrity reserve study, reserve funding. Now, I've been asked this and there's probably questions in the chat if I look at them. Okay, I have a building that's not three stories or higher. Then what do I do? Well, the legislature kept the same reserve budgeting language in there and then added the structural reserve study language. As we know, that applies to buildings that are three stories or higher. So, if you have a building that's not three stories or higher, it would appear that the same old statute that you've been dealing with all along in terms of what needs to be reserved for is undisturbed. Again, it's not entirely clear. There's a little ambiguity there. So, again, talk to general counsel, get their perspective on it when you sit down to start doing your budgeting and reserve calculations.

But it's definitely clear that waving reserves and/or lessening reserves, regardless of the building, are going to be a big no-no in the future. All right. So, that's the condo safety portion of this presentation concluded. Now, what was also included in this special session and what came out of it is some relief under an insurance bill that provides some insurance relief and some provisions regarding roof repairs and replacement. I don't want to get into all the particulars of the insurance bill except as they may relate to roof replacements because that's been a really, really difficult issue for associations lately. This applies to all associations.

It used to be under the Florida Building Code that if you had to repair or replace more than 25% of an existing roof, you had to redo the entire roof. Okay? We're all pretty familiar with that. What the legislature did in the condos, in the new bill is that they've relaxed that a little bit. If your roof was installed under the 2007 Florida Building Code or later and you have a roof replacement or repair that impacts more than 25% of your roof, you're not required to do the whole roof. You can repair or replace the portion that needs to be repaired or replaced. So, that's a very different thing than we've been dealing with for a long time in Florida. I will tell you that there's a lawsuit that was just filed challenging the constitutionality of this provision and some other provisions. So, we'll see whether this survives a judicial review.

Now, everybody's talking about, "My carrier won't renew my insurance because my roof is 15 years old." So, there's some relief in this bill if you're starting on July 1st, 2022. So, if you've had this problem before July 1st of 2022, I'm sorry, but you may still have to deal with the difficulties that you've been dealing with. But the takeaway here is that an insurer may not refuse to issue or refuse to renew a homeowner's policy insuring a residential structure with a roof that is less than 15 years old solely because of the age of the roof. Now, they can come in and say, "Well, there are all kinds of other problems with the roof," but they can't non-renew you if your roof is under 15 years of age just because of the age of the roof. If your roof is more than 15 years old and they come in and they say, "We're not going to renew you because your roof is over 15 years old," well, you can now get an inspection.

As long as that inspection is done by an authorized inspector and those folks are a licensed home inspector, a licensed general building or residential contractor, a professional engineer, an architect, and the statute says, or anyone approved by the insurer, if you can get that inspection done, and it says, and the inspector concludes that the roof has five or more years of useful life remaining, then the insurer cannot refuse to renew your coverage on the basis of the roof being more than 15 years old, as long as you have a report that says that the roof still has five or more useful years of life remaining.

Alan Tannenbaum, Esq.:
It should be noted that there's already been two lawsuits filed by the roofing industry attacking that particular requirement about the 15 years. Roofers want the 15 year replacement provision to remain in and they've already filed suit to attack it on the basis that the legislation covered too many topics. It was not a single topic legislation. So, that's up already up for challenge.

Jon Lemole, Esq.:
No, and the other part of that challenge is the roofing industry is concerned that in situations where they think the roof needs to be replaced that the insurers are going to resist that because they can use this section as a proverbial sword instead of a shield and say, "Well, we're not going to provide insurance funds because the roof doesn't need to be completely replaced under this new statute. We can replace only part of it," and a contractor may think otherwise and say, "Well, no. We really need to have the entire roof replaced." Obviously, the roofing industry has some self-interest here because they'd rather do full roof replacements than partial replacements. So, they're challenging that. We'll see what happens with that challenge and how the court rules on it.

Alan Tannenbaum, Esq.:
Okay. So, what we've provided here, and again, this outline's available. Just email us. But Brian did this very effective timeline that will need to be followed. So, it's a good checklist to have. So, just email us and we can provide it. We'll go a little bit of overtime because I know there are a lot of questions and we tried to cram in all the material to fit within the 55 minutes. John, I'm going to let you handle the reserve questions because they're the toughest one and you studied in a little bit closer than mine. I'm going to answer Robert Smith's question. Does a licensed engineer or architect need to do a visual inspection on buildings two stories or less for purposes of a reserve study? What do you say to that one, John? You're on mute.

Jon Lemole, Esq.:
Sorry. What was the question again, Alan?

Alan Tannenbaum, Esq.:
Two stories or less, do they have to do a reserve study?

Jon Lemole, Esq.:
No. The structural integrity reserve study's for three-story buildings or higher.

Alan Tannenbaum, Esq.:
Okay. But you got to do your normal reserve requirement.

Jon Lemole, Esq.:
You got to do your normal reserves. Correct.

Jon Lemole, Esq.:
After 2023, starting in 2024, this is for all buildings, you can't reduce or waive reserve funding.

June:
Okay. Alan, this is June from Sunfish Bay. I have a question. The way our condo is set up, there's a bottom floor where people live and then there's a second floor. The second floor has an upstairs. Is that considered a three-story building?

Alan Tannenbaum, Esq.:

You're probably okay. But that's an interesting question. But you're probably okay. It's not a full story. So, it sounds like it's less than three stories. But who knows? Let somebody challenge it and we'll see what a court says. Let's see. [inaudible 00:56:59]. Is a three-story multiple-family condo.

Is a three-story multi-family condo subject to milestone inspection requirements? Yeah. So, if it's multi-family, yes. The only exception would be condos that are townhouses probably would not be required if they're three-story. But if it's a condo building that has more than three families in it and it's three stories, it would be required to have an inspection. Let's see. Will the milestone inspection report suffice as the inspection for the structural integrity reserve study and then a reserve specialist can complete the remaining life and cost estimates? Darlene, that's a difficult question.

Yes. I would say that if you did both at the same time if you did the milestone inspection report, that probably could serve as the basis for the portion of the reserve study that has to do with the structure. So, I guess I think you can combine that information and it would suffice. Then the reserve specialists can do the rest of it. Yes. The question is, what is considered three miles from the coast? Because our coast is not a uniform line. So, if it's normally three miles from the coast, but there's an inlet that juts in, are you now qualifying as being within three miles of the coast? The legislature did not define what the coast was. So, people are going to be getting their measuring tapes out.

Brian Tannenbaum, Esq.:
It is actually defined as the line of mean low water along the portion of the coast that is in direct contact with the open sea and the line marking the seaward limit of inland waters as well.

Alan Tannenbaum, Esq.:
Okay. Brian has pointed out they do have a definition, but he uses the word, sea. So, I guess the Gulf of Mexico is not required to meet the requirements because it's not a sea. Then somebody says is the coast a major river? No. I don't think it would apply to a major river. It's talking about the coast of Florida, not the coast of our inland river. For roof replacement and insurance over 15 years, does it have to be inspected by an engineer? I think John answered this. It's a qualified roofing inspector. So, it does not necessarily have to be an engineer.

Jon Lemole, Esq.:
That's correct.

Alan Tannenbaum, Esq.:
The Question is, our windows are not common area on our docs. How do we handle that? That's a good question. I don't know if you would have to reserve for them, even though the statute does require it. By the way, every time anybody asks us whether it's a good idea for your windows to be maintainable by the owners, I will tell them no. In every situation where you have documents that have the owners maintaining their own windows, those properties have had problems because if an owner doesn't maintain their windows, where does the water go? It goes into the unit below or maybe the two units below. But that's an interesting question. I'll let your general counsel tackle that one in your documents. I don't have immediate clarity on that question. John, why don't you answer this one from Aaron? If a condo over three stories performed a reserve study last year and if what was covered meets the requirement of the current reserve requirement under the statute, do they have to do a new one anyway?

Jon Lemole, Esq.:
Well, again, if we're talking about the structural integrity reserve study, it's tied to when the condominium was created. I'm presuming it's unit owner-controlled. So, if it existed before July 1st, 2022, it's under unit owner control, then by December 31st, 2024, and it's in three stories, you have to comply with the structural integrity reserve study requirement. Now, is your existing reserve study compliant with that new structural integrity reserve study? It depends. Was there a visual inspection by an engineer or architect of the components that need to be required in the study?

Jon Lemole, Esq.:
So, you're really going to have to go back to who did the study, talk to your general counsel, look at the study, and determine whether it hits all of the items that need to be in there, whether it's based on a visual inspection by an engineer, and importantly, whether it sets out a ... Again, this gets back to the component vs. pooled. How are we calculating reserves? Because there are very different ways of calculating what the reserves should be, how they're allocated, and how the association's going to assess them. So, these are all kinds of technical issues and I can't really say whether that report's going to qualify or not. I would tend to believe it probably it might not.

Alan Tannenbaum, Esq.:
Okay. Does a one-story building within three miles on the coast ... Is it affected by the statute? No. But again, you still have to do your normal reserve study, but nothing is affected by this particular legislation. If an inspection discovers a structural defect, it would need to be repaired and replaced immediately, regardless of cost? I have to say yes to that question. We have a whole different presentation on condo termination, and what's going to happen with some of these older condos, frankly, is that the owners are going to see the price tag on repairing an older building or older buildings that need an enormous amount of money to revitalize and meet the conditions of the report and the owners are going to have to think seriously in some cases about voting to terminate the condo, selling the property, and dividing the proceeds rather trying to keep a very old patient alive, except the fact that every condo in Florida, especially the ones on the coast, at some point in time are going to be terminated at a point when they're no longer repairable.

Alan Tannenbaum, Esq.:
Now, where [inaudible 01:04:42] I don't know. But yes. If the report says you got to repair it, you got to raise the money and repair it, and there's going to be situations where owners cannot afford that. You're going to have banks taking back some units and we're going to have a real mess in some properties. So, to avoid that, groups may have to think very seriously about termination and very drastic circumstances. Are a building that has a ground floor as a parking garage and three floors of condos above considered to be a four-story building? I would say yes. For two-story condos, are pooled reserve calculations still allowed? I would say yes. Will the requirements of the reserves, based upon the new statute increase cost requirements, trump the documents regarding the limit of an increase in the assessment of 115% without the approval of the membership?

Alan Tannenbaum, Esq.:
I would say that, yes, the requirement for maintenance and repair is a statutory requirement, which has predominance over any restrictions in your documents. So, if there's an assessment that increases by 150% and an owner attack it saying this violates our documents, in my view, if they're going to the circuit court with that, they're going to lose because of the statutory requirement for repair predominates over any documentary restrictions. So, I think that would be a very poor attack by those owners and frankly, a very poor excuse by the board to say, "Well, we want to comply with the statute, but we can't because our documents don't allow us," just pull out that fiduciary duty section. Again, that's going to predominate.

Alan Tannenbaum, Esq.:
What's always interesting too, is that if you get financing and don't assess, does that trump any assessment increase requirement? That may be a way out. If your defaults on your assessment collections are very low and you can get financing, now you probably could get around that 115% requirement anyway. Is there anywhere where the details of the milestone inspection are defined? Yes, in the statute, and the definition is pretty vague. So, good luck. Maybe the legislature will help with that, or maybe there'll be a court decision one day. But right now, you're stuck with what the statute says. Can we hold a board meeting, executive session, or something similar to discuss these issues before firing up the owners? I like that terminology.

Alan Tannenbaum, Esq.:
There's no such thing in condo-land as an executive session. It's the unicorn of condominium operations. There are only board meetings where anytime the majority of the board gets together to discuss association business, it's a board meeting, that has to be noticed. If it's less a majority of the board, let's say you have a management committee that has a five-person board, you have two board members and three non-board members, you could probably get away with that as a committee without noticing. But there's no such thing as an executive session on the board. It's a board meeting either way.

Alan Tannenbaum, Esq.:
The only exception is you call your general counsel and say, "We want to discuss possible claims," and you can have a session with them without the owners being involved. But maybe the owners should be fired up. Here's a question. Should we wait until all the lawsuits and ambiguous language are fleshed out before enacting inspection? Not a good idea because a lawsuit could be filed against you and your association. So, I wouldn't wait until there's been lawsuits and adjudications or legislative changes to comply with the statute if that was the implication. Are two stories over parking considered three stories? I would think it is. Yes. If the first story of parking is a full story, then that's a three-story building, in my view. All right.

Brian Tannenbaum, Esq.:
Can I just clarify the pooled reserves issue? What the statute says is that members of a unit owner-controlled association may not determine to provide any reserves or fewer reserves than required for items listed in paragraph G, which is the structural reserve study. It doesn't limit it to three-story and above. So, it would appear that any of those items or reserves cannot be waived for and they need to be kept separately.

Alan Tannenbaum, Esq.:
Michelle says to email our questions. It looks like she wants us to get done. John, do you want to answer that one last question from Chrissy Nelson? Do you see it? Where a roof is more than 15 years old? Do you see that one?

Jon Lemole, Esq.:
Can you read it to me?

Alan Tannenbaum, Esq.:
Where a roof is more than 15 years old and an insurance company is threatening the discontinued coverage based on the age of the roof and then the event that an engineer certifies that the roof has at least five more years of remaining life, how much longer does the insurance company have to continue coverage? Does that make sense to you?

Jon Lemole, Esq.:
Well, that's a good question. You get renewed year over year. So, the statute simply says that if your non-renewal is solely due to the age of the roof and your roof is over 15 years, and if the report says you have five more useful years of life, then the carrier cannot non-renew you that year. So, that's a pretty good question. Does that give you a five-year pass? I don't know. It doesn't say. It's kind of up in the air. Do you have to then go back next year and say, "Okay, I need another inspection that says I have five more years of useful life"? Well, number one, the insurance carrier will probably say, "Well, that can't be because you had a report last year that said you had five years," or whatever it says, six years.

So, I honestly can't tell you that the legislation is clear on that. But presumably, if you have that inspection and if we were engaging in interpretation of an ambiguous statute and you have a report that says my roof has got five years of useful life, then the carrier's not going to be able to come back over that next five years and say, "All other things being equal, no other change conditions, there hasn't been a major storm, and your roof hasn't been impacted somehow in that five year period of time," then presumably, you would be able to make that argument. But that's a big, big leap because year over year, what can the carrier come back and say? "Well, within the last year, we had two major storms or we went back and looked at it and conditions are a little bit different now." So, good question. I don't know that there's an easy answer to it.

Alan Tannenbaum, Esq.:
Yeah. The insurance agents will chime in. Well, we're going to close up shop shortly. The one question that I wanted to respond to was is there a chance that the legislation's going to stay on the basis of a court challenge? Maybe portions of, it's possible, like the insurance portion, but with what happened in Surfside and the pressure that got put on legislators, I don't think any circuit court judge is going to stay the entire legislation based upon an attack because again, circuit judge doesn't want to be the one to have said these things can't go into effect and all of a sudden, there's another collapse and everybody looks at that judge and says, "It's only because of you that this occurred." So, I don't think that's going to happen.

Get prepared to comply with the terms of the statute. I want to thank, as usual, Michelle Colburn for being the engineer behind the scenes of this presentation, and John and Brian for their efforts in preparing this. Brian does all our PowerPoint work. So, he id a fine job of that and we thank him for that? So, we're going to close off. Any questions that you have, you can email them to us. The ones that we can answer, we'll answer via email. If your question is too far in-depth, we'll probably tell you to contact your general counsel, especially if it's outside of our field of expertise. But thanks, everybody. Hope you know a little bit more about this statute than you did before and are very sorry if we scared anybody, but that's our job as lawyers, right? Okay. All right, everybody has a great day. Thank you.

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The Smart Board & Property Manager Legal Guide: The Devil Is Indeed In The Details...

Alan Tannenbaum, Esq.:

All right. My name is Alan Tannenbaum, I'm managing partner of Tannenbaum, Lemole & Kleinberg. We are construction lawyers and work primarily in the association committee association field. We take groups through turnover. HOAs and condos help them garner engineering and accounting studies. And for the groups that want to pursue claims we certainly are involved in that. But the second part of our practice is in repair consulting. So for an older condominium or even a Homeowners Association that has a significant repair project that they're undertaking, we negotiate the contracts with the engineers and consultants. We negotiate the contracts with the repair contractors. We help with best practices in undertaking those projects, and where it's necessary we're involved in enforcing repair contracts and warranties flowing from there.

I personally have been doing this work for over four decades. And our current market is from the Space Coast across Central Florida. Pasco and Hernando on the west coast down to Naples. More recently, we have taken on some clients in Palm Beach County, but that's our market. But I've been dealing personally with engineers for time I started my career when I was 24, and I've seen the entire evolution of the practice of engineering as it relates to condominium and Homeowners Associations. Historically, the owners had the upper hand when it came to engineering and construction contracting. Generally, there was a deification clause that might be in favor of the association or the owner that was given by the contractor. There was no restrictions on liability of damages relative to anything that the engineer or the contractor did but that market has changed.

Prior to the Surfside issue, which has put the engineering firms that were involved on this project, their liability carriers are going to pay a lot of money to resolve those claims. The liability insurers in Florida are already a bit nervous about dealing with engineering firms because a lot of engineers had been sued on not only original construction projects but also repair project. If you think about, it's a lot easier for an engineer or a consultant to design a brand new structure. They know every facet of the design, they figure out how it's being put together appropriately, they choose all the products and materials, and if they do a thorough job and they have the capability of doing it, probably they have fairly small exposure from liability and claims.

A repair job is a totally different thing. When an engineers coming into a property they do not have x-ray vision. They may not know at all how this particular building was built. In Florida, the idea of having as-built plans, I call it the unicorn of the construction industry in the sense that very few instances are there as-built plans, especially for a structure that may have been built in the '70s and '80s. So they may have a set of plans but who knows if it was built according to those plans. And then the engineer's got to figure out based upon some visual examination, maybe some destructive testing, how to design a repair for what this older structure and with all the details, and materials, and products, and so forth. They are messy jobs, they are difficult jobs, they are jobs that sometimes exceed the expertise of the contractors who are taking on the contracts, and it opens up a great field of liability for engineers in undertaking those jobs.

There are also some significant damage exposure if in fact, the engineer doesn't do an appropriate job. In Champlain Towers, the engineers were really investigating it. Some of them recommended some repair protocols, but really the major repair job hadn't been attempted yet. And yet when the buildings went down the engineers ... Any engineer who would touch that property has been sued and those liability insurance carriers are going to pay the freight. They're difficult jobs, there's a great potential for liability, the damages could be very significant.

The other thing with dealing, especially with condos, is they're not necessarily the easiest client to deal with. If an engineer's working for a sophisticated developer, they usually have an understanding of the construction process, construction costs, the construction processes, but you could have an engineer who's being hired by a condo association where it's, obviously, a volunteer board, they may have no expertise in construction. And it's just a more difficult owner to perform work for so they're dealing with that. And right now engineers are extremely busy. We've had engineers quote jobs that indicate they can't even come out to the property for six months. Any engineer these days, and we deal with a lot of them, who is promising a report by a date certain, we have very little current confidence that promise data is going to be met based upon the current circumstances. So the busy they are the more potential there are for mistakes.

And there's been a situation where there's a number of engineering firms who have totally gotten out of the condo repair market and this has caused a workload to increase for the engineers who have taken it on. Now, the result has been that with what the insurers have paid on the Champlain Towers and other projects, that they have raised the premiums of engineers to an extraordinary level. I was talking with an engineer. For a million dollar liability policy, the premium is $200,000 and the deductible per claim is $100,000 dollars.

So it's extraordinarily expensive for the engineer these days. The carriers have really increased their ... The cost of getting their coverage. Again, chasing some engineers out of that field. So you might have an engineer say, "Look, I'll be happy to do an inspection for you. I'll do an inspection report. I will recommend certain things but I'm not going to be the one to seal any repair drawings at this juncture. Or I'll stay within the field of testifying in cases but I'm not going to do repair design anymore." So when we go out into the marketplace for associations and try to locate the firms that are willing to do this work, willing to pay the insurance premiums to do the work, we have a field of engineers that is decreasing as time goes on.

So what's been the result? The result is that the insurance companies have communicated to the engineering firms that there are ways that you can prepare your contracts and agreements to limit your liability otherwise protect us as your insurer. And we're now seeing engineering contracts coming in with standard conditions that are very detrimental to owners and associations. And we're going to highlight those today. And I'm going to turn the program over to my partner Jon Lemole and our associate Brian Tannenbaum to talk about some of the most deleterious aspects of engineering contracts that we have seen in the last couple of years pop up that have to be seriously considered by associates. So, Jon, take it away.

Jon Lemole, Esq.:
All right. Thank you. Good morning, everybody. So the name of this presentation or at least the part of the name of this presentation is the devil is indeed in the details. When we say the devil is in the details what we mean is one of the most overlooked parts of an engineer's contract is the general provisions sometimes called the general conditions but typically general provisions. If you've ever seen an engineer, a typical engineer's contract, you'll know what I mean when I say that many client, many of our clients, many, many community association managers, boards, the folks that are looking at these contracts view this section as boilerplate, they may view it as non-negotiable legalese. And yet these maybe some of the most important provisions to look at and to try to adjust to an association's benefit. And why do I say that?

Well, let's start from the fundamental proposition that at its base a contract, any contract, is a risk allocation agreement. If and when things go wrong who is responsible? And many clients, however, view the contract solely for the purpose of determining the work to be done, the price to be paid, and so we're all focused on well, what is the engineer going to do? What is it going to cost us? And yet because of the intense pressures on the building engineering industry right now, engineers and their insurance carriers, and Alan touched on this, and you can bet that they're getting the assistance of some very savvy lawyers on their side, but they're paying extremely close attention to these risk allocation provisions with the goal of being to transfer as much of their risk on the project to someone else, and typically that's going to be the client. How can they transfer as much risk to you when things go wrong? So don't let that happen. And these are sophisticated provisions sometimes that require close legal analysis but they're important.

So what we're going to take a few minutes to look at here is some of the typical ways that engineers have recently been attempting to use creative language in their general provisions to transfer more risk to their client. We're going to show you some provisions that we've seen in some contracts, talk about them so with the hope that when you get an engineering contract, when you see this type of language, that's probably a good trigger for you in your mind to say, "I need to get somebody to take a look at this because this is pretty important and critical stuff."

So we're going to start with limitations of liability clauses. Whoever's running the PowerPoint, Brian or Michelle, I can't remember, could you go to slide eight, please? All right. So a limitation of liability is probably the easiest thing to see. When you see it you'll know it. So let's take a look at the second part of this slide, the second full paragraph under limitations of liability. And it says "In recognition of the relative risks, rewards, and benefits of the project to both the client and consultant, the risks have been allocated such that the client agrees that to the fullest extent permitted by law, the consultant's total liability to the client for any and all injuries, claims, losses, expenses, damages, or claim expenses arising out of this agreement from any cause or causes shall not exceed the amount of $10,000 or the amount of the consultant's fees whichever is greater." I'm going to stop there.

So a typical engineer is covered by insurance, and that insurance policy may have coverage of a million or $2 million. And yet in this provision, you have a very broad limitation of liability which essentially says that if you've got a claim against that engineer, the total amount that you can recover is $10,000 or whatever you pay the engineer. If you pay the engineer $40,000, the limitation of the engineer's liability is $40,000.

Now, I can tell you from experience that when things go wrong, especially on a big project, the liability is very rarely 10 or 20 or 30 or $40,000. We're talking typically, hundreds of thousands of dollars, maybe millions of dollars. If you've got a claim, if you've got damage that is caused because of an engineer's faulty design work, and you sign a contract with this limitation of liability, there's a pretty good chance that you're going to be out of luck on anything over and above what that limitation of liability amount is. This is a pretty easy thing to spot. So if you see anything like this in a contract, this is where your antennas should go up and you need to be looking at it and saying, "No, no, we can't limited in this fashion."

Alan Tannenbaum, Esq.:
Some of the engineers, on the cover page, when you get their proposal, they let you know that there is a limitation of liability. So they highlight it. The particular provision that you're seeing here is some pages that are usually attached to the contract or in maybe the last few pages of it. And when they hand you the agreement they're not saying, "Oh, by the way, even though I'm giving you the certificate of insurance that's for a million dollars, if you ever bring a claim against me all my insurance company's going to do is write you a letter and say, "Here's $32,000 because that's the limit of liability. We're done." So I at least respect some of the engineers who right up front tell a manager or an association, "Look, this is my maximum exposure," but there's also engineers who hide it in the back pages and don't let you know that that's what they're handing you. Go ahead, Jon, I'm sorry.

Jon Lemole, Esq.:
And that's the natural reaction when you get that contract and you see the provision that says that the engineer's got an insurance policy of a million or $2 million liability coverage and they're going to make the association the additional insured on that policy. And that sounds all great. A lot of people get lured into thinking that well, this is perfect, there's plenty of coverage here if something goes wrong and the engineer does ... Makes a mistake. But buried, we've seen a time and time again. The fine print, as they used to say, are clauses such as these which totally undo what you think you may have so it's very important that you pay close attention to those things.

I want to touch on one other thing in regards to limitations of liability. When things go wrong and there's an engineering claim, a claim for a design problem, a design defect, it is very typical to make a claim, if you wind up in litigation, against both the insurance firm ... I'm sorry, the engineering firm. But don't forget that plans are designed, signed, and sealed typically by an individual engineer, a professional engineer. And normally they have responsibility. They have duties, professional duties, and professional standards of care.

So one thing that you may see, and this is allowed under a statute in Florida, Florida statute 558.0035 if you want to look it up, there are ways that engineering company can potentially limit the individual engineers own exposure personally for their professional malpractice. There's some very strict things that have to happen in that agreement. There has to be boldface, all capitals, five points bigger than the rest of the language in the contract saying that the individual engineer is not liable. So pay close attention to that because here's what happens.

Here's why that's important. You may sue an engineering firm. On a very large claim, you may reach the limits of their liability. You may get an excess judgment over and above what the insurance coverage is and you may never be able to collect against that engineering firm because typically what ... Engineering firms may not have capital, they may not have property, they may not have buildings that they own, they may not have large bank accounts that you can go after. And so that's why it's important to try and also keep in the mix, so to speak, the individual engineer because they're the ones that are making the decisions, designing the plan, signing and sealing the plans so that's another area that you should pay close attention to. All right. So limitations of liability being the first thing.

The second area where we typically see engineering firms and their insurance carriers try to adjust risk are in very craftily worded indemnification clauses. So what is an indemnification? An indemnification is where one party contractually obligates itself to cover damages, costs, claims, defense costs, attorneys' fees, it can be any number of things or all of them, assessed to another party. It may include the duty to defend the indemnified party if a claim is brought against the indemnified party. So damages, and attorneys fees, and costs, and litigation costs they're all at stake here. Brian, go to slide five, please, and then we'll come back to this one.

So you may get an engineering contract with a very, very long paragraph under the heading of indemnification. And folks, I'll tell you sometimes I read them and I glaze over them so I can understand if you're reading them. They are long, they're confusing, they're full of a lot of legal terms. Okay. But here's some things that are easy to spot and you should be on the lookout for it. So taking that first paragraph which is an indemnification provision in an actual engineering contract that we've reviewed. "The engineer shall indemnify and hold harmless the client," meaning the association in most cases. And I'm going to skip here in the interest of time. "Against any and all claims, damages, losses, and expenses to the extent, they are caused by the negligent acts, errors, omissions of the engineer and its employees and the performance of its services under this agreement."

Okay. We're good so far, right? The engineer's saying, "Look, if we screw up and you get sued, our design causes somebody to be injured on the project or a pedestrian to be injured because we didn't design safety measures correctly, we're going to indemnify the association." Okay, we like that. Here's where it gets a little tricky in the next section. "The client shall indemnify and hold harmless the engineer from and against any and all claims, damage, losses, and expenses arising out of or resulting from the performance of the services provided that any such claims damage loss, or expense is caused in whole or in part by the negligent act or omission and or strict liability of the client," meaning the association. "Anyone directly or indirectly employed by the client," contractor.

So here's what that means. Even though the engineer may be partly liable, if the association is partly liable, if the contractor is partly liable, that triggers the association's duty to provide complete full indemnification including perhaps attorney's fees and defense costs to that engineer. We don't like that. That is not a very good provision for the association to agree to. And so you should be on the lookout for something like that where the indemnification is not reciprocal. Where one party's being asked to do more and typically, the association is being asked to do more than the other side is being asked.

Alan Tannenbaum, Esq.:
Jon, you may have glossed over something there though. Because if you look at the first section that you quoted, you see where it says they're subject to the risk allocation provisions? So even though the engineer here, for their own negligence, is indemnifying the association, the limit in this contract is going to be ... Let's say there was a $10,000 limit of liability, that indemnification is also limited by the same limit. They stuck that subject to the risk allocation provisions in here. Even on the engineer's indemnification, it's limited.

Jon Lemole, Esq.:
And the fact of the matter is that under Florida law there is ... Not to get too technical here. A lot of times these types of provisions aren't necessarily necessary because we have something in Florida, negligence law that's called comparative negligence. And basically, that allows the fault to be a portioned among and between all of the parties at fault. And sometimes what you see in these indemnification provisions is an effort to contractually change that. And a lot of times these indemnification provisions create a situation where we go back to something that used to be in Florida law which is no longer in Florida law and has been pretty much overruled and statutorily gotten rid of in most states, something called contributory negligence.

Contributory negligence used to be a defense that if the party suing was at fault in any way, in any proportion by any percentage, that was a complete defense to the party, person being sued. So you'll see that a lot of these indemnification clauses are trying to change what's already the law in Florida in regards to comparative negligence and create something that looks a lot like the old contributory negligence defense which has been overruled and changed as violating public policy at least in this state and plenty others.

Let's look at the second clause on this slide. "For third-party claims to the full extent permitted by law, the client," again, that's the association, "hereby agrees to indemnify hold harmless and defend." So puts the association in the position of being an insurer with a duty to defend the engineer from and against all third-party claims including bodily injury, property damage, products liability, demands, damage, losses, causes of actions, so on and so forth caused or alleged to have been caused by anything other than the negligent performance of the engineer of services under this agreement related to the project.

So you may find yourself in a situation under this clause where if somebody gets injured, that person sues the engineer, the owner, the association, the contractor basically. You know how it goes. You've heard this before. They sue everybody. And if the engineer raises the defense that it wasn't a pro ... We didn't cause this we're not at fault here. Even if that may be contested, arguably this provision creates the possibility that the association may have to provide defense costs for that engineer. That can be very expensive. I don't need to remind you that lawyers are ... Can be very expensive, especially in litigation.

So these are very, very dangerous provisions. And when you see in the fine print of an engineer's contract anything having to do with indemnification, you should be consulting a lawyer because they're difficult to understand and there are a lot of legal implications to these clauses that you should be getting some legal assistance on. Brian, can you go to ... What slide is this? This is five or eight? Which one is this, Brian?

Here's another indemnification provision. "Client shall indemnify defendant hold harmless the consultant from and against any and all claims, damages, losses." In the interest of time again, I'm skipping a little bit. "Provided that any such claim damage, loss, or expenses caused in whole or in part by the negligent act or a mission of the client or anyone directly or directly employed by the client." So again, this is another situation where the engineer is attempting to provide some insurance against having to fund and potentially pay damages relating to claims brought against it where there may be somebody else partially at fault for this claim.

So again, a worker sues the engineer, a passerby sues the engineer, the contractor, the association. You can bet that the engineer's going to raise this claim and say, "Well, to the extent that any of this loss is the fault of any of these other parties, then our defense costs are covered, our damages are ... Any damages assessed against us may be covered." And again, not only are these difficult provisions, a lot of times they're ambiguous when we actually go to apply them in litigation and a court. A judge has to make a decision as to what this means. So again, you see these, these are important provisions to be on the lookout for and get some advice before you agree to them. 

Alan Tannenbaum, Esq.:
Jon, let me add too on insurance side. So these indemnification provisions like this have been in standard owner general contractor contracts for decades. And the insurance companies who insure contractors know that the contractors are indemnifying the policies. Their insurance policies have been written to cover this indemnification exposure for a contractor. These are new clauses that engineers are starting to embed in their contracts and your liability policies have not adjusted yet to meet this indemnification exposure.

So I would definitely recommend every association that's getting into a contract with an engineer, take the engineering contract before you sign it, go to your insurance agent and say, "Look, here's the indemnification provision in this contract, if the engineer takes advantage of this is this covered under our association's liability policy? Will the insured utilize his insurance money to pay this indemnification exposure?" If they say no, the next question is to your agent, "Can we buy that coverage? Can we buy a writer that will protect us from this indemnification exposure?" The real bind is when the carrier comes back and says, "We won't do it. We will not cover this exposure," and then you're putting association assessment money at risk to back up this indemnification exposure. It is a real problem. Go ahead, Jon, I'm sorry.

Jon Lemole, Esq.:
All right. So we're going to move along here a little quicker because we want to give some time for questions and answer. Another thing to be on the lookout for is something called a waiver of consequential damages. What are consequential damages under an engineering contract? Consequential damages under an engineering contract are ... And it may say in the provision things like loss of profit, loss of business revenue, rental expenses, storage costs, things like that. But also consequential damages in the area of insurance coverage is a very, very specific term. And I will tell you that most professional or commercial general liability policies don't necessarily provide insurance for the defective work done by the contractor, defective design done by the engineer. In other words, it doesn't cover having to redo the work. What those policies typically cover is if that defective work causes bodily injury, property, and other damage to other property at the association.

So take a very simple example. You've got a new roof being put on, and for a variety of reasons the roof design and installation is defective. Well, insurance isn't going to cover those folks to redo the roof but if that defective design and installation causes water leakage, causes moisture intrusion, causes damage to the substructure, causes damage to the frame, it causes damage to interior units, all of that is consequential damages and that's how insurance companies define it.

And so while you may be looking at a waiver of consequential damages provision and it says, as in the AIA contract, it says "To include but not be limited to," and it has all these things about lost revenue, lost profits, storage costs, rentals, things, and you say, "Okay. We can agree to that." That provision can also be construed as providing a defense to an insurance carrier who's ensuring that engineer or that contractor, for that matter, as a basis for saying that we can't ... We don't have to cover consequential damages either because you waived it. So when you see a waiver of consequential damages, even if it has a list of things that don't look that onerous, you need to pay really close attention to that because of the way that the law defines consequential damages and the way that insurance carriers and policies typically define consequential damages. The last thing I'm going to talk about-

Alan Tannenbaum, Esq.:
Jon. Let's move through assumption of risk really quickly, Jon.

Jon Lemole, Esq.:
Assumption of risk. Assumption of risk is similar to limits of liability. If you look at slide six you'll see that it's a very similar type of limit of liability clause. And to look at it real quickly but the client assumes the risk. Now, this is not necessarily limited. It's worded a little bit differently but basically, here the client assumes the risk. The association assumes the risk of any damages in excess of $10,000 or the amount of the fee that was paid to the engineer. It's a limit of liability but said a different way. So it may not say limit of liability it may say assumption of risk or it may say here risk allocation, which sounds pretty benign but you need ... Anytime you see that risk allocation you need to pay attention to it. Okay. So those are four key areas or things that you'll see in these contracts. Now I'm going to flip it over to Brian. Brian's going to talk about a couple of other areas where you should have bells ringing when you see them in these contracts and get some legal analysis on them.

Brian Tannenbaum, Esq.:
Right. So good morning. Some common clauses in these contracts that are a little bit more simple.

I'll talk loudly anyways. So the first thing is reduced statutes of limitations. So under Florida statute 95.11, there's a four-year statute of limitations for negligence claims or claims based on a contract. A lot of these engineers will stick into their contracts a reduction of that statute of limitations that's not based upon any sort of reasoning or method, it's really just a way to shorten the time for an association to discover any type of defect. The statute of limitation starts running as soon as that damage or negligent act was discovered.

But under this clause that they've been sticking in these contracts if you don't discover that within two years ... Or if you don't bring a claim within two years, your claim is barred. So what the problem is, is you now have basically two years to go speak to an attorney to discuss these claims and if an attorney doesn't see that two-year statute of limitations has been altered in the contract they may be expecting a four-year statute of limitations for these claims and you may miss the statute of limitations deadline and your claim may barred. So it's very important to pay attention to any limitations periods that they put into these contracts.

Another issue that comes up a lot is arbitration and no prevailing party attorneys fees. So most of these contracts that are not in arbitration contain prevailing party attorneys fees but some of them don't. But what a lot of them include are very, very narrow arbitration clauses that require sometimes just an arbitration paid for by the association. Sometimes the arbitration is split between the parties. Usually, they have to follow the American Arbitration Association rules. What that removes is the association's right to take it to court and have a trial by jury.

They have limited discovery involved in arbitration. You don't get to use the rules of civil procedure. You also may have an arbitrator, and you most likely will have an arbitrator who is in the construction industry, is in the engineering industry, and is not necessarily a person who lives in your area who is a homeowner, who is a condo owner, who lives in an HOA, who has any sort of sympathy for an association. So we always prefer that these claims are resolved in circuit court because you have that opportunity to present it to a jury of your peers. Another thing with arbitration is that they are, for the most part, not appealable. So the arbitrator's decision is the decision and that's what you get. So there's no way to appeal up to a higher court if the arbitrator makes an improper decision based on an improper interpretation of the law or an improper interpretation of the contract.

The last thing I'm going to talk about is the venue clauses. So most of these contracts that allow for circuit court claims have a venue in the contract. And you'd expect that if, for instance, a contract or a job was performed in Lee County, that the venue for the lawsuit would be in Lee County. But a lot of these contracts insert either on purpose or inadvertently have venue clauses that are in different counties in Florida. So you may have an engineer that's based in Lee County, a condo association in Lee County, the work was done in Lee County, all contractors were in Lee County, but the contract calls for venue in Charlotte County or Pinellas County or Marion County or any other county. So it's important to make sure that you have a venue that makes sense under the terms of the contract.

It's also important because you may have a contract with an engineer and a contract with a contractor that call for different venues. And what this doesn't allow is for you to bring those claims together and you'll be required, as the same in arbitration, you'll be required to bring your claim separately against the contractor and the engineer and it will increase those litigation costs. I think that's all I have for now.

Alan Tannenbaum, Esq.:
Okay. Again, these are clauses that could come back to bite you. There's so many now embedded that it really it's good to have them reviewed. One of the challenges with the engineering contracts is also in the phasing of the work. You might hire an engineer to do an investigation, but within that contract, they talk about stage two of their work may be to draw a set of contract documents, and stage three may be contract administration. So you signed a contract two years ago and now you've asked the engineer to do this project manual but you don't remember that this contract that was signed a year or two ago, that was really for the purpose of investigation, those provisions are now buying the association as you go into the next phase which is the project manual.

So the liability of an engineer for inspection is usually not that great. So you might sign one contract that but before the project manual is created go back managers and look at that contract. Pull it out and say, "Okay, what did it have in it that the association may have signed?" That's the time to negotiate a new contract before the engineer gets the work to actually do the project manual.

So here's a sequence. I think if we haven't frightened you enough during the progress of this session about what engineers are doing in their contracts, call me I'll frighten you more. But the key is, tomorrow if an engineering agreement is put in front of you, or a consulting agreement, look carefully at the terms. You can contact a lawyer like our firm to tell you what is deleterious in there. Most of the engineers will negotiate. They will change their limitation of liability from $10,000 maybe to the policy limits. Sometimes they will remove the indemnification clauses. They will clear up the venue problems. All the things that we have occurred on a daily basis we're negotiating with engineers to correct these issues.

What's difficult is after they've already done their project manual and you're about to go into ... Because a lot of times that's when we get a request from the association to look at the general contract, the proposed general contract. A bidder's been accepted for the work, would you please look at the general contract? And we say almost invariably "Yes, but let us also see the contract that you have with your engineer," and that's when we usually find these things. A little bit late because engineers are very reticent to say, "Okay, we'll agree to alter our contract but not to apply the work that we've already done. We'll agree for the contract administration portion of the contract to alter it," which is a little bit late in the process.

It's again, the major liability's going to be during the design phase. What's in that project manual? Where it fell short? Where it fell short in the design? And that's the part, the most important part, to have an appropriate contract for and it may already be too late. The message out to managers is, when any engineering agreement comes in front of you, that's the time to review it. If you happen to have an existing contract where all the engineer has done so far is the investigatory work they haven't the project manual yet, before they do the project manual look at the contract and that's the time to negotiate a different contract for the remainder of the work which is certainly possible at that point.

But call us up we're open. Anytime you get a contract and you just want to send it to us as a manager and say, "Give me the talking points to my board as to why we shouldn't sign this agreement like it is, or they shouldn't," we're happy to do that. And I'll do that gratis for every manager out there. Anyway, solutions. Jon, tell us what the solution to these issues are besides having a good construction lawyer and reviewing the contract, what could be done on a broader basis industry-wise to mitigate against his problem?

Jon Lemole, Esq.:
Right. Well, as Alan said, and just reiterate it really quickly. Some of these are negotiable and we've had some success negotiating them. But when you can't renegotiate them there's some other things that perhaps you can look at, and more importantly, maybe there are some things that if enough people put pressure on engineers and even legislators, maybe there'll be some creative ways of dealing with some of these issues. Engineers price their work based upon their risks. And so if they have these broad indemnification clauses and limits of liability, that may be a part of what goes into their calculation of how they're pricing the work that they're planning on doing for your project.

And so if you can't change the risk allocation one possibility is to change the pricing. And I know nobody likes to think about paying more but it may be worth it to pay a little bit more to the engineer in order to induce them and their carriers to alter that risk allocation. And it's a downstream thing. You pay the engineer more, the engineer may get some additional coverage for that project or expanded coverage for that project so they'll have to pay a little bit of an extra premium for it but that's one option.

The other is related to the premium part of this. Per project premiums paid by associations for enhanced coverage. So creatively you may go "Bring the engineer's carrier into the conversation." And is there a way that we can perhaps cover that difference in premium as a way of inducing the carrier, the engineer, to be more comfortable with a different risk allocation on the project?

And then there's a third option which we've not found yet, but if enough people pursue it maybe it will be created. And that is through the creation of some novel insurance coverages. And one of the things that we've been talking to a lot of insurance agents, brokers is whether or not there's coverage that an association can buy that would cover the association's risk under these allocation provisions that put more risk on the association.

So it's almost like gap insurance. Some of you may be familiar with gap insurance with autos. You have a period of time where you've got to provide some additional insurance from when you buy the car and you actually take delivery of the car or whatever. But we've gone to some insurance producers to see whether there's a product like that and so far we haven't found it. But the insurance industry is always looking for ways to make money and if they can come up with a way of coming up ... Of creating a policy, you may soon see that there are coverages that the insured ... Sorry. The association can buy. If you can't get the engineer to readjust those indemnification provisions, those limits of liability provisions, those assumption of risk provisions well, at the last resort maybe there's some insurance that the association can buy to cover that additional liability or risk that the association faces.

Alan Tannenbaum, Esq.:
Jon, we have reached out to the insurance industry and they're not knocking down our doors saying those policies currently exist. It's a matter of advocacy by the Community Association industry to fill that gap. Years ago, there was a $12 million repair project we were involved in, the engineer had $1 million of coverage. And we went to the engineer's insurance company and said, "Look, we don't think $1 million is sufficient, can we buy up the coverage?" So what we did is we negotiated a 14,000 premium just on the project to raise the engineer's limits of liability to $5 million and the association paid the premium. And on a $12 million job at least had $5 million of a professional liability coverage for the engineer. Now again, in today's market, that's much more difficult because they're all running for the hills on all insurance coverage in Florida, but we're going to certainly keep pressing for them. Jon, I don't know you were concluded but we should leave a couple minutes for some questions that I see have come up.

So I have a question from Neil. Should associations have attorney review liability carrier's policy limitations on this? Absolutely, but I will throw it back on the agents. If you have a very good insurance agent, that's really their first line obligation to go back and question their own insurer about what the coverages are. They asked the question about the indemnification of whether that's covered. That's part of what an agent gets paid. The service that they're to provide is be the conduit between the insurer and the carrier, make sure that these risks are covered. Once they come up with a solution we certainly are there to review it but your agent really has the frontline responsibility. And get them to indicate in writing that yes, this policy now does cover this risk and pin that down. Let me see.

There's a question. All right. Asking if there's an AIA form agreement. The owner architect agreement let's say under the AIA is not a bad form. It historically did not have these limitations of liability clauses in it. These are recently added industry requirements. Frankly, I don't think an owner engineer agreement needs to say much. Here's the service we're providing, here's the charges that we're making. The standard of care is already set by state statute of what an engineer's standard of care is in Florida. And when I see a one-page contract, as I sometimes see from an engineer, here's my rates, here's the cost, here's what I'll do, and here's my insurance, and you get your date insured under their policy. It doesn't need a lot of language because their professional liability is already set by state statute and regulation so it doesn't have to be a dramatically long contract but they have made them so.

If any of the folks who've been around a long time remember, we didn't have any lengthy owner engineer contracts. They were pretty basic one or two-page documents maybe with a price sheet attached. Only the engineers have made them complicated. Let's see if there's anything else. There's no new legislation on inspections. I just asked that. Unfortunately, the legislature was involved in other things this session. Didn't tackle insurance, didn't tackle the inspection situation state-wide on older buildings, and certainly, of course, didn't cover any of the insurance issues that we have. Nothing on reserves. Nothing passed. All the lawyers who are going to do the legal update this next year saying, "What are we going to talk about for two hours because legislature didn't do anything?" So that's not going to happen. All right. Well, we've hit noon.

Michelle:
Alan, there's one more question from Alessandra. It's if the developer is handling the project should the HOA still seek additional protection?

Alan Tannenbaum, Esq.:
So if the developer's handling a project, that's the way I read it, you better make sure that the developer is bringing insured people to the site so there certainly should be a question that's asked. But Alexandra, there's probably much more to that question so it's nothing we're going to handle today.

Jon Lemole, Esq.:
Well, it would've also probably depends. Who's the contract with the engineer between? Is it between the developer and the engineer or is the developer making the contract between the association and the engineer? That would definitely come into play.

Alan Tannenbaum, Esq.:
Send us more information on that, Alexandra. So we will make this recording available. So if you want to send this along to anybody it'll be available probably in about a week on our website. And again, we're always happy to sit down with a group for an hour gratis. If you have a project coming up, you have questions about engineering contracts, we offer a free hour consultation so take advantage of it. If you're a manager, you want us to talk to your board, we'll do that, and just let us know. Contact Michelle. And we will get the certificates out for the managers who attended today and I hope you found it valuable. And we will see you next month with hopefully another topic of interest for you. Thank you, everybody.

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Notice of Turnover...Now What?

Alan Tannenbaum, Esq.:

All right. It's 11:04 and we are going to begin. So I'm Alan Tannenbaum. Tannenbaum, Lemole & Kleinberg, we have offices in Orlando, Clearwater, Sarasota, and Fort Myers. And that basically defines the market that we work in. From the Space Coast across Central Florida, little bit north of Tampa Bay and down to Naples. We stay out of South Florida and stay out of North Florida. I won't go into the reasons why, but we do work also in Palm Beach County and above.

We are construction lawyers. We have extensive experience in taking groups, HOAs and condos, through the turnover process, handling turnover related claims. And those could include really buildings up to 10 years old, when you talk about construction defects. And we also do repair consulting, so groups come to us when they have a major repair project, we help prepare the contracts with the engineers and the contractors. Help enforce those contracts, help clean them up after, if a job goes south. Very much involved in that process.

I've been taking groups, personally, through turnover now for over decades, condos and HOAs. Personally, I've seen every variation on the theme. Turnovers that have gone very well, turnovers where groups have struggled to get information for years after turnover. What we're going to talk about today is a formula for a successful turnover.

I'm going to start the first segment, which I'm going to handle, is really the pre-transition part. I know there's some folks on the call who are pre-transition situation, and I'm going to go through some of the points about, if you're in a pre-transition situation, what can you do to get yourself ready for a transition that may be occurring in six months, a year or even two years? And here's my points.

Certainly attend board and association meetings to gather as much information there as possible. Not that most developers operating their boards of directors give out much information, but it's always good to stay involved. Attend, read the minutes that the developer may produce during the period of association developer control.

Certainly inspect the property. If you find conditions that are defective or deficient, place a developer on notice of those. And one thing that's really important is, whether it's a committee or a group of owners that have formed ad hoc, and they're reporting things to the developer, reporting problems is fine, but you don't have any authority to settle anything, agree to anything, sign off on anything. You don't have authority under the documents. You don't have the authority under statute.

Tell the developer everything that you see that's wrong in the property, or you think is a problem. But when the developer comes back and says, "This is what we intend to do to correct it." And says, "What do you think? Do you agree with it? Do you approve of it?" That's not the role of owners or even a committee pre-transition to sign off or agree on anything. You don't have the authority to do that. They'll sometimes put you in that position.

Meeting city and county authorities, border management district. I tell groups, pre-transition, go make friends at the building department. Go make friends at the planning department. If you're an HOA, get the development order for your property. Usually at some sort of planning department. See what it says. There may be a bond where the developer has some requirements to meet before the bonds release, and know what that is. Maybe you need to remind the public official about what their own development order says. You empower them to enforce it. Get your documents from those amenities that you've got. I ask everybody to be on mute, if you can. [inaudible 00:05:02]. I think we can still be able to find them. There we go. Okay.

You have the right to make document requests to the developer for association documents, not developer documents, but everything in the statutes that is an association record, as an owner, pre-transition, you're entitled to those records, so ask for them. There's a procedure under the statute. Sometimes you have to set it by certified mail. Now, with a condo, you have a state agency that you can go to. If the documents aren't produced, you can make a complaint to the state.

That same state agency does not perform the same service for HOA. Other than go to court, there's not much if you're in an HOA, and the developer association is not producing documents, there's no real penalty involved, unless you go to court. Condo association or you're in condo, you have much greater rights to get the state to enforce those requirements.

Certainly, study the documents for your development. What some groups do, since it's usually easier to amend the documents pre-transition, some groups either with the help of a general counsel or not, suggest to the developer, "Look, can you change these particular provisions in the documents to make operations easier?" And if the developer is amenable to it, it's much easier for the developer to do those amendments pre-transition than go through the amendment process post-transition. So some groups do that.

Remind the developer of its turnover obligations. Look at the statutes and the developer copy of the statute. If turnover of a condo is three months away, other than the audit, the developer's got to turn over all of those association records at the time of turnover. Well, they need to prepare to do that. So you might want to remind them of that. "Turnover is in three months. This is to remind you that these are your requirements." And it might spur the developer to get some of those things done. With an HOA, unfortunately, as we'll talk about, developer actually has 90 days after turnover to produce anything. But it's good to remind under either the 720 or 718, what their obligations are.

You want to make sure that turnover occurs on time. I have never advised a group, in 40 years, not to accept turnover as early as possible, because it gives you the power to take action. It gives you the power of the purse string. You're not waving anything by accepting transition of association control. I never see a benefit for trying to delay turnover. Sometimes developers have to be reminded that the threshold under the statute has been reached. So you got to keep tabs, or somebody should keep tabs of what the unit sales are, to know, let's say at an HOA that you're approaching the 90% sellout. Time to remind the developer it's time to schedule the meeting and go through the turnover process.

Really important, you have the ability to start interviewing legal general counsel, construction counsel, like our firm, engineers, reserve specialists, CPAs, insurance agents, bankers, the whole gamut. And they will. They will come to your property, they will speak to you. You can speak to the current vendors if they're willing to, to understand what their maintenance contract is, what they're doing.

Don't interfere with what they're doing, but many of those companies are very interested in being retained, post-transition, and they generally will be cooperative and attentive to your question. It's really a time to get ready for all the folks that you're going to hire, or should hire post-transition. You can certainly start interviewing them in advance. It's a good opportunity to get a head start.

And this last item, which is politicking. I've seen many very qualified and effective pre-turnover committee who's done a lot of hard work, they're very well prepared to be great board members, they don't get elected. Somebody who has no experience with the community may run and get elected, but there's something more sinister that happens within some associations, which is some of the very smart developers find people within the community who are friendly to them, one way or another, and they are able to get them enough votes to be on the initial board.

I have gone through turnover with groups where the developer's cousin is one of the three board members who get elected post-transition. I have seen contractors who work for the developer who live in the community, they get elected to the board post-transition because somebody has made a great effort to collect proxies, votes, and those folks get elected.

If you're going through a great pre-turnover process, doing all this hard work, and you don't do the politics to make sure that you get a great slate of board members elected, you're probably at the end doing your community a great disservice. Don't forget the politics. Don't forget to get that great board elected post-transition.

There's one question, can a transition committee and current expenses, engineering studies consultation before turnover, and have the HOA pay the expense? Or can that only happen after turnover? Well, some developers give ad hoc or owner committee some money to hire engineers or lawyers and so forth. Allowed to come out of the association budget. Sometimes that occurs. And with the developer's permission, they could spend that money. Question is, who's the contracting party?

If you hire a lawyer pre-transition and it's association money that's being spent, as the lawyer is now being hired by the developer control association, does it cause a conflict? They seem to get around that, but who controls the work product? So I'm a little bit worried about those relationships.

The owners certainly can raise money voluntarily, and hire somebody. But for the most part, we believe that pre-transition, it's the time to know who the good experts, who the good vendors are out there in preparation for hiring them after transition, not before. I've seen groups raise their own money and get some work done in advance. So I've seen both aspects. With that, I'm going to turn the-

Brian Tannenbaum, Esq.:
Can you talk a little bit about what a transition committee actually is, and whether there's any authority for a transition committee to do anything?

Alan Tannenbaum, Esq.:
Thank you for the question, Brian. A transition committee has no statutory basis, no basis under the documents. It's a group of owners taking action without any specific legal authority. Shouldn't be signing contracts, certainly shouldn't be settling anything. Doesn't have the authority to say we are representative of anybody. Sometimes folks have that illusion, but there is not the authority. It's maybe an advisory board. Maybe they can investigate. They can make recommendations. They should not be deciding or agreeing to anything that purports to bind the owners. With that, I'm going to turn the floor over to Brian Tannenbaum, who's going to talk about the actual transition process once the meeting is called.

Brian Tannenbaum, Esq.:
Okay. Good morning. While you're preparing, you're getting your committees ready, you're doing all that research and looking for all that information that we just spoke about, the important thing when you're actually getting towards the meeting is to make sure that, one, that the nominating and voting procedures are accomplished per the statutes and the documents. For the condo act, it's going to be chapters 718.301. And for HOA, it's going to be 720.307.

What's important is you need to collect proxies for your desired slates for the board of directors. As we discussed, just because there's been some involved owners for maybe years before turnover, doesn't necessarily mean they're going to get elected to the board. And then all that hard work is basically for not, unless you can get elected later.

So what that requires is for you to get proxies from owners who might not be as involved, might not show up at the meeting. And once that process is over, you need to get those owners who haven't submitted proxies to actually show up at the meeting and vote. Because if you don't get your slate elected, you're going to have no control over how your association is run.

Another thing you need to do is make sure that the developer has produced all of the documents that they're required to produce under both the Condo Act and the HOA Statute. And then once that board is elected, they need to elect directors. So I'm going to go through some of the things that are required for, first, condos. So the first-

Alan Tannenbaum, Esq.:
Brian, before you get into that, I have some carryover questions from the first segment. The main question is the developer appointment of the transition committee. So again, this is another intelligent business decision on the part of developers to try to control the transition committee process. So they appoint people to it. They'll give them space to hold their meetings. They say who's on the committee and who's not on the committee.

My belief is that you can reject the entire process and just form your own ad hoc committee that's outside of the realm of the developer. The exception is there's some really large HOAs where I've seen developer appointed committees being pretty effective, but I don't like the idea of the developer controlling who the makeup is. It's one thing for the developer to facilitate it, it's a totally different thing for the developer to say, who could be on it, who can't be on it.

If there's a developer who is trying to restrict who could be on that committee, my preference for folks is that they all walk out and say, "We're going to do this ourselves, because this is an owner process, and we don't know why you're mandating or directing it." So be wary of that. 

Brian Tannenbaum, Esq.:
So for a condo, the first thing that this says is that if owners other than developer own 15% or more of the units, that the unit owners other than the developer are entitled to elect at least one third of the board. What that means is you'll never have a majority, the developer will always have the majority. And basically it's a way for you to have a voice on that board, but ultimately it doesn't do much towards pushing the developer to do anything, unless you have a particularly agreeable developer.

It also can lead to some issues. If you are in that spot and you have hopes of being on the board later on once it's controlled by the owners, you may have the owners coming to you for any bad decisions the developer made while you were in that one third spot on the board.

Next, the three years after 50% of the units will be operated by the association have been sold is the turnover date. Or three months after 90% of the units have been sold. What's required under the Condo Act for a developer to turnover to the owners at the turnover meeting are, one, certified copies of the declaration, bylaws, articles, minute books, other books and records, rules and regulation, the resignation of the developer directors. That's very important. The developer is supposed to resign all of their board members prior to, or at the turnover meeting.

The financial records, including the source documents, that's very important. Now, the audit, which is also very important, the developer actually has 90 additional days from turnover to deliver the audit to the association. While you may receive some financial records, you're not going to get an accounting audit of your association until, hopefully, 90 days at the most. They'll also turn over the association funds, personal property.

Plans and specifications, that's very important. The statute says that they are supposed to contain a certificate that they're as-built, but 99% of the time, there is no as-built set of plans submitted to the building departments. So it will be difficult for you to obtain as-builts if they don't exist.

Alan Tannenbaum, Esq.:
Yeah. We call those the unicorns of the construction industry, as-built plan. We rarely actually see a real set of as-builts turned over.

Brian Tannenbaum, Esq.:
Another unicorn is the list of all contractors, subcontractors and suppliers, which is very important for any warranty claims, anything like that, it's important to know who actually built the buildings. But again, with some of these large developers, you don't usually get an accurate list of subcontractors. We've had multiple projects that we've represented where either none or very few of the subcontractors on that list actually did any work at that property.

You need to get a list of your insurance policies. Certificates of occupancy and permits are important. The certificate of occupancy triggers that statutory warranty under the Condo Act per building. You need to have your contractor, subcontractor warranties. A roster of unit owner is always important. Any leases, employment contracts, any other contracts, and a turnover inspection report by an architect and engineer.

The developers turnover report cannot be relied upon long term for maintenance repair, or any kind of defect or warranty claims against the developer or the contractor. What that report is, is basically a reserve study. It's a visual only inspection. They will fly a drone up to the roof. They may not even get on the roof. They don't look at any of the flashings, the underlayment. They don't do much. It's just a visual, for the most part. And there's also no guarantee that the developer is going to fix those problems just because they're in that turnover inspection. And then lastly, a certificate-

Alan Tannenbaum, Esq.:
There's even more of a trap there. So when you mention the roof situation, the engineer flies a drone, and finds that there's three broken roof tiles, and that's what's in the report. The roof's going to last 20 years, and there's three broken roof tiles. So the developer says, "I'll go up on the roof and I'll replace those three broken roof tiles."

Well, the determination by that engineer that the roof's going to last 20 years is based upon a drone flyover, which no engineer in their right mind could ever come up with a conclusion that that roof's going to last 20 years from a drone flyover. The tiles may not be appropriately attached. The flashings of the roof system may not have been done properly. The underlayment may not have been attached properly. You can't tell any of that from a drone flyover.

But we have had groups recently who have said, "Well, we don't need to get our own engineering report, post-transition, because we already got one from the developer." It's not the purpose of that report. And I really think developers put this requirement in the statute because they supported us, really so they could convince groups that, well, we fixed everything in the report, so we're good. And then the group goes on its very way. That's a dangerous trap. Go ahead, Brian.

Brian Tannenbaum, Esq.:
Right. And another thing we've seen developers do with that engineering report is not tell the owners that it's a statutorily mandated report. So we've had groups that come to us and say, "Look at this nice report that the developer did for us on their time. They're so nice. Look what they did for us." Not understanding that the developer is required to do that under statute. It's not a free inspection because the developer is being especially nice, it's a statutorily required inspection.

Next we're going to talk about homeowners associations. So under 720.307, you have three months after 90% of the parcels in all phases of the community are conveyed, or such other percentage of the parcels has been conveyed to members, or such other date or event has occurred as set forth in the governing documents. Now, you'll find this a lot with homeowners associations. Most of the rules are dictated by what is in the governing documents.

Now, the developer wrote the governing documents. That's important to remember. The developer's attorney wrote those documents to put the developer in the best position at turnover, not the owners. Again there's a list of things required for the developer to turn over. Except for an HOA, they don't need to be turned over until 90 days after turnover. So here you have deeds, the CCRs, the bylaws, the articles, minutes, other books and records, resignation of directors, same kind of things, financial records.

Now, if you don't have the financial records until 90 days after turnover, it's very difficult to run an association. So make sure that you're pushing the developer to get you those things as quickly as possible. Again, a list of contractors and subcontractors, again, not going to be accurate. Insurance policies, permits, warranties, roster of homeowners, employment service contracts and an audit. What you don't see on here is plans or an engineering inspection. For an HOA, those things are not required, which is a big distinction. What makes it even more important for a new board to get those things done as quickly as possible after turnover.

Alan Tannenbaum, Esq.:
One of the things that's important, if you're an HOA, you better make friends with the planning department and the building department, because that maybe the only place you're ever going to find plans for your project or the water management district. That may be the only source of those documents that you'll ever have, because it's not required by the statute. So very important to, especially for an HOA to make friends with the government. Go ahead, Brian.

Jon Lemole, Esq.:
Brian, why is the list of subcontractors important?

Brian Tannenbaum, Esq.:
Well, the list of subcontractors is very important for an association to have for any kind of common area warranty that you may have to figure out who built the property to get any information later on if you have to bring any claims. And again, it's not always going to be accurate. There's not really a way to verify the accuracy of the subcontractor list until there's some sort of dispute with the developer, and they're required by a court to provide the correct list.

Alan Tannenbaum, Esq.:
All right. Let's get into the next section, which is post-transition. So you've done all your great work. Developers produced all their documents. You've elected a great board at transition. The board's now elected its directors. Jon, what should they be doing?

Jon Lemole, Esq.:
Okay. Well, we're finally in the section of the presentation where you have an owner control board that can actually start to make some decisions and do some things effectively. And so there's a handful of best practices that this newly minted owner control board should keep in mind and take a look at. The first is to retain general counsel, construction counsel, CPAs, engineers, reserve specialists, or at least consider retaining those folks. And here's why.

On day one after transition, the owner control board of directors comes into exclusive responsibility for operating millions of dollars worth of capital improvements. And, probably most importantly, the responsibility to budget for the maintenance and repair of those improvements in the best interests of the association. So when you think about the typical condominium, or homeowners association board, you have a handful of people who have probably great life experience, or have been very successful business people in their lives.

But I would venture that, in many cases, despite that experience, having responsibility for things like roads, drainage systems, lift stations, multifamily building exteriors and roofs. That's not something that most people have ever had to deal with. And so engaging the right folks to assist and provide good counsel to the board in discharging their obligations is a very good thing. So for example, you may have gotten, or you will have gotten a ... especially if you're in a condo, you will have gotten a turnover report and a developer audit.

I always liken that to buying a house and accepting a seller's inspection report. Brian touched on it a little bit in the sense that these reports that you get from the developer, they're designed to discharge the developer's statutory duty, but they don't provide a whole lot of great information. They're not detailed. They're not in-depth. They're not what you would expect from a detailed, for example, engineering report. They're more in the nature of a reserve report.

And in discharging its duties to act in the best interest of the association, a post-turnover board ought to make an independent investigation of the state of the capital improvements, and timeline to maintain, repair and replace these items. I mean, if one thing Champlain Towers has taught us, it's taught us all of the need to make accurate budgeting decisions from day one, so that reserves are there when the need arises.

Carlos, going back to one of the questions that was asked, Carlos, and I have to find his question, but he asked, what exactly is a construction defect? Is it just something that the homeowners are saying, "Hey, there's a problem with this thing?" In any kind of claim against a developer for construction defects, they're going to be motivated by things which constitute legally supportable claims.

What are legally supportable claims? They are claims that relate to violations of the building code. So construction and design practices that violated the Florida Building Code. They'll be motivated potentially by claims which address the deviation from the standard of care. In other words, what does a typical contractor performing the work that was performed, what do they do? What is a typical architect in designing these features or these elements of a building or the site improvements, what are those typical design elements?

And so it's not just simply a matter of this doesn't look right, or something appears to be wrong, a developer's not going to be very motivated by that. They're going to be motivated by things that are supportable in court. And that's where a good engineering report comes in.

Alan Tannenbaum, Esq.:
Yeah. It's also a deviation from the file plan specifications, which is why your engineer will look and see what the plans called for to ensure that what was actually built met what was in the permit documents. It's pretty evident with defects. I mean, if your building is cracking, and it's six months after transition, you know that that building's only going to get worse as time goes on. And that's the reason to get the engineering study is to have some support for, what's a visually obvious building defect?

Jon Lemole, Esq.:
Right. Okay. These are the types of professionals that the post-turnover board should be looking at. General counsel is an obvious thing. Every association should have a general counsel on retainer. That's a lawyer who's guiding the board through decisions regarding meetings, regarding violations of covenants. You need to have a lawyer that's there providing legal guidance on what the statutory requirements are for meeting notices and agendas, and also taking on the ability of the association to perform its assessment role and enforcement of covenants, because that's a big area that an association typically is involved with.

Construction counsel. We're construction lawyers. We think, and certainly good counsel to consult with a construction lawyer post-turnover, and especially if as Carlos has indicated in his question, there are concerns, or there's definite visual evidence of some potential problems, or maybe you've had a history pre-turnover that you're aware of, problems with lift stations, problem with drainage, problem with ponds.

That's where it's very important to consult with construction counsel, and see whether you have a claim, potentially. What is the potential value of that claim? And what action should the association may be take in regards to that? Folks, you all know that there's a statute of repose, and that there's a statute of limitations in Florida. We've talked about this a lot. The clock ticks, and if you wait too long on claims that you want to bring against the developer or the builder, you may find that the courthouse door is closed to you. And these may be sizable claims.

In any situation where you're able to bring a claim against the developer, the builder, subcontractors, you're essentially recouping money that may otherwise have to be a hundred percent funded by the association's members to fix a problem.

A CPA. Why is a CPA important? You're going to get an audit, and that's going to come within 90 days, or at least statutorily, within 90 days after turnover, in either the condo or the HOA regime. That audit is arranged for by the developer. There's no question in my mind that a turnover, a post-turnover association should obtain an independent audit of the books and records, because you want to know whether that developer has funded reserves correctly. And this happens a lot. We've seen this, that developer expenses have been paid out of association funds.

And there's time and time again where an independent audit has found money that's due to the association, where reserves haven't been properly funded. This is a very small subset of condo cases, but some of you may be familiar with condo conversions. That maybe a coming down the line in Florida, with all of the apartment buildings that are being constructed. Eventually there will be probably a handful of conversions of apartments into condominiums.

And under the conversion portion of the condominium statute, if certain reserves are not properly funded, then that conversion developer owes statutory warranties, whereas they would not owe statutory warranties if they fund reserves properly and fully according to the statute. So that's a very, very important thing to be looking out for.

An engineer. We've talked about engineers a lot in these discussions. But it gets back to the idea that the developer's engineering report, or the developers' turnover report, it can be done by an architect or an engineer, but that report is a very, very limited investigation of the building. And a lot of times, even though there are problems, as Alan said, the report is going to say that the roof still has 20 years of life left. The pavement still has 40 years of life left, and so on and so forth. It's not until you get a really good forensic engineer who gets in there and looks at all of these things in detail, that you may find that, no, that report is really not complete. There are other things that should be addressed.

And that goes hand in hand with a reserve specialist. Have an independent reserve specialist look, and especially after an engineering report, look at what the reserve requirements should be, what kind of reserve funding the association should be implementing. And we've seen that this is vitally, vitally important with some of the recent things that have happened in South Florida. Just as an anecdote, I saw an article this week. I think it was the City of Miami or Miami-Dade County is shutting ... Condemning, I think it was an apartment, but another high rise building, failed its 50 or 40-year inspection, and is being basically shut down and people are being told to get out.

Alan Tannenbaum, Esq.:
Jon, I like to make a point about engineering reserve studies. The purpose of getting an engineering study, the main purpose of it is to create a baseline for the new board in the determination of their maintenance and repair responsibility. I mean, how do you know what to budget? How do you know what the long term maintenance plan should be? Unless you know precisely what you're dealing with. The main purpose of that engineering report is to create a knowledge base for the board in confronting, potentially, years of repair maintenance and reserve determinations.

If it reveals problem, instead of discretionary act on the part of the board as to whether it wants to get into a claim situation or not. But we're a proponent that every board, whether it's an HOA or condo, coming through transition, because maintenance and repair is a main responsibility for a condo or an HOA, either association-owned property in an HOA or common elements in a condo, that's the major responsibility.

The engineering report is a crucial piece of information by which, for the board and management to make some great decisions. And that's why the investment should be made. And if certain groups decide on the basis of that engineering report, or an audit that is an interest in having somebody else pay for that, those repairs, then we certainly can get involved, but every group should know about their infrastructure and know what they're repairing and maintaining.

Please contact us about which engineers to get in there, because there's some that are appropriate for the purpose, who are willing to get into a claim situation that's necessary. So we like to get in there early to give some advice on who to retain for those purposes. I personally like the reserve study to be done by a different engineer or a different company that does the defect study, or the engineering investigation, because it could eventually cause problems later in trial.

And I've seen it where an engineer has called out significant problems, let's say in a roof, and they're in trial. And somebody pulls out this reserve study that they did at the same time that put a 20-year roof life on the roof. And they have to explain why they put that 20-year figure on there, because that didn't presume any defects in that roofing system.

Again, putting a number on that type of roofing system in a general fashion is something that lasts 20 years, but it could be a defective installation of that type of roofing system, which may need to be replaced at three years. And they're caught by the fact they put this 20 year statement. So they serve a different purpose. I say get a reserve specialist to do the reserve study, hire an engineering firm, to do the building analysis, and it ends up avoiding that potential conflict. Go ahead, Jon. I'm sorry.

Jon Lemole, Esq.:
Thanks. There's a question. What is the statute of limitations for claims against the developer? I'm going to talk about that really quickly. The statute of limitations on construction defect claims is four years. And that's four years from discovery, or four years from when the defect should have reasonably been discovered. Now, understand there's a slight wrinkle in condo land, because the statute of limitations is to hold until turnover. So that doesn't run until turnover occurs.

That's a pretty short period of time. I mean, I know four years sounds long, but it's really not that long, and it comes up quickly. And especially if you have obvious open patent types of things, like you're seeing problems with your ponds, you've got lift station problems, you've got stucco that's obviously cracking and failing. You don't want to wait for that because there's a lot of things that need to happen before you file that claim in order to put yourself in the best position. Don't ever wait. If you see these things, you ought to be talking to a construction lawyer, and evaluating what needs to be done from there. All right, we're going to some of these other ... Sorry.

Alan Tannenbaum, Esq.:
Let me just avoid some confusion on warranties versus statute of limitations. So if you're a condo, there are specific warranty periods during which you need to discover the defect in order to take advantage of the statutory warranty. You then have four years under the statute of limitations to take action on that.

But another important deadline is 10 years. So 10 years is the outside period for a latent defect, a defect that was not discovered early on to take action on that. So if you're in a building that's nine years old, and a problem comes up for the first time that you've never seen before, under the statute of repose, you have one year left to take action on that defect. So there's a 10-year absolute outside period for a late defect to take action. So be wary of that. Go ahead, Jon. Sorry.

Jon Lemole, Esq.:
Okay. Review existing contracts to determine if any should be canceled, and interview possible replacement vendors. So after turnover, you will have inherited a bunch of contracts relating to the operation, maintenance, and management of the association. It's a good policy to take a look at those contracts, and determine whether any of them may need to be replaced. Now, there's some important things you need to know about this, depending upon if you're in a condo or in an HOA. The condominium statute at 718.302 ... Hey Brian, can I share my screen real quick? Can you ... All right. Thanks.

718.302 addresses canceling or effectively changing contract for the operation, maintenance, or management of a condominium. I could probably spend 15 minutes. This is how long the statute is. Okay. But the key takeaway here is that, and I've highlighted some of the important information here, any contract made by the association prior to the assumption of control of the association by unit owners other than the developer that provides for the operation, maintenance, or management of the condominium, first of all, it needs to be fair and reasonable.

If the association operates only one condominium, so we're going to assume that for the time being, just for purposes of this conversation, unit owners other than the developer and the unit owners other than developer have assumed control of the association. The cancellation of a contract for the operation, maintenance, or management of the condominium shall be by concurrence of the owners of not less than 75% of the voting interest, other than the voting interest owned by the developer.

So there are some very detailed rules in the condominium statute, dealing with what you can do with those contracts when you inherit them from the developer after turnover. So I just want you to be aware of that. Certainly if you have a question about that, talk to general counsel. If you're not sure of who to talk to, feel free to run the question by us, and we'll provide some assistance to you in that regard.

Now, let's look at the HOA section relating to that same subject, and it's a very different section, 720.309. Here's the thing that's important here. Any contract that has a term greater than 10 years that is made by an association before control of the association is turned over to the members other than the developer, and that provides for operation, maintenance, or management of the association or common areas, must be fair and reasonable. Only contracts over 10 years must be fair and reasonable.

So any contract that's less than 10 years in term, it may not be fair and reasonable. So that's why it's important to take a look at these. I will anecdotally just say that for those of you that are dealing with rec leases, there is a whole another set of provisions that address rec lease contracts. One of the big takeaways on that is that those leases cannot contain escalation clauses, but I don't want to get into that. It's a little bit beyond the scope of this discussion, but just be aware that there's a whole set of provisions relating to rec leases. Brian, you can share your screen again.

Alan Tannenbaum, Esq.:
So the takeaway, Jon, if you're in a condo, there's a procedure for canceling any contract that was made by the developer pre-transition. If you're in an HOA, it's got to be a contract more than 10 years, and has to be unreasonable. And there's no immediate ability to cancel it. You would've to go to court, in theory, to try to cancel it. HOA has got the short stick on that one. Go ahead, Jon.

Jon Lemole, Esq.:
Okay. The next area is establish banking relationships. Here's why this is important. There may come a time, for example, where the association needs a line of credit to fund a repair project, let's say. And many lenders, many banks will only provide lending to customers or associations that also give them their assessment collection, lockbox, general banking business.

When you're looking at banks, there's the initial need for a banking relationship for assessment collection, where you're going to have your operating and reserve accounts, lockbox services and all of that stuff. Choose wisely there. Because if there comes a time where you may need some funding of some sort, you may either be with a bank that doesn't really provide that, or doesn't provide it on very good terms. That's not their area. That's not something that they're very interested in. That may happen.

You don't want to have to switch banks for all of your regular business banking, all of a sudden, because you find yourselves in need of a line of credit. So take a real good look at those banking relationships. And when you're talking to those bankers to ask them about the potential for lending in the future if it's needed, and whether they provide it, and make smart decisions on the front end, so you can save yourselves some headaches on them.

Alan Tannenbaum, Esq.:
Jon, you got five minutes, so let's highlight the main points of the rest of your portion.

Jon Lemole, Esq.:
Got it. Consider document amendments. Again, Brian said the documents are drafted by the developer, and they're drafted with a view towards providing the developer maximum protection. Especially in the area of HOA maintenance and repair obligations, and especially with multifamily buildings. Those are documents that need to be very carefully looked at, because a lot of time those maintenance and repair provisions are not clear, and they can create a lot of problems for an association.

You may have an association having the obligation to maintain and replace roof coverings, but not necessarily roof framing. And so what happens if in the course of doing a re-roofing project, you find that there's framing damage, who covers that? Who's supposed to pay for that? Window is another big area. Everybody excludes windows, but what happens if the windows are the source of water intrusion, and that window water intrusion is now causing problems for stucco underneath, and the windows need to be replaced because they weren't installed right? Who's going to replace those if the association doesn't have standing to do that?

So it's very important to be looking at the governing documents and running them by an attorney to see if they make sense for the association being able to effectively operate, maintain, and repair the things that it's going to need to maintain and repair.

Establishing rules and regulations, and setting up architectural review. This is pretty common sense. You want to have consistent rules relating to design aesthetics and basically lifestyle issues in the community. You want to have a really good protocol for how owner request to do renovations are handled. And it's important to have those protocols. Why is that important? Because you want to avoid a charge of selective enforcement.

There are a lot of cases where associations have been, and this is a legal term, stopped from enforcing certain covenants relating to renovations or changes in design styles, because initially they didn't enforce them and then they choose to enforce them down the road, because they realized they made a mistake in not enforcing them. And that can get associations into a lot of trouble. So being very consistent in how you handle those things and having some protocol right up front is going to save the association from potential claims by owners in the future.

Alan Tannenbaum, Esq.:
Jon, with no discussion, can you just go down the rest of the items on your list?

Jon Lemole, Esq.:
Push developer to complete the turnover obligations. Gather remaining records from public entities. We talked about that a little bit earlier. Undertake reserve and engineering studies. We've probably exhausted that in the earlier discussions. CPA review of developer audit, I talked about that a little bit earlier. We covered that.

Establish warranty response and repair protocols. You want to know right at the very beginning, what is the association going to be responsible for? If it's a warranty claim, you need to be having a protocol for telling owners, no, you need to contact the developer or the builder directly for that, as opposed to-

Alan Tannenbaum, Esq.:
For unit issues.

Jon Lemole, Esq.:
Unit issues. Interior unit issues. It's always best practice to have interior unit issues referred first for warranty repair by the developer committees.

Alan Tannenbaum, Esq.:
Jon, let me make a point there, which is, you don't have to let the developer in to do whatever it wants to do. So a warranty response is a response by the developer that is going to be effective and long term. Not slapping some caulk up on a problem that's much more serious than that would entail. You're only obligated to let them in to do a long term intelligent repair. Go ahead, Jon.

Jon Lemole, Esq.:
Okay. Established committees. Look, the board is running a very large business, essentially. Three to five people can't do it all. So committees are very important, and they provide cover under the business judgment rule, so that the board can delegate certain functions to committees who can report back to the board so that the board is fully informed. And if they make a decision, they've made it based upon adequate evidence, information, due diligence, and that always is a good thing, especially when it comes to the business judgment rule, which provides protection to the board and the decisions that they make.

Inform the developer and other responsible parties of claims through construction counsel. That's just the general theme that we've run through here. If you've got potential issues that you want to bring to the attention of the developer, that should be handled right away. Don't delay. Delay can be fatal to seeking some satisfaction from the developer, the builder, subcontractors, whoever it may be. Get counsel involved, take a look at what claims you may have, and address them right up front. We're getting close to the end. I know we want to answer some questions, so I'll turn it back over to Alan.


Alan Tannenbaum, Esq.:
Yeah. Let me tie this all together. First of all, our outline is available. So whoever wants it, let Michelle Colburn know, and will get it to you, because this obviously covers the points that we covered today. We offer a free consultation of at least an hour for any group that's anticipating transition, who has gone through transition, to go over your individual situations in detail. Certainly take advantage of that, because every association's different, has different needs. And we also could give advice on general counsel, CPAs, engineers, reserve study folks who we feel are best situated to do the best work for you. So we are available for those referrals also.

We can stay on for a few minutes, a few folks who want to answer our poll, and we will let you know soon what is available next time. This program is available, will be available online within a matter of days. You can always go to our website if you want to listen to it again or refer it to somebody, the program will be available for that purpose. Or if you get tired and can't sleep one night and want something to put you asleep, you can watch it for that purpose, whatever purpose you want. We'll answer some questions. We'll stay on for a few minutes, but we are officially concluded. Let's see if there's any follow-up questions that we did not respond to.

Brian Tannenbaum, Esq.:
I've put them there on the screen for you.

Alan Tannenbaum, Esq.:
X out of it. Okay. There it goes. All right. I think we answered the first one, which was you need an engineer to verify that there is in fact a defect. You can't rely on the lay person within your community. The issue about appointment at turnover, I'm going to have to defer that question to one of our learned general counsel. And I think they're divided on that.

For instance, at turnover, it's a board of five, and there's only three people get elected. I would say that those three would be able to fill the other two seats. But there may be general counsel who might not agree with me, but that seems logical. If there's only two elected, I don't think those two can fill three seats, but three can fill the other two seats.

If there's not an audit within 90 days is one of the questions. If you're a condo, you can go see the state, and say that the developer failed to comply with that section of the statute, and the state can find the developer, then take action. If you're an HOA, you're out of luck, unless you want to go to court. That's what the legislature unfortunately left HOAs with. But a condo association can go ask the state for relief on that.

Okay. The developer failure to fund reserves. Yes, that is a potential claim against the developer going back, to try to recover the full funding of reserves. Understand in a condo, developer reserve fundings are required after at least the first two years of association operation. HOAs, a lot of times the reserve requirement is optional, not a required obligation of developer. It says a developer may fund reserve accounts.

You won't be able to enforce that if the developer in fact didn't do it, or underfunded them when it was a voluntary act on the part of developer under the HOA documents. Some attorneys say that since turnover is statutorily mandated lack of quorum does not hinder the election in a turnover meeting. Not going to touch that one. That would be a great debate between general counsel.

We talked about the reserves. Would it be considered a conflict of interest for the commercial condo developer attorney to be retained by the association? That's a difficult one. There are lawyers who serve as association counsel pre-transition who end up being the post-transition attorney. If they personally are representing the developer, then I think it would be problematic for that same lawyer to represent the association after turnover, if they were actually the developer's counsel.

I'm very curious as to why it is that that lawyer got hired by the post-transition association, if they were in fact a developer's lawyer. There's probably a really interesting story behind that one. Good luck with it. We've hit 12:07. I think we've answered all the questions. I hope that you found the session valuable, and we will see everybody next month. Thank you.

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Smart Board & Property Manager Legal Guide: Building & Site Defect Negotiations - Pitfalls to Avoid

Alan Tannenbaum, Esq.:
Welcome, everybody. We're going to get started in about two minutes. Just want to say hello to make sure that you know you weren't missing anything. We usually give a few minutes for people to get on. So in about two minutes we're going to get started. (silence). Okay. One more minute, we're going to get started. (silence). One more minute.

We're going to welcome everybody in and a few more people are joining us, and we'll get started. Any questions you have, submit them through the chat feature. And I'm being told to get started. So it's 11:04. Welcome, everybody. I'm Alan Tannenbaum. Our firm is Tannenbaum, Lemole & Kleinberg. And we have presenting today, myself, my partner Jon Lemole, and Brian Tannenbaum who's an associate in our firm. Our firm stays within the construction field as it relates to community association work. So we take condominium and homeowner association through turnover, handle construction and accounting claims that arise both for HOAs and condos up to 10 years old, which is the statute of repose which we're going to talk about today.

We also have been very busy lately with repair consulting for groups of any age that are undertaking major repair projects. We help them negotiate their contracts with their engineers and their contractors. We enforce those contracts either through negotiation or court action. We also do some complex covenant enforcement cases that general counsel don't want to take on, so that's basically our sphere. What we're going to talk about today are negotiations with developers and contractors. Much of it is going to relate to turnover claims, but we're also going to be talking about repair contract negotiations. So it should be applicable, at least portions of it should be applicable to everybody who's attending today.

When lawyers approach either new construction issues, or repair contract enforcement we have a lot of concerns. So today's presentations really are going to address those concerns. Things that you have to watch out for whether you're retaining a lawyer to help you negotiate, or whether you're trying to do it yourself. There are things that as lawyers that will concern us every day. Time limitations are certainly going to be a big issue. Making sure evidence is preserved, making sure you approach negotiations with power by having proper information and so forth. We're going to cover all those issues. But we're going to start something that's specific to condos upon turnover that we're always concerned about. And that's the issue of preservation of warranties. And as we go through this, any questions you have, send them through chat. But I'm going to bring on Brian Tannenbaum to talk about the whole subject of preserving warranties. Brian, you're on.

Brian Tannenbaum, Esq.:
Good morning. So I'm going to talk about condos first, and then I'm going to go a little bit into HOA purchase contract warranties and then repair contract warranties. But first and foremost is for a condo under section 718.203 the developer grants to every purchaser an implied warranty of fitness and merchantability. For the unit it's a three year warranty, for the roof and structural components of the building, the mechanical components, the electrical and plumbing elements, it's a warranty of three years from either completion of the building if it's just one building or from the completion of each building if it's a multifamily or multi-building condominium.

Additionally, the statute allows one year from turnover as an extension of the warranty period. For other improvements that are not within the unit and are not roofing or structural, the warranty is three years from the date of completion of that improvement. For contractors, subcontractors, and suppliers there's also a three year warranty from the completion of construction for the roof and structural elements, the building mechanical components, and the electrical and plumbing elements. The warranties granted by the contractors do not have that extension for turnover. So if you're at turnover, and it's been more than three years, your warranty with the contractor has likely passed. But if you get an engineering investigation done within that first year from turnover, you may still have a claim and you may still have warranties from the developer that need to be addressed.

Another thing to consider with these warranties is that they're conditioned on routine maintenance. Unless that maintenance is the obligation of the developer controlled association or the developer, so it's important to get an engineering study done within a year of turnover because it helps delineate any maintenance issues that were on the developer before turnover or on the owner controlled association after turnover. So that delineation is important because lack of maintenance is going to be a defense or an attempt at waiving the warranty because of the association's improper maintenance. So that engineering investigation can help you determine, one, where that line ends from the developers may to the owner's maintenance. And two, how to properly maintain your buildings despite what the developer was doing.

So that pretty much covers condos. For HOAs there are no statutory warranties. So if you want to rely on a warranty for an HOA as an association, you have to look at the purchase contracts of the owners. So it's really important to get your eyes on a purchase contract, and to have somebody look at them, if there are different developers, different sellers, the warranties can be different depending on each purchase contract. So it's really, really important to look at what the warranty says, look at the scope, look at any time limitations, look at any notice requirements, look at any repair opportunities that are required, and to make sure that you understand what those warranties cover and what they don't cover.

Lastly, for repair contracts if you're having roofing work done, if you're having stucco work done, any kind of repair contract, any kind of remodel or new construction, you're going to have warranties from the contractor, warranties from the manufacturer. And what's important is that you look at the manufacturers warranties because the contractor is not the one who's in charge of the manufacturer's warranty, you're in charge of the manufacturer's warranty. So make sure that you ask the contractor whoever is performing at work, that you have any manuals or product information because those are going to contain important warranty information that relate to the scope, any maintenance obligations, and anything like that.

And the last thing I'm going to cover under warranties is the warranty period which requires that the warranty or the defect be discovered during the warranty period. So it's not a statute of limitations, it just requires that the defect be discovered during the warranty period. So it's another reason why it's important to have an engineer go out to the buildings, do an investigation, and make sure that any defects are discovered during the one year from turnover that's allowed in a condo or during the warranty periods under an HOA or a repair contract. So it's very important because you need to have those defects appear during the warranty period, and it's not a statute of limitations. And Jon is going to discuss, not allowing claims to be time barred.

Alan Tannenbaum, Esq.:
Right. Before we move to that, Brian, and this is something we offer up to all the managers and boards out there. If you've just turned over or you have a contract that you feel you need to enforce, and you're concerned about time limitations, as a free service you send us your information, tell us when your buildings were certified for our occupancy, show us the contract, if it's a repair contract. And we will tell you if there are time concerns that you need to deal with. Because it is somewhat of a cumbersome task to review all of the conditions of warranties, and make a great decision as far as what it needs to be preserved. And this is something we deal with day in and day out. We can get to the time issue very quickly, and we're happy to do that gratis for anybody who contacts us about a situation like that. So with that said, Jon, what about claims becoming time barred?

Jon Lemole, Esq.:
Okay. So we gave the hard one on warranties to the young guy in the firm. This is a little bit easier so I'm going to run through this fairly quickly. But we've had many instances where a community with serious defects has waited until it's too late to bring claims against the responsible developer and/or contractors involved in whatever the project is. The development of the community or a repair project. What you need to know here is that Florida has some very, very strict time limits in which to file claims so that you can recover money in damages for serious defects that are discovered within your community. Defects that may have been discovered after a repair project and defective work by that contractor. Folks, if the clock runs out, you're out of luck. It's like the shot clock in basketball, it runs you're done.

We're going to talk about two different time periods that are at play here. The repose period, the statute of repose in Florida. Now, I've got up here the general statute of limitations section in our Florida statutes, which is Florida statute 95.11. And I'm going to talk about the part in red down below at the end of this section, and then we'll go to the part in yellow. But the repose period in Florida is 10 years. And that is a hard stop. 10 years from the completion of whatever the completion of the improvement to real property is. So the completion of the construction of the community, the completion of your reroofing project, a completion of your balcony restoration project. If you don't bring a claim against that contractor or developer within 10 years, you're done.

And I will tell you that the construction industry, and the developer industry is consistently trying to reduce this time period. There are bills and I'm not going to get into it, but there are bills floating around in the Florida legislature right now to reduce this to seven years or approximately seven years. So this is really important. You have to watch the clock here. Now consider a situation for example where you've got a developer that's held on to community before turning it over to owner control for a long period of time, the owner has finally come into control of the association, and you may have a very small amount of time within which to deal with issues relating to defects in your community. That's why we always advocate that after turn over, you should get an engineer in there do a really thorough inspection right after turnover, hopefully preserve your claims.

Okay. Statute of limitations, a little bit different. If you discover a defect, you have to bring a claim within four years. If the defect is latent, that date, that period of four years runs from when you should have discovered it or reasonably discovered it. So you can argue that there may have been a defect in original construction. Now you're bringing a claim in the ninth year within the 10 year statute to repose, but it's a latent defect. You don't really know what the cause of it was, what the exact parameters of the defect, and that's where engineering studies can really help you pull back in claims that may have had some patent obvious signs earlier on or beyond those four years.

Again, you need to consult with a construction attorney if you suspect you have defects in your community, defects in your repair project, because you have to be able to manage these time limits very, very carefully. So for newly completed communities, a thorough engineering inspection after turnover is great idea. But generally at the first sign of a defective condition, consult with a construction lawyer, take the right steps to preserve your claim in case a lawsuit is needed. And now we're going to go to Alan and Alan's going to talk about, how do we identify responsible parties?

Alan Tannenbaum, Esq.:
Before we go there, Jon?

Jon Lemole, Esq.:
Okay. Questions.

Alan Tannenbaum, Esq.:
Well, if you're a condo, there's also another statute that needs to be considered, which is 718.124. And 718.124 says that for condo associations, not for an HOA, but for condo association, the statute limitations does not begin to run until turnover. So if you have a condo that was held onto for a while by the developer, even for defects that were discovered that's a savings clause that allows additional time specifically for a condo association upon turn over. But all of these statues interrelate, but again you can see there's some complexity to it, same offer is there. We deal with these issues day in and day out. Call us saying, "This is what we got. Our buildings are this amount of years old, we just turned over. And where do we fit in as far as all these time considerations?" And we'll give you the answer. There is a question from somebody about five residential buildings built between 1994 and '97. They have type of piping which is a concern. Can they go back against the developer? The answer is no. You can't go back against the developer because that's outside the statute of repose.

Now, does that mean you have no claim? You may have a first party insurance claim. And so that should be checked out by a first party insurance lawyer to see if you potentially have a claim against your policy. But if those pipes need to be changed out, we would definitely be involved in helping you find the right engineering firm to analyze it, assist with all that contracting work. But you would not have a claim against the original developer, unfortunately, due to the statute of repose issue. Okay. Responsible parties. Let's talk about new construction. In many cases, you'll have a single purpose developer corporation who will be the developer of your condominium development. The problem many cases are not insured, and by the time it comes time to hold them accountable there may be a very limited amount of money left of the corporation, if any. So under those circumstances, we look to the other parties who are responsible, could be the design professionals, certainly the general contractor, the subcontractors, sometimes even material suppliers.

In the cases that we resolved, construction defect cases, oftentimes the developer entity pays less than 30% of the ultimate settlement. Most of the dollars come from subcontractors and their insurance companies. Sometimes if there's liability on the part of the design professional from their insurance company. So one of the things that we do in a new construction situation is we pull all the permit records, get the records from the developer, figure out who are the key subcontractors who worked on each building. We notified them of the issue, and ultimately they participate in the case, and their insurance companies pay much of the freight. On a repair contract situation, you can get into a situation, let's say, with a root replacement where there's damage afterwards. And you're looking to figure out how did this water get into the building for on this roof replacement?

And we have found instances where the roof actually was okay, but when the air conditioning contractor who was brought in to remove the condensing units so that the roof can be installed and replace the condensing units, they didn't, let's say, flash, the pitch pans appropriately, or didn't handle the drainage, or the internal drains properly. That's where the water came into the building that damaged units. So in a case like that, you may decide to include and give notice to both the roofing contractor, but also to any air conditioning contractor or plumbing contractor that they utilized in order to complete the work. And what you have the advantage of then are actually two insurance policies, one for the roofing contractor, and one for the air conditioning contractor to respond to that particular claim.

So you want to locate all parties, who [inaudible 00:21:26] them and their insurance companies be responsible financially for the issue. So one of the things that we do is make sure that everybody who should be invited to the party gets invited. We don't like to leave anybody out. So that's part of our role as your attorney. I'm going to now turn it back over Brian Tannenbaum. He's going to talk about chapter 558 Florida statutes, which was pushed by the construction industry probably 10 years ago. Come Florida law, it's something that we deal with on a day in a day out basis. And Brian tell about chapter 558.

Brian Tannenbaum, Esq.:
Right. So chapter 558, which is the Florida construction defect statute. It was meant to make the process easier on owners and contractors to resolve disputes. But what's ended up happening is it just makes the process very, very confusing for an owner. It really requires a gentle touch in the beginning, and it requires you to make sure you're keeping track of everything that's happening. And it requires you to do a good, detailed analysis of any potential defects that you may have. So what 558 says in part is that there's a requirement to notify any contractor or subcontractor supplier, notify them before filing any claim for an alleged construction defect. If you are an association with less than 20 parcels, it's 60 days notice before filing any claim. If you have more than 20 parcels, it's 120 days notice.

So what Alan was just talking about in regards to identifying the responsible parties, if you don't have the parties identified ahead of time, you're looking at a 60-day or 120-day delay because you're required to notify those parties before you bring any claim against them. The notice requires the owner to describe in reasonable detail the nature of each defect. Because it requires that reasonable detail, it's really important to have somebody qualified an expert, an attorney to go in there and be able to pinpoint where the defect is, so that when you are giving notice to those subcontractors or those contractors, they know exactly where to go to look for it, and they can't bring any defense of, "They didn't properly notify me of the defect."

The contractors then have 45 or 75 days depending on the amount of parcels to respond. They have a requirement to either respond with a repair proposal or a settlement proposal, or they can respond and say, "This is not a defect." And reject that notice. If you receive a repair proposal or a settlement proposal, you can reject that, and proceed with the claim under the notice requirements. What's important under 558 as well is there's a document demand procedure in 558, which allows you to put those parties on notice, and it requires them to preserve any documents, communications, anything related to the construction of the building. So it's important, again, to get that notice out to everybody you possibly can so that you're not losing any of that evidence. And I believe that unless there's some questions that Jon is going to discuss preserving that evidence next.

Jon Lemole, Esq.:
Okay. Folks. Thanks, Brian. Anytime you're negotiating. Hey Brian, could you go to the next slide, if you would? Anytime you're negotiating with a contractor or a developer, it's going to really help you have some leverage against them if you've preserved evidence. And failure to preserve evidence can actually be a problematic thing for a couple reasons. Let's talk about real quickly spoliation. There's something called a theme in the law called spoliation of evidence. If a piece of stucco, a big chunk of stucco has fallen off your building, and you think it's as a result of the defective application of that stucco, it makes a lot of sense to save that, log it, and certainly if you're at that point consulting with an attorney about the problem, you should be providing it to your attorney.

If you suspect that you have defects and you need to make repairs to mitigate further damage, then you should always very carefully document that repair project, so that if you do have to make claims in the future you can provide that evidence to the contractor or the developer. And this is going to be really important. If you suspect that you have claims against the developer or contractor, it might make sense, and this is something you should consult with a construction lawyer about. It might make sense that if there are repairs that need to be made, that you consider providing notice, even if you haven't sued or made claims yet. Sometimes it's appropriate to provide notice to the responsible parties so that they can see the damage, and see the work that you're doing. Because if you don't preserve that, you're likely to hear from them if you do have to file claims that you somehow not preserve their ability to investigate the damage that you're alleging, the effects and consequences of that damage. And that can be a difficult thing to deal with in litigation.

There's another real big reason why this should be done, and that has to do with insurance. If you're dealing with a single purpose entity that was the developer or you're talking about defects in a repair project done by, let's say, a reroofing contractor. Their insurance coverage doesn't cover the defective work itself, what it covers is damages resulting from that defective work. And so that's why preserving the evidence, and Brian will go back to the previous slide, documenting everything that's going on in the community is going to be really important. We have a whole course on documenting things relating to defective conditions in your community, and I'm not going to get to... I could speak for an hour on it.

But let's talk about two things that an association should always do, and that's they should have a robust record retention and record keeping policy. So home owner complaints, inspection reports. The manager walks around every once a month and looks at the community, and makes observations about the conditions of the common elements or the common areas. All of that stuff should be done with some sort of regularity, some sort of protocol, and retained. If there's an incident, if a piece is stucco falls off, if you've got a massive leak happening after your reroofing project was done, it should be documented. All of that stuff is, A, admissible, which is why I have the hearsay exception up here. I don't want to get into it, but it will be admissible in court.

And secondly, it may provide some of the information that you need in order to perhaps tie an insurance carrier into paying for a claim where you may not have a solvent, single purpose entity as a developer, or a solvent contractor. Or maybe you have a contractor that's just got really good creditor protection strategies in place for their business. So keeping evidence, having robust record keeping policies, recording incidents right away as they happen. These are all things which can help you successfully negotiate a claim. And we're going to, unless there's any questions, or unless anybody has any comments.

Alan Tannenbaum, Esq.:
Jon, I have some comments.

So just some issues that we've run into that are specific. We've had cases where a big piece of stucco falls off a building. Association reports it to us, and we find out about it. And where is it? Where is this piece of stucco? "Oh, we threw it in the dumpster and got taken away yesterday." That's not good. That piece of stucco would make a great piece of demonstrative evidence at trial. So think about the logic of it. You take that piece of stucco, if it became three pieces when it hit the ground, you could bag them together, label what building it came from. The person who labels it and bags it should place it in a storage area where it's going to remain in that place so that there's a demarcation of that that is a piece of evidence that came from that building. Great demonstrative evidence to save.

But also, obviously, there should be a photograph taken of the hole in the stucco and the building so it could be related to that piece of stucco that hit the ground. Great demonstrative evidence for a jury to see. I've been in cases where a group tells us, "We have a thousand great pictures of all the defects." And they provide us now digitally with a thousand photographs. And we look at it and we say, "Great. But you have 35 buildings at your project, what are these photos of?" And they don't know, they can't tell us. So one thing that I've seen the engineers do is the first photograph they take, before where they take a photograph of anything on the building is the street address for the building. And then they know that every digital photograph that appears in sequence after that is from that building. And then when they go onto the next building, first photograph they take is of the building address, and then they know digitally every photograph after that was from that building.

So a lot of it is just good logic in preserving that evidence. And if you go back to chapter 558 which Brian brought forth, you have to give the other side the opportunity to inspect before there's any changes made to the building, but there is an exception 558 for emergency repairs. So if there's active linkage in a unit, we may want to give the other side notice to tell them that there's an emergency situation. And if they can get over right away, they can see it, but certainly don't delay repairs in deference to providing all the notices and so forth because there is an emergency repair exception.

I want to respond before I go onto the next section. There's a question about HOA property where the developer never completed the clubhouse, or didn't complete it according to the original design, is that a 558 issue? Again, there's no warranty that's going to apply to an HOA unless we could make an argument from the original purchase contracts. But there may still be a cause of action that's available to enforce your rights to force a developer to complete the project. There may have been a development order from the county or the city which required the completion of those amenities. You may be able to leverage that development order in order to require it. There could be an action for misrepresentation. That's a little problematic because of class action rules in Florida against class actions when the basis is misrepresentation or fraud. But we can work through that.

So on that particular one, that's one if that individual wants to contact us, and give us the specific facts of that case. I think that we can fashion an argument to hold the developer accountable under those circumstances, not necessarily a 558 issue, but still potentially an issue that should be reviewed. I'm going to talk next about determining the settlement value of the claims. For a construction defect case in Florida, or even for a repair contract that goes bad, question is, what are the damages that would be recoverable? And for the most part in Florida, the damages recoverable when there's a construction defect or a default by a contractor on a repair job, it's going to be the cost of repair replacement plus the design, or engineering fees that are necessary in order to carry out the repair.

That's going to be your damages. So we spend a lot of time in our cases with damage experts who do estimates of what the repair cost is going to be. They usually include a quotient for design and contract administration of that repair job. And that's the basis of the damages. But does that mean that's what your claim is worth? Well, you may have some consequential damages which are things that the defect cause damages into the common element into the individual units. You want to make sure that you get your expert fees and attorney's fees accounted for in any settlement discussion. But then you get to the determining the settlement value, and you're going to look at several factors.

Number one, how strong is your claim? How strong is your proof? That's going to be a factor in how much you demand in any particular case? A defect case where there are obvious building code violations where there's been water intrusion into the units, or there's a safety violation, or a structural problem where you can go before a judge or a jury and present a very strong argument that the livability and the functionality of the property is at issue. People will understand the need to correct active order intrusion into unit or a balcony slab that's failing, or a fire code violation. And the jury, or the judge is likely to award really top dollar on that type of a defect.

Then we have groups coming to us and saying that some of the way the landscaping and the project was installed is causing some disruption of driveways. It's not affecting individual units, it's not affecting livability, it may be very annoying. But we don't rate that issue as being certainly equivalent to a violation of a fire code or water intrusion. So it's the quality of the defect which is also going to be at issue in determining the settlement value to the clients. What defenses does the developer have? If the association has done very poor maintenance, knowing that, let's say, under the statutory warranty that applied to condos that lack of maintenance is a defense, we would evaluate that client to be of lesser value because of actions the association took. Or if evidence wasn't properly preserved, and we know going into trial that we're going to have a hard time showing some of the defects because evidence wasn't preserved. That's going to be a factor in how we determine the settlement value of the case.

The other thing is collectibility. If a contractor without insurance is offering $50,000, you may think your case is worth $100,000 but the $100,000 may put that company out of business, and therefore you may accept $50,000 to settle that case because if you push any harder there might not be anything there. So all of those factors go into what a case should be settled for. And again, the advantages of using a construction lawyer who has negotiated claims in my case for over four decades is we've seen every type of case. We know how to evaluate them. We know how not to accept too little, but not to ask for too much. That will be the two main reasons why cases don't settle or don't settle for the proper amount. So you can rely on us to make that determination for you, but ultimately it's a board of directors that makes the business decision as to what to accept. Okay. The next area that Jon is going to talk about is the settlement paperwork. And Jon, why is getting the settlement paperwork right important?

Jon Lemole, Esq.:
Well, sometimes some of the hardest work comes after the settlement is reached in principle. I mean, think about a negotiation with a developer or a contractor. Lawyers on either side may be involved in talking mostly about numbers, and what is the responsible party going to pay in order to repair what defects have been claimed against them. And let's suppose that in those negotiations you've reached an agreement as to a monetary amount. Well, that's not the end of the story because, A, that's a contractual obligation, the payment. And so you want to make sure that that is enforceable in case the other side reneges on it.

And B, usually the payment of money and the resolution of claims involves the release of liability. And a release is a legal term in typically a legal document which formalizes the parties officially releasing claims against one another. And those are enforceable just like any other contract as well. And so great care in drafting settlement agreements needs to be taken, particularly in the area of the scope of the release. What are we releasing this contractor or this developer from? So you may have defects that you're settling, you're resolving, and you've got a contractor who's going to pay to settle claims for defects that you discovered when they reroofed your buildings.

And that release, you would typically want only to cover the claims that you were able to make in regards to that dispute up through the time of the release. Now, there may be other defects that you haven't discovered yet, and so you don't know about them. And so you don't necessarily want to release claims relating to additional defects that you had no knowledge of, and that you discover after the date of the settlement agreement. Furthermore, there may be warranties. There may be contractor warranties. There may be statutory warranties, and you want to be careful about preserving them if those haven't somehow been part of the negotiation process that you're settling with that contractor over. So the scope of the release is really important. We've had situations where clients have come to us with defects that they've discovered after they've already released a contractor or a developer from claims, and the release having been drafted way too broadly has presented a lot of problems in the ability to bring those claims for things which the owner didn't know about when they settled, discovered afterwards. So how you draft those documents is critically important.

The other thing is, as I said at the beginning of my comments, a settlement agreement is a contract. And sometimes they don't always get honored. There may be a number of reasons why you've entered into an agreement and somebody is supposed to pay your association money, and for whatever reason they renege on that. It may just be that suddenly they realize they don't have the money, or any number of reasons why that may not happen. You always want to make sure that your settlement agreements have an enforceability clause in there, that this agreement is enforceable in circuit court, and you want to also be sure to include that if you have to go to court to enforce this agreement that you've worked very hard on coming up with and negotiating, you want to be sure that you're going to get your attorney's fees if you have to go to court to enforce this agreement.

Some other typical things that you'll find that may be needing to be addressed in a settlement agreement are things like confidentiality, non-disparagement clauses. A lot of contractors and developers want to stick in very, very broadly worded non-disparagement clauses. You can't say anything bad about our worker, about our company. Those are mine fields for owners, and they have to be carefully scrutinized and minimized or restricted as much as you can. I mean you may not always be able to avoid them, but you want to have them as limited as possible. So there's a lot of work that happens after the settlement in principle is reached to get the terms of this contract right, because this contract is going to be binding on everybody forever. And that's something that you should definitely consult with a construction attorney. If you've negotiated something, maybe without a construction attorney but you want to memorialize this into a contract and obligations that will be binding forever and ever. This is something that should be taken with great care or done with great care.

Alan Tannenbaum, Esq.:
Jon, let's talk about a situation where the settlement agreement is calling for of remedial work. And let me just set it up for you. Because a lot of times groups ask us, or the developer or contractor may say, "Look, I want to come in and fix it rather than pay money." And it's an attractive alternative, but talk a little bit about out why the devil's in the details when it comes to making an agreement with a developer or contractor, for them to come back out to the property to undertake remedial work.

Jon Lemole, Esq.:
Yeah. Those are some of the hardest agreements to draft because you need to be very specific on what the scope of the work is, and you typically don't want to... You want to have that scope not be developed by the party that's responsible. You want to have an engineer in there involved in that, preparing a scope of work and specifications for the remedial work that's going to be done. Number one. So you want to have clear guidelines on what work needs to be done. Number two, you want have really a clear schedule for when the work is going to be done. You want to have clear provisions in that agreement about what constitutes completion, and who gets to determine whether the work is completed. You don't want the contractor coming back and saying, "We're done. We did it."

You want to have your engineers and best of all possible world, you want to have your engineers certifying that the work is completed. Your engineer being able to go in there and inspect the work. Permits. I mean there's a lot of little details that need to be addressed to make that remedial project as tight and as clear as possible as to what everybody's responsibilities are there. They're very hard to draft. I think we don't typically like those types of settlement agreements if there's the ability to get money, give money to the association and let them have control over the process. But sometimes it happens and particularly in site development, site issues cases, especially if it's right after turnover. We've had situations where the developer has offered to come back and do some substantial remedial work. But those have to be very carefully driven, but very carefully drafted with very precise details about how the work is going to be done when the work is going to be done, and how the work is determined to be completed.

Alan Tannenbaum, Esq.:
And of course, you have the issue of, you got to make sure proper insurance is in place during the work. And then the question of warranties, what happens if there's remedial work done? Is there a warranty in case it's defective? That has to be considered. I mean we negotiated a settlement for a homeowner's association where there was a lot of damage to the curbs of the roadways, but the developers still had several homes in the community to complete, and it didn't make sense to settle all of the roadways and curb issues for a monetary value because frankly we didn't know how much more damage would be done in the completion of the rest of the homes. So we entered into an agreement whereby there was a neutral engineer who was going to do an inspection of the roadways, and the paving upon the completion of all the homes in the community, and the developer was then on the hook to do the repairs that that engineer determined were necessary.

So it was a way to handle the fact that there was really no way to accept the monetary settlement because there was the potential further damage to occur. So be careful of the offer of repairs. A lot of times it ends up causing more complications than you had originally. And certainly never allow a contractor or developer onto your property which association certainly controlled after turnover on the general promise of, "We want to come in. We have the rights to come in and do repairs." That's a misnomer. There's no right of a developer or contractor to come in to do repairs of any type. What they should be allowed to do is come in to do repairs that are actually going to solve a problem. And you have no requirement to allow them in to potentially disguise problems or even exacerbate them which we've seen. The last section want to cover this quickly is-

Jon Lemole, Esq.:
Alan hang on. When you're addressing the last section, there's a question in the chat about confidentiality agreements and the public record and disclosure to members of the association, so I just wanted you to maybe hit that when you do your section here.

Alan Tannenbaum, Esq.:
All right. Well, yeah, so the owners are entitled to know what was settled. And if you have a requirement of the settlement agreement that it be kept confidential, that does not include reporting to the owners what the settlement was about or the amount. But if have a confidentiality clause, certainly tell the owners at the meeting that there is a confidentiality clause, and that they're not to repeat any of the terms of the settlement outside the community, and that really absolves the association of responsibility then because you can't control all of those conversations, and certainly the developers and contractors understand that. The last thing I want to cover and I'm going to do this quickly, because we have a short amount of time, justifying a settlement to the owners. So this really starts at the beginning of the case, or the beginning of the client, which is setting reasonable expectations to the owners about what's to be achieved in the litigation or if it's a repair dispute to keep them in a reasonable frame of mind about what the purpose of the claim is.

I often tell folks that the purpose of the work that we do in pursuing claims is to get a large chunk of money for our groups in order to take care of their problems. Notice that I didn't say make them whole, sometimes that does occur. But most of the time the purpose of any claim, whether it be an original defect claim, or an accounting claim, or a repair contract dispute resolution is to rest from the opposition parties a large chunk of money to contribute towards a resolution of the problem. And I tell groups this all the time, if you didn't pursue the developer and contractor or the repair contractor, the owners would pay 100% of the cost of putting the building back together or repairing the problem and so forth. If you end up getting the repair contractor or the developer to pay 70% of the cost of repair, that means you only have to go back to the owners for 30%.

And the owners should consider that if, again, they're probably educated a victory. But only if you set them up and have been realistic to them about what's to be achieved. And as you go back to the membership with the resolution of the claim, it's good to have an opinion from a lawyer like our firm that says, that we believe within the parameters of the work that we've done over four decades that this is a reasonable conclusion to your situation based upon the rest of litigation, the cost of litigation, the solvency of the parties that were being pursued, the defenses that the parties have, all the things that we talked about. So that the owners understand that they a good settlement is often better than a great trial result that could be appealed, could have a problem with collectibility. One thing about a settlement is the money is collected or the repair work is done and you have a known conclusion whereas going all the way through the court process there's some doubts.

Michelle says there's an evaluation that she's going to put up. There's a question about engineers, who do we recommend? Contact us offline and we will have some recommendations for you. And so take Michelle's poll, and we're going to thank everybody. And if there's any last minute questions we can take them on. But fill out Michelle's poll, which she's just launched. I see there's two more questions. I need to find out. In a remodeling job what if the contractors do not finish in the timely manner. Says he starts and then pulls away for months before everything is completed.

Well, I'll tell you away that there was something deficient likely in that contract that didn't have the type of time limits that Jon was talking about. If you don't have specific time limits for completion, it does revert to in many cases a reasonable amount of time to complete the job per industry standards. But there may be a clause of the contract that says that for nearly every reason in the world, the contractor doesn't promise that particular timeframe for completion. And if you have a clause like that, it's going to be a lot more difficult to require completion on timely basis. But we'd be happy to look at that for you to give you our opinion. And I'm looking to see if there's another question. The confidentiality, we covered.

As far as the information regarding the claim. I don't know if that's an attorney client question. Generally, a manager is included for attorney client privileges within the control group of the association for attorney client privilege. I don't know if the question is can the Elkem be involved or does the Elkem want to be involved? Because that's a lot of extra work, but usually our best information usually comes from managers or the maintenance person who works at the project. So certainly they should be involved in helping with that information gathering if I understood the question. And I think we covered all the questions.

We've hit noon. I hope you found this valuable. Certainly don't be afraid to contact us with questions. We are the type of law firm, we do not go on the clock until we're retained. So you usually get at least that one that free question, sometimes we get you a free hour. So if you're facing any of the issues that we're talking about, you have a repair project coming up, give us a call. We will give you free advice. We will help you orient yourselves to approaching these things. And so we're available. Just contact Michelle and she'll set up a meeting with me, Jon, or Brian, and we will help you out. And yes, we do review contracts for projects, Connie. We do that every day. I got several right on my desk right now. So we do that. All right. Everybody have a great day. Thank you.

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Keys to Selecting a Great Expert in Construction Defect Cases

Video Transcript:

Alan Tannenbaum, Esq.:
So welcome everybody. Send your questions through the chat function, stay on mute during the program and any questions we don't get to, we'll try to get to afterwards. So again, thanks for joining us. The program today is about forensic engineering. The value of it, why it exists, how it is here to support community associations, our firm, Tannenbaum, Lemole & Kleinberg. We stay within the construction realm in our practice, primarily serving community association. So we are involved in pursuing construction defect claims for buildings that are 10 years or younger or improvements that are 10 years or younger. We also do repair consulting for 30, 40 year old buildings that are in need of major repair projects. We help do the legal side of administering and those contracts.

We got somebody who's not on mute. If you can do that, mute yourself, please. Thank you. Okay. So that's what our practice is, we do it from the Space Coast across to Tampa Bay and down to Naples. But both on the defect side and on the repair side, we would be powerless unless we had some great forensic engineers supporting both our cases and also our repair projects. We're not licensed to design a repair project, we're not able to act as our own experts in our construction cases.

So we rely on a group of excellent forensic engineers. And we have one today that I'm going to be interviewing Rene' Portieles of Epic Forensic and Engineering. Their firm is a multidisciplinary engineering firm. Every aspect of your building or your improvements are covered by specialists within their engineering firm. They support defect cases around the state. They also assist in repair projects and we thought it would really be interesting to interview Rene' so that you fully understand how our forensic engineer works and what purposes they serve. So Rene' welcome. Answer my first question. My first question is, what role does your firm serve for condo and homeowner association in Florida?

Rene' Portieles P.E., G.C.:
Thanks, Alan. Great to be here. That's a great question to start off with. The engineers are your technical advocate, so we consult and we can guide you through in resolving all your building site issues. So in short, think of it this way. We're that doctor friend that you ask when you have questions to resolve all your concerns. The key here is to give a clear insight and direction on topics that you may not have a full grasp of. And that's what really what we're here for.

Alan Tannenbaum, Esq.:
Give an example, Rene'.

Rene' Portieles P.E., G.C.:
So for example, if there's a lot of issues that are happening within your space, and I will show you clear examples of these, I actually brought a lot of great photos with me today that I'm going to share with you, but you keep having water intrusion coming in and you have no idea why it's there. It's inside the wall. It's causing damage to the interior building. You've sent contractors, they fix the windows, they fix the stucco, but what it is, it's a flashing in a roof somewhere, which happens to run in a certain direction and then lands on a window inside the wall.

And you think it's the window, but it really isn't. So that's where you can ask us, "Hey, Rene', we're going crazy trying to figure out where this water is coming in from." We can help you understand where the water is and then get all that engineering jumbo out of the way and get down to the real repair.

Alan Tannenbaum, Esq.:
Now, your firm, there's some engineering firms that the head of the firm as a mechanical engineer, they're really good if a building has a mechanical problem of investigating that issue. Some of our HOAs were represented here today. They really don't have building concerns, but they are responsible for maintaining retention ponds, roadways, and so forth. Some groups that are represented today are high rises. Some are mid rises. Does your firm undertake investigation of all those different types of properties and how do you do that within the disciplines of your firm?

Rene' Portieles P.E., G.C.:
Well, we have different divisions with separate individual experts. And so what does this mean? This means that normally there's a Jack of all trades guy and that's the guy that you call that knows every single discipline in your entire building: structural, mechanical, electrical. However, that's only one person that has knowledge of all building disciplines. We feel that the key is not only to know all disciplines, but to really get hyper focused on the individual disciplines. This creates experts who are intended to resolve specific issues in their field. Look, this is not a new concept. You know that there's a doctor out there, that's your general doctor. And he knows just about everything about you. However, if there is a issue, what does he do? He sends you to a specialist. That shows how organized the engineer needs to be in order to not only know the global, which is everything about your site, but also have individual key personnel that can really get down into the details.

Alan Tannenbaum, Esq.:
So let me give an example. If one of the folks on the panel today as a manager of an HOA, single family, so the HOA is not involved in the single family home issues, but they're concerned about their paving and their retention ponds. Is that something that you personally would investigate or some somebody else in your firm take it on?

Rene' Portieles P.E., G.C.:
Well, we can investigate. It depends on really how in depth the issue is. We have specific disciplines that we go out there to assign to that project.

So what'll happen is you have one project manager that knows just about everything. And that's that Jack of all trades that we were talking about. And then once we find a specific issue that really needs a little bit more investigation, then we'll go ahead and assign or bring in an expert from our firm to really get down into the details and understand not just what's going on, but more importantly, how to fix it.

Alan Tannenbaum, Esq.:
All right. So you have site engineers, people who during their careers have really focused on site issues more than building issues. And for an in depth problem would be the one that you will bring in for that part of the investigation.

Rene' Portieles P.E., G.C.:
Absolutely. Correct.

Alan Tannenbaum, Esq.:
Okay. And your personal bias. I mean, where's your greatest strength as an engineer relative to building forensics? You personally.

Rene' Portieles P.E., G.C.:
Well, I started off doing structural assessments of stucco and concrete and post-tensioning, and since there's so much water intrusion that we find here in Florida, I gravitated over to windows and doors, and now I act as one of the primary glass and glazing experts for the firm. However, I am pretty dangerous in mechanical, electrical and plumbing also.

Alan Tannenbaum, Esq.:
All right. Let's talk about what purpose of forensic engineer serves in a construction defect case.

Rene' Portieles P.E., G.C.:
Perfect.

Alan Tannenbaum, Esq.:
Why are you important for a defect case?

Rene' Portieles P.E., G.C.:
So you have your engineers and you have forensics engineers. Okay, so what distinguishes both of them? Well, the forensic engineer has to effectively present the case, which he has to substantiate the defect found, he has to understand and find and know the actual causation that the issue has. And the proper remediation. But you say, "Well, an engineer could do that." Well, the forensic engineer has to be able to present that to a wide audience. He has to present it in a way that everybody can understand it. Why? Because in a mediation and a deposition in trial, who's in front of you? Well, you have engineers that you need to have the technical know-how.

You have the attorney, which knows the process and may or may not know the technical of the engineering. And then you also have common people, you have dentists, you have doctors. I mean, these are great individuals that are masters in their field, but are not masters in this structural engineering realm. So that's why it's really important to get a forensic engineer that can get a super complex issue and be able to make it so that everybody can understand it, and everybody can then know why the issue is happening and how to fix it.

Alan Tannenbaum, Esq.:
The other thing from a trial lawyer's perspective, there are a lot of competent engineers who can do an investigation, but we want somebody in an 11-hour deposition with a room full of defense lawyers, interrogating them who can hold up well under that type of process. And frankly, there are a lot of engineers out there who are very comfortable doing an investigation and doing a report, but the litigation process, the level of intensity of defense lawyers coming at them. For most engineers is a very unpotable circumstance. And they don't do well under that type of pressure and a good forensic engineer besides having the capability, knowing how to investigate, knowing what the standards are.

I can't say any of them enjoy being in deposition for 10 hours, because it's a grueling experience, but the good ones are able to endure that type of issues. So before we get into your photographs, because I know that people are desiring to see them and we'll get there, but let's talk about approach. How do you approach an investigation? Let's say a building investigation and where does invasive or destructive testing fit in?

Rene' Portieles P.E., G.C.:
Right. We're all about to take everybody here back to high school. If you remember a scientific method that is the root of our approach to an investigation. So what do we do? We come up to an area and we determine every single possible reason why the issue is happening. Our job now is to approach that in a manner where we start deducting all of those reasons and we're left with the actual solution.

So there's water coming in through a roof. Is it a pipe? It could be raccoons that are in your attic, true story, by the way. It could be your roof, it could be so many different elements. And our job is to not just show up and say, "Oh, there it is. Yeah, I know what that is." No, it's to actually prove why and what is happening so that we can fix it.

Alan Tannenbaum, Esq.:
And destructive or invasive testing. Where does that fit?

Rene' Portieles P.E., G.C.:
Well, it comes into determining that root cause. So if we know the root cause, then know the actual repair. Let me give you a quick example. You come to your building, your stucco looks like it's cracking. Maybe it's falling off the building. You say, "Oh, the stucco's bad, go get a contractor to fix a stucco." And you do that, couple months later, a year later, it starts happening again and again and again. Well, if we come up and approach with scientific method, then we can say, "Well, why is the stucco falling off the building? Let's look a little deeper. Let's take that stucco off and see if it's the concrete that maybe is bad. That's causing the stucco." "Oh, it's not the concrete?" "Let's dig a little deeper." "Oh, it's the reinforcing bars. Oh, that's what it is."

The reinforcing bars have an issue, they're causing the concrete to crack and expand and push the stucco off. So as you see, destructive testing was really the only way in that scenario to really get down to that core issue on why it was happening. And this is really important because fixing stucco can be from $10 to $20, a square foot. Fixing rebar can be from $200 to $400 a lineal foot. So you see how really knowing and getting into the destructive testing can really open up the actual core of the problem that is occurring.

Alan Tannenbaum, Esq.:
All right. Let's talk about different types of improvements. And we're going to talk about site issues first. And certainly at this point, bring in your the photos that you've prepared for today. So let's talk about investigating site issues, roadways, retention, cons, and so forth, your approach and give us some descriptive view by your photographs as to how you folks undertake investigation on a site issue.

Rene' Portieles P.E., G.C.:
Perfect, Alan. So what I'm going to do, I'm going to go ahead and share my screen here. Just give me a moment to set that up.

Alan Tannenbaum, Esq.:
We do see it, Rene'.

Rene' Portieles P.E., G.C.:
Okay. Perfect. All right. Let's talk about pavements. For HOAs. These are brand new sites, and immediately you start getting the photo on the top left, cracks in the pavements. On the top right, you see this alligator cracking pattern. On the bottom, you have all these cracks happening. You don't know why it's happening. We don't know why it's happening either. We need to find out. So the first step is, let's take some cores, scatter them throughout, get a good sample size of different types of different roads that are occurring in your neighborhood.

For example, if you have a one lane, two lane, is it a corridor? Is it a main road? And we get cores from that. We then look at, on the right side is a cross section of that core. And that really lets us know where they went wrong. Was it the asphalt? Was it the sub base? Is there debris? Was it never compacted correctly? So that's really how we approach the pavements. And then we're able to know the core again, issue with the site and then fix it.

Alan Tannenbaum, Esq.:
Rene', do you recommend that? Even where the paving looks okay to at least take some cores?

Rene' Portieles P.E., G.C.:
The reason is I would say yes, because it looks okay now, but remember a road can last 40 years, 50 years, 100 years. You do not want to say it looks good now and then two years for now, it starts to deteriorate. And now you're past your opportunity to get it repaired.

Alan Tannenbaum, Esq.:
What about like the height of the water table? How is that? I mean, is that something you don't want to find out, relative to paving where the water table is for that development?

Rene' Portieles P.E., G.C.:
Yeah, absolutely. So let's use the photo that's on the screen right now. You see how this one has all these little lakes, all these lakes then tie into... if you look at the perimeter of that photo, these lines that have... can anybody see my mouse on the screen?

Alan Tannenbaum, Esq.:
Yes, yes.

Rene' Portieles P.E., G.C.:
Okay. So all this drains into these lakes, and then it gets distributed throughout Florida's water management system. So what happens is you get all of these issues with the water table, where the control structures are either not designed correctly, they're missing or they're at the wrong elevation. And that directly impacts the water of that lake.

Alan Tannenbaum, Esq.:
And what's a control structure?

Rene' Portieles P.E., G.C.:
Yes. Because if the water control structures within area are designed to withstand a certain amount of water.

Alan Tannenbaum, Esq.:
Right.

Rene' Portieles P.E., G.C.:
A lot of times before a big storm, the cities will drain their areas. Well, that also causes your lake to drain if it's connected to that system, but there's usually a wire or water control structure that is designed to keep water on your site and not let it drain out with all the other... it controls the elevation of your area. I mean, there's plenty other things that we can go wrong. That was one of the examples.

Alan Tannenbaum, Esq.:
So on this photo of this retention pond, what issues are you seeing there?

Rene' Portieles P.E., G.C.:
So, one thing here is if you walk around and you see things like this in your HOA, as you see, this is a lake embankment issue. These lake embankments are supposed to be sloped in a certain way. So that one, you don't get at these abrupt changes in elevation. This is an open for litigation against your HOA. This is a tripping hazard. Also, it is for the landscapers. I've been on cases, we've had cases where we've had landscapers fall off and get seriously injured on their equipment because of the improper sloping.

And at the end of the day, it is absolutely the HOA's responsibility because they did not maintain the lake embankments. A lot of times, this is a construction defect, right from the first day, this photo that you see is in a property that's only maybe eight years old. So this should not be happening now. On the first day, it was like that. Another thing is the photo on the right top, right bottom. These are washouts. This happens when again, the piping is not designed properly with the lake embankment, which causes in a rain event water to rush through the pipe and then it takes all the soil with it causing damage to the lake embankment.

Alan Tannenbaum, Esq.:
All right. Rene', you want to move next to high rise?

Rene' Portieles P.E., G.C.:
Yeah. Before I go to high rise, I want to make sure that... for HOAs guys, today after this webinar, you're going to go get your lunch, walk around your HOA. If you're on one of these and just look at the dryer vents, this is something that can easily be done. You do not need an engineer to tell you to fix this. This is nothing but a dryer vent. There are two vents on the outside of your property. One is for your bathroom and that one has a screen. The other one is for a dryer. That one cannot have a screen. We've been on cases with fire, because all it is, is this screen is here. Reach up there, take that screen off. It comes right off with a screwdriver and leave it open. So you don't get any fires in your area. But let's talk about, mid rise. Sorry, Alan. I detoured a little bit there.

Alan Tannenbaum, Esq.:
There you are.

Rene' Portieles P.E., G.C.:
Now, what we see is there's a ton of issues that are happening on mid rise. But guess what guys? High rise have the same issue. So I'm going to of throw a mid rise and high rise together into the same pot and give you a little more examples. One thing that we constantly get with mid rise and high rise buildings is why are my pavers always stained? I've pressure washed my pavers many, many times. They're always stained, they're always calcifying. What's happening? Well, in this photo here, we determined that you see the three dots right here. Those are the drains. Those are actually the high points in the slab. That's a big no-no. The red area is where the water is just sitting, because it cannot get to the drain.

Some other issues keeping with the soaking of water on amenities deck. We have water coming through the decks and causing havoc on your waterproofing, it's waterproofing. This waterproofing on your deck, it's not a swimming pool. It is not designed to hold water for prolonged periods of time. That water under your decks, under your planters that are not drained correctly, will pond, cause damage to your waterproofing. Next thing you know, these are looking at interstitial spaces underneath the pool deck. This is actually the pool where it's causing damage in the waterproofing and now water is coming through, not just the pool area, but also in your expansion joints.

Guys, this photo was taken two months ago. This aren't photos that I find on the internet. Every single photos here, I have taken within the last six months, maybe. On every single photo in this entire show. Well, show or... What do we have here? We have expansion that are leaking. If you look on the right, those are roots. There is an amenities deck, two floors above this. The roots went from the planter down one floor and hit this floor, which is two floors below the planters. Again-

Alan Tannenbaum, Esq.:
What are the special challenges though? Because the architects I've seen, they like to create sometimes elevated pool decks and poles. They like to put planners on upper floors. What special challenges does that create from a waterproofing standpoint?

Rene' Portieles P.E., G.C.:
Usually, their designs a lot of times are okay. But the big issue that we're having is in the installation or maybe the wrong spec is used. So there's so many different things happening. There's the architect that has a ton of different little situations, wall to planter. Planter, wall to floor, there's an expansion joint, there's a concrete building adjacent to this. So there's so many different little details that happened, very easy for a mistake to occur. In construction, again, trying to determine all of those little details and incorporate them into a design and into the proper construction methods gets out of hand and they perform construction errors in the field.

Sometimes there's different products that need to be used and the contractor gets it and says, "Okay." He reads the first one and he puts that everywhere and unfortunately it's not like that. That one was only used for a certain area and he needs another specialty product for a certain other area. In this particular case here, this was an older building and it's really a lack of maintenance. It's not looking at your building. Guys, 40 years and not going to go into a 40 year certification dissertation, but 40 years is way too long to start looking at your building.

You should get an expert, an engineer out there who knows how to evaluate these areas. At least once every five years, you should have your own maintenance staff. Review the building, do walkthroughs yearly. Because if this simple two things that I just told you, would've been done on this property, we would not be having a $4,000,000 or $5,000,000 repair. It would not be there. It would be $100,000 repair.

Alan Tannenbaum, Esq.:
Let me ask you this Rene', you talk about product. So let's say we have an elevated pool. It's got a nice paver deck around there. What are some of the product choices as far as installing the pavers that you've seen cause problems in the field? What kind of product issues?

Rene' Portieles P.E., G.C.:
Well, really, it depends a lot on the mortar that holds the paver if you're mortar set. There are interior, believe it or not. Interior mortars that you can use on the inside of the property and there's exterior ones. The exterior ones are made to be saturated in water and do not calcify. And I'll explain, I have a photo of that, a real clear photo of that in a couple slides. Sand that is used, you just can't get shell rock out there and put any sand on your pavers. It has to be a sand that does not have a lot of calcification, that does not leach. Because that will clog all of your drainage pipes will wreak havoc on your structure. So it's really important that that happens and then also think of it this way guys, you have paver, you have sander mortar, you have some sacrificial slab that is used for drainage, you have your waterproofing and then your structural slab.

In order to get to your waterproofing, it will cost you $200 or $300 a foot just to get there. So what do you do when you get there? Do not choose a one-year product, do not use a three-year product, choose a product that can last a long time because the real money is in getting to that area. Once you get there, there's products that are only a couple dollars apart, but will give you a 15, 20-year life. So sometimes it's worth spending a little bit more on a better product so that you don't have to do all this over again in six or seven years.

Alan Tannenbaum, Esq.:
But let me talk about subcontractors too. And I think the pavers is a good example. So a developer has a favorite subcontractor, who's done all their ground level paperwork on their driveways and so forth. And all of a sudden that developer gets a design that calls for a paver installation on an elevated pool. And it's very easy for that paver contractor who does not necessarily have done an elevated paved job before.

Rene' Portieles P.E., G.C.:
Right.

Alan Tannenbaum, Esq.:
He's just doing the same job you did on the ground floor level, using the same products, taking it up to the third floor, where it may be a totally inappropriate use of products for an elevated deck of that sort. You find that?

Rene' Portieles P.E., G.C.:
All the time. It is amazing how many buildings out there right now currently have that exact situation that you just said there.

Alan Tannenbaum, Esq.:
Okay. Go ahead. What are we seeing in this latest slide here?

Rene' Portieles P.E., G.C.:
Well, this is another thing. If you guys are walking through a parking garage and you look up and you see gutters, that top right photograph right there. Okay, gutters don't belong in a parking garage guys. This is a temporary solution. This means that your expansion joints are leaking. Your waterproofing has failed on the floor above this, but what do you do? You put gutters on it. And then what happens when you put gutters on it? Look at the bottom picture. Water is leaking through the structure and causes the structure to corrode, causes the reinforcing bars to fall. And the concrete to crack. The association paid about $5,000 years ago to fix this. You see the left hand side, that is a $5,000 repair. A year and a half to two years later, they did not fix the core problem, which is that the waterproofing was failing.

Rene' Portieles P.E., G.C.:
So what happens? Look at that little area right here on the right. It's happening again, guess what? Got another $5,000 repair there. If you would've $7,000 or $8,000 instead of $10,000 now, you would've fixed this issue. And this is only in a little eight foot area. Imagine, these drudges are massive. How much of this issue is happening? Look at the left picture, top left. If you look around your garage, you look up and you see your drains look like this, waterproofing issues. Okay? You can see how it's just corroding the pipe. So now, instead of just having to remove and replace the entire drain body, the entire pipe, you are now having to do that and a waterproofing, do it once the first time. If you notice in this area, this has already been repaired a few times and the pipe that they just keep putting on just keeps corroding. Okay. Really it's important to get these things repaired.

Alan Tannenbaum, Esq.:
Rene', there's a question. Ronald asked, "Is there anything we, as condo owners can accumulate or document before contacting you, such as photos of cracks with a scale?" I'm assuming this is a question maybe pre-transition because if it's post-transition, you really should get the engineering firm out there as quickly as possible. Not only to nip the problems in the bud, but also there's time limitations that apply that really create a situation where you got to get the engineering done sooner than later.

But as far as documentation it's concerned from our perspective, photographs are great, videos are great. Make sure the time sequence, one of the things I've seen Rene' do when he is going to take on a multi-building project, the first picture he takes is the address of the building. And then the subsequent pictures, are flying to that building. Because we've had groups that have dumped a pile of photographs on us and they're not designated to which building or location it was. They're really not very helpful. So documenting when the photograph was taken, that's really important and who the photographer was is, is really important too.

Rene' Portieles P.E., G.C.:
Yeah. Especially before pre-turnover, what happens is any issue that you keep having, we've gone into rooms and that room looks perfect. And then we find out later that the building engineer, the chief of maintenance paints that room every month. Why? Because every time it rains, water comes into that room. But when the engineer went in there, it looked brand new. Why? Because he just happened to paint it the day before. So it's important for us to understand what issues have you had. A lot of times you get to a site and I hear the property manager say, "Oh, yeah, that pump. Oh, yeah, we replace that every six months." Thinking that that's normal because it's a big building and there's a lot of load on the pump.

No, that's not normal guys. Tell your engineer that, write it down. It may be that there's issue with capitation of the pump or prongs with the piping and it's not the pump, it's the pipe, that's the problem. So it's really important to just like Alan said, document, tell your engineer whether you think it's important or not, let your engineer decide, tell him everything that you have. And then in a nice list. And then as he does the investigation you can fix all of those things into account.

Alan Tannenbaum, Esq.:
Now, there was also a question about what do you do about birds getting into an open dryer vent? I don't know if that's an engineering question or?

Rene' Portieles P.E., G.C.:
Birds? We haven't had birds going into the dryer vents, but there are things for me because usually the dryer vent, unless the unit is shut down or closed for a long time. Birds don't like when you turn on the dryer and that hot moist there comes out and people usually once a week, maybe will turn on that vent. But if you are having some issue, you can put those little prongs, for the birds to sit on and just like near the entrance. So it deters them from going in there, but you cannot have streams on them because they will trap lint.

Alan Tannenbaum, Esq.:
Okay. Rene' let's move forward, have about 20-

Rene' Portieles P.E., G.C.:
There's also... and one more thing to that one. There's also, if your dryer vent is open, you can have a flapper, it's a little gravity flapper, or a spring flapper that will keep it closed. And then when you turn it on, it opens up and then it'll close. So birds won't get in there. So if you are having a bird issue going into your dryer vent, that's your solution, buy a gravity damper. They're pretty inexpensive. And have it installed on the outside of the building.

Town homes and duplexes. All right. Some issue that we see in the town homes, the duplexes, as you see the four on the left, beautiful roofs, all different colors. I mean, the work is amazing. You go inside, it is a disaster. Now, this is one thing guys that you can do right now. Super easy. Do not need again, an engineer to do this. We always get complaints, "Rene', it's hot in my room, but the living room is cold." Or vice versa. You go in the attic, the living room's installation is perfect. The bedroom looks like this, on the photo on the right. This is something super easy that you have to do right now, get your installation in order, make sure it's tucked. Make sure it is tight between the trusses and uniform and complete. These are small things that you could do right now.

Other issues that we see a lot with town homes and duplexes are roof leaks. Lot of roof leaks. Look at the photo on the left. This roof had a leak. So what did they do? They put another roof on top of the existing roof. Look guys, I can't make this stuff up. Look at the one on the right. When we went to the go take off and investigate where the roof leak was coming from, we had to remove a portion of the roof. When we did that underneath, yes. We found another roof under that. This is not the right way to do it. Let me tell you why. People say... because I've gotten this question before. "Rene', it's better to put a roof on top of a roof. It's double roof. What's better than one umbrella? Two umbrellas. What's better than that? An umbrella under a pavilion."

No, that's not how that works. The problem with double roofs is that they do hold moisture. Your roof is designed to breathe. It needs to breathe. You are trapping now and choking off the air that is in this area and it's causing the roof to retain moisture. Any moisture that goes on there gets retained. Doesn't allow it to breathe. Also, next slide, roof rot. If you have a roof leak, chances are you have rotted wood in your roof. So what did you just do? You put another roof on top of the existing roof and you nailed it into a rotted piece of wood. That will not hold, it actually causes now more holes in your roof and your roof will continue to leak.

Alan Tannenbaum, Esq.:
Rene', before you move forward, I do have to mention one thing. So when we talk about town homes and duplexes, sometimes a town home and duplex is under a condominium regime. The condo association has full maintenance and repairs for responsibility over the common areas, the roof, the walls, and so forth. What developers did, probably gone back at least 20 years. They started putting town homes and duplexes within a HOA regime. And it does not give the homeowners association, the automatic rate, to maintain and repair or even investigate roofing issues or wall issues or window issues. What it takes is an amendment of the documents in order to put that responsibility on the part of the homeowners association versus the owners. We continue to run in the situations, Rene' continues to run the situations where you have six connected town homes with a common roof structure.

And the documents say that it's each owner's responsibility to repair their own roof. And you can't divide a unified roof into five different sections and have five different roofers try to do repair or replacement on that roof. So it's really important if you're managing a homeowner's association that administered either in full or in part connected town homes or duplexes to really consider amending the documents, which is really the only basis that you can get an engineering firm out to investigate those type of common issues. Without that, in theory, you can't use association money to investigate an issue that's an owner issue. So very important that you consider that. Go ahead, Rene'.

Rene' Portieles P.E., G.C.:
Right. And now I saw a few slides left. So I'm going to talk about it, I'm talking too fast. I tend to talk really fast and loud. So bear with me.

Alan Tannenbaum, Esq.:
You're doing a great job.

Rene' Portieles P.E., G.C.:
For town homes and duplexes, we get a lot of issues with pavers, a lot of issues with tile, differential settlement of tripping hazards that occur when they have tile to concrete here to pavers. So there's a lot of that going on. And you know what? Let me switch gears a little bit. I'm going to tell you issues that are happening in all of these. Between mid rise, high rise, town homes, duplexes. If there are common elements that all these buildings have. So I'm going to call these all buildings.

And I got a few examples of these, the famous stucco issues. If you look up in your ceiling of your balcony is falling off, the stucco falling off your building. If you look around and you see on the photo in the left, this white staining that is happening, that is very important. That means that water's getting in behind the stucco and it causes this calcification, which is the minerals that it's taking from the actual concrete, that it leaves it behind the stucco and actually pushes it out and starts delaminating it.

So it's important to catch that pretty early, the infamous, famous water intrusion through a window. Okay? It doesn't matter where you live. It could be a residential house or a high rise tower. We are constantly getting water intrusion through windows, causing significant damage to the interior of the property. It's important as you see here on the right hand side, that plywood. I'm sorry, two by four with visine structure is a chamber test. We can test the window, determine exactly where it's coming from. So we don't have to remove, replace the window. We can change whatever portion of that window is causing defects and water intrusion. Sometimes you have to change out the whole window, but this will tell you exactly where it's coming in from.

Alan Tannenbaum, Esq.:
What are the signs? If you're looking at a window, what are the signs of a potential problem? What would you be looking for?

Rene' Portieles P.E., G.C.:
Sure.

Alan Tannenbaum, Esq.:
Okay.

Rene' Portieles P.E., G.C.:
It's right in the structure. Right here in this photo, I'll show you right here. When you look at that nice marble window seal that you have, look on the left and the right of it. And right here in this corner that I'm circling right here. There will be a little bit of a stain or a discoloration. Looks like somebody painted it or something, it's a little brown. That means you have water intrusion. Another area where these windows leak a lot is if you have like in this photograph, two separate windows, one window on the top, one window on the bottom, that's separated by this bar right here. That's called the mullion. In the middle here, you will see then again, stainy. You could also get your finger and tap it. And if your finger and tapping it goes right through it. That means that it's been wet so many times that it's actually deteriorated the wall.

Alan Tannenbaum, Esq.:
What about exterior cracks around windows? What do they signify?

Rene' Portieles P.E., G.C.:
The exterior cracks around the window, if there is a stucco issue that is occurring, it can cause water damage that goes in through the actual base here of the window or the top seal or the walls of the window. It also, if there's cracking around the sealants. So if you look at your window from the outside and you look at where that window touches, the stucco, there should be a little bit of caulking in there. Look to make sure that that caulking is nice and thick and not cracked. If you look at it and it's cracked, it really needs to be replaced. If not, that is the first avenue of damage to your window. Guys, understand that that little caulking that's around your window, that's really not the thing that causes water to go into your building.

These windows, have it into your ceiling, then that's your waterproofing. The problem is if that exterior ceiling is cracked, it allows water to go in and sit on top of that waterproofing sealant, it deteriorates it, and then it causes your window leak. Now, instead of just caulking the outside of your window, the only way to fix that is to remove the stucco around your entire window. Sometimes you have to take the window out, reinstall it. Depends on your system, but you have to then take out that structural sealant, reapply that structural sealant. So you could just imagine instead of $1 a foot, you are now at $20 a foot. And all it is, is just lack of maintenance. You just simply did not maintain the window properly, or it was installed incorrectly. It was installed with the improper or thickness of that sealant on the outside.

Alan Tannenbaum, Esq.:
Rene', we have a question. The HOA I manage came under homeowner control in September of '21, boards put it together a letter of developer deficiencies. Those items that were not listed prior, turnover as a developer still responsible to make any repairs after turnover. First of all, for most HOAs and condos, it's actually the list that's created after turnover that's really the relevant one. Because you have the ability to get an engineer and investigate the entire property. So certainly things that are discovered after turnover are very relevant to discuss with the developer. As far as the question, is the developer still responsible to make any repairs after turnover?

The answer is yes, but I want to make an important distinction. After turnover, the association is now in control of all the repairs that are done at the project. You should not let a developer or contractor in with no control just to undertake repairs. What you need to do is number one, have your own engineer indicate to you what needs to be repaired and how. Get the developer to agree to do it according to those specifications and let your engineer prove any work that's being done and make sure there's proper insurance in place while they're doing the work. The idea of just reporting a defect to a developer or a contractor and letting them come in to do whatever, oftentimes the problems hidden or exacerbated by what they do, you're under no obligation to accept insufficient or ineffective repair by a developer, go ahead, Rene'.

Rene' Portieles P.E., G.C.:
Right. Right. Yep. I'm almost done. A couple of other things that we constantly see. These are real photos here. The one on the left is a ceiling of a parking garage, the photo and people say, "How does this happen? How can you let this happen?" The photo on the right is of a different property. This is how this happens. It starts off where my mouse is with the little crack. That crack then gets a little stainy, that then falls off and it opens up, what does the association do? Paint it white, if you don't see it. This is not structural paint. It really needs to be cut out and redone because if not, the photo on the left occurs, this I believe right now is not yet repaired. This is all under investigation to try to determine the extent of this, but the photo on the bottom right is a project that we have currently right now of on property here, down in Miami, that we are fixing.

Again, this doesn't happen overnight. More importantly, this does not happen in one reign of a board. This is a board and then another board and then another board and then another board. Okay? That is, I think the key. If there's anything that you remember for this is you have to be proactive guys. You really have to understand your building, get somebody to help you understand your building if you don't and put things into priority. There's probably repairs that you don't have to do today. You can do tomorrow, but you know what? There probably repairs that you should do now because if not, that repair turns into a monster repair in the future.

Alan Tannenbaum, Esq.:
All right. We've got a question from Melinda, but Melinda probably too complex to try to handle in an open panel like this, but I'm going to give your question to Rene' and see if his mechanical people have some comments on it. So we'll have to respond to it offline. Rene', leave at least a few minutes to deal with how you do a report, but go ahead with your slides.

Rene' Portieles P.E., G.C.:
Sure. So again, issues with calcification. This is what we talked about. Improper mortar used to lay your tile down. Issues with sound. Everybody has issues with sound. You look inside the wall and it's supposed to have that sound continuation blanket. And then when you open it up top left, you see it's hollow. It's not there and then going into the reports. Okay.

Alan Tannenbaum, Esq.:
Let me set up the question first.

Rene' Portieles P.E., G.C.:
Sure.

Alan Tannenbaum, Esq.:
So what's the purpose of a written report and talk a little bit about the standards that you discuss within an investigative report.

Rene' Portieles P.E., G.C.:
Sure. The purpose of a report is to put things into perspective. Really, it's what it is. It'll separate if you're going the turnover. It separates what's a code violation, a deviation from the plans, a defect in construction and improper turnover maintenance. That's important because if you're going to be litigating, code violations are code violations. End of story. Deviations are deviants from the plan. That may be a problem. It may not be a problem. If a column is supposed to be here and they put it here, is that really a problem? Yes or no?

You need to decide that. Defects are defected construction. It can be aesthetics, the stucco goes this way in this area and then the other area, it goes up and down. What's the damage? Well, there could be a huge damage because maybe during construction, they had a major malfunction in some area of that wall and they had to redo it a few times.

That's important to understand. Improper turnover maintenance is when the developer has a rule of this property and gives the keys to you to take it. And it's your responsibility now. Well, guess what? If you didn't maintain it properly, you are now stuck with something that you cannot maintain. You have to remove and replace. That's a big problem, but going into a report, putting through perspective, we need to tell you where things are, what we observe. We split into these categories.

We tell you what discipline is the cause of that issue. And then why is the problem? I can't say that that is a problem because Rene' says it's a problem. No, I say it's a problem because the 2004 building code section 1403 says, it's a problem. And then a photograph to let you know what the issue is. If needed, there is a survey that you can find, if we go out there and there's water ponding on the roof, well guess what?

Maybe in the future, it's going to be a dry day, the water will be there. So we need to really put things into perspective. And the codes that we do is we do a full document review of all the documents relating to your property. For example, we put everything into perspective on your plans. Another thing... I've hit you guys a lot with this today, but another thing that I really want you guys to do and write this down is go through your plans, find out where they are, find out if they're complete. I can't count how many times I go to somebody, "Where are your plans?" And they open up a room and it's just boxes and boxes and boxes of just plans, stacked up top of each other. They have no idea what they have or what's going on.

This is first step. First step is get your plans in order. They're very, very important. I don't care if your building is one year old or 60 years old, doesn't matter. Get your plans in order, we have to review those, put them into perspective. We scan them, so they don't keep deteriorating in that storage room that you haven't locked in on. And then we also look at the applicable codes, find out all the codes of your building. We have to find out not just the codes, but who was responsible for all of the issues that your building has, because you may need to contact these individuals in the future. And if you're in a turnover, we need to know who of course was responsible.

Alan Tannenbaum, Esq.:
Yeah. One thing to keep in mind. Number one, there's a statute in Florida, 553.84, which says that if a party violates a building code, the party damaged has a cause of action, which is a very important statute that we utilize in our defect cases. But keep in mind that the building code is a minimum code, the minimum standard of construction. If you're purchasing into a high end, high rise, what the common law says that you're entitled to have a level of equality based upon a structure of like, kind and quality. So you could be in a luxury high rise, or actually the standard that the developer has to meet is much higher than what the building code requires. And frankly, what property is selling for in Florida, where even a fairly modest town homes are going for hundreds of thousands of dollars.

I would say the standard of quality that Florida construction needs to be measured against is a much higher quality standard than the minimum building code. And those are the type of things that will be reported on. Certainly planned deviations. Part of the implied warranty in Florida is, was the building built according to the plans and specifications, doesn't necessarily have to be a structural problem. It could be an aesthetic issue where the building look is different than what the plans required, or the developer left out an amenity is still a compensable event. Real quick, there's a question. Is there a specific building code requirement for windows that are... and Michelle put... there it is. That are to be used in EIFS wall construction. How about that one, Rene'?

Rene' Portieles P.E., G.C.:
Well, I mean, there's building codes for windows, there's that. There's ASTMs on how the windows is to be tested, how it's supposed to be manufactured, how it's supposed to perform. That goes for the building envelope. So you can be on wood, you can be on concrete, you can be on cast-in-place concrete. You can have an EIFS system. EIFS has its own also set of standards. And those as details on how it interacts with openings are important also.

So the building code is more of general, but it's when you really dig into what the building codes as inside of it, which is the ASTMs and all of those references. Those are the ones that really will call into EIFS openings, penetrations and windows as well.

Alan Tannenbaum, Esq.:
All right. There's a poll that Michelle put up, which we appreciate you responding to. Again, for you managers, make sure that Michelle has your cam numbers so she could report your credits for today. We have a few more minutes to answer some question. If it's cracked and peeling all around the window frame inside the building, is that a sign of a problem?

Rene' Portieles P.E., G.C.:
Yes. If it's cracked inside the building, that means that you're having movement of your window and you should not have that. That's either a structural problem, or that there's some water intrusion that is happening within that, which is causing cracking of your drywall and causing that little gap to occur. That could be either structural problem with the window or water intrusion.

Alan Tannenbaum, Esq.:
All right. There's a question from Jordan. What if the documents say the windows are the owner's responsibility? My first response to that is if there's any way to amend your documents so that windows are not owner responsibility for the long term, you'll be far better off. I put certainly sliders in that category, too. What happens is if an owner doesn't maintain their window properly, where's that work going to go that's going to get in. If you're in a mid rise or a high rise, it's going to travel by gravity downward, and you're going to have problems in the units below that presents a very difficult situation, same thing with sliders. And frankly, now you're having all different types of contractors show up at your building to do work. And you certainly want to avoid that. Rene', you have an opinion on that. Rene', you have an opinion on that on windows?

Rene' Portieles P.E., G.C.:
Yes. Yeah.

Alan Tannenbaum, Esq.:
You agree?

Rene' Portieles P.E., G.C.:
Oh, no. Absolutely. There's nothing I can add. You said it dead on. That's exactly...

Alan Tannenbaum, Esq.:
All right. Question, if a corner stairwell has had cracks for years as an engineer and report suggested? Probably, right? Yes? If a corner stairwell has had crack for years, is it good to call an engineer in?

Rene' Portieles P.E., G.C.:
Yes. Yes, because that crack only gets worse with the changing of the seasons and with if... it'll start increasing the decreasing, which is causing additional stress on that crack causing it to open. And the next thing you know, you start getting water intrusion coming in.

Alan Tannenbaum, Esq.:
All right. And the question, if there's just a few cracks in the stairwells, are they common or what necessitates further investigation?

Rene' Portieles P.E., G.C.:
It really determines on the size of the crack. If your crack is very, very, very thin, like a hair. They're called hairline cracks, you have to just keep a close eye on them. You might want to paint them. If the crack is greater than like your hair, so it's getting a little big or that the crack doesn't just separate, but it also has an offset. And it's separated, that's when you need to call somebody to come in and look at it. Because there's something else going on there.

Alan Tannenbaum, Esq.:
Yeah. There was enough close on this. We had a project in Sarasota where it was a 35 year old building. And the manager who lived on the fourth floor tried to get into their unit one day and they couldn't open the door. And fortunately, within a couple of days, all the occupants were out of the building. They had a major failure of a transverse lab at the fourth floor after 35 years. And one of the things about the serve site situation is at least from report of people at the project, that building was talking for at least a few days before it collapsed.

There was popping, there was different sounds that were coming from... and the building for somebody who had a discerning ear, would've known that something major was imminent, because those sounds are reported. So pay very close attention to your building by reacting quickly, you can avoid some catastrophic event and certainly a major crack showing up or a piece of stucco on the ground. The next chunk to fall off could be much larger than the one that you found the first time. So good to react to that. Anyway, Rene', you got one more parting word. It's 12:03, parting word.

Rene' Portieles P.E., G.C.:
Parting word. Guys, I need you to understand your building, walk around your building. Look at it. Just like Alan said, "Your building is talking to you. It wants to be listened to." And I'm not saying this in a mean or evil way, but don't take the word of one person who maybe is on the staff. Look around, there's so many issues with different building engineers that come and go, and then the information, the history doesn't get transferred to the new guy, the new guy then is by himself.

He doesn't really know where stuff is. It's really important to get a grasp on your building. If it's not with the chief engineer, get yourself an engineer, it doesn't matter who it is. Somebody with forensics really helps significantly because they get that to the root cause. And they'll be able to really give you a list of where your building is now and then using priorities. You can move on with the repair either today and tomorrow.

Alan Tannenbaum, Esq.:
Okay. Everybody-

Rene' Portieles P.E., G.C.:
And thanks having me on.

Alan Tannenbaum, Esq.:
Yes. Thank you, Rene'. Hopefully it was enlightening for folks and we will have a great topic for next time, which we haven't decided, but we appreciate Rene' being with us and everybody have a great day. Thank you.

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Repair & Maintenance Obligations

The Smart Board & Property Manager Legal Guide: Repair & Maintenance Obligations

Alan Tannenbaum, Esq.:

We take homeowners associations and condo associations through turnover, help set up their engineering and accounting studies, post turnover for the groups that are interested in pursuing claims, both for HOAs and condos. We're involved heavily in that. We also do repair consulting as construction lawyers, so on major repair projects. We'll be involved in reviewing the contracts, revising the contracts, both with the engineer and the general contractor. We help administer those agreements and any projects that don't go well, we are heavily involved in cleaning up some issues that may follow either bad work or change order claims and so forth. So, those are our two capacities. I personally have done that work for now over four decades, and my current firm has been operating for 26 years.

We have offices in Orlando, Clearwater, Sarasota, and Fort Myers, so our market is from... The space goes across Central Florida to Tampa Bay and above, and then down to Naples. We stay out of South Florida, unless it's a really great case that somebody wants to co-counsel with us and we don't go to North Florida because it's too difficult to get there. So, that's what we do. We don't do general counsel work. We stay within the construction realm. So, let me introduce today's topic. So, everybody is aware of what happened in the Surfside situation.

You had an older condo, a lot of engineering reports about problems over the years. The board had difficulty inspiring the owners to pay a special assessment to do the repairs, and they finally did pass the special assessment, and before the repair could be implemented, the buildings came down horrifically where the building did. A very drastic situation, probably unlikely to be repeated, but it did spark a number of issues. First of all, number of condo boards have gone out and gotten the prepared review by an engineer. There's a lot of remedial work that's being planned or implemented at this juncture as a result, and it's brought into focus the whole issue of what is the obligation of a condo board or an HOA board to undertake or to direct repairs and maintenance on their properties, what leeway does a board have in making decisions in that regard, what's required, what's not required, we're going to cover all that today. And, I'm going to ask Brian Tannenbaum, our associate, to put up the Lamden rule, if you can, Brian. Am I going to be able to see it, Brian?

Brian's going to get up the Lamden rule, but while he's getting it up, let me read it. This is the current rule in Florida concerning the board business judgment. We're a dually constituted community association board. Upon reasonable investigation, in good faith and with regard for the best interest of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development's common areas. Courts should defer to the board's authority and presume expertise. So, let's break that down.

The end of the Lamden rule is, where should courts defer to a board's authority and presumed expertise? There it is, and Brian, can you bring it up so we can see the whole thing? Well, that's not it. Well, we're having little technical problems with our visual, but the end result of the Lamden rule is, where should a court defer to the board's authority and expertise? There it is, and then it sets forth all the conditions that precede it. So, what the courts of Florida have said is, we don't want to hear the disputes between condo associations and homeowners associations and their owners about the wisdom of how a board is approaching repair and maintenance. Under certain conditions, the court's going to say, "Look, we're not going to hear this dispute, we're going to defer to what the board's authority and expertise is, but what are the conditions for a court to defer to that?

And, that's what's preceding it in the Lamden rule. So, the board has to be duly constituted, so you have to have a board that was duly elected. Upon reasonable investigation, Jon Lemole is going to deal with that in a few minutes. So, in order for the court to defer to the board, there has to be a reasonable investigation supporting the board's decision making. Good faith is obvious. The best interest of the community association and its members, but one important exception to that is if you have 300 owners in a condo and there's only one owner who is getting leakage, it doesn't matter if the other 299 owners don't want to repair the roof on that building.

The obligation to protect that owner from that damage, even if the rest of the community doesn't want to do it is overwritten by statutory requirements. Then, does the board have the authority to make the decision? Which we're going to go through, so all those things need to be in place. So, I'm going to ask Jon Lemole to talk about investigation because that's one of the requirements of the Lamden rule for the court to defer. So Jon, take it away on the issue of investigation.

Jon Lemole, Esq.:

Thanks, Alan. That's probably the heart of the Lamden rule is that the board's decision in regards to maintaining and repairing the common elements in a condo association, or the areas where it has duty to maintain and repair in a homeowner's association, the heart of the Lamden rule is that the board's judgements and decisions are protected as long as they're based upon reasonable investigation, and so anytime the board is determining a course of action to take in regards to discharging its maintenance and repair obligations, there has to be in the back of the board's mind and board members' minds, the idea of what investigation have we taken in order to discharge this fiduciary duty, this obligation that we have?

One of the things that we've discovered lately, I guess, as a result of what we've seen over in South Florida with Champlain Towers and some other things that I'll hit upon in a second, is whether inaction is okay. If you don't know of a particular issue that needs to be addressed, you don't have a roof problem, you don't have a problem with roads or other drainage systems or things like that, what is the board entitled to do or to rely upon in not performing any kind of investigation of the community and the things which it has maintenance and repair obligations for?

And as we go forward in time, I think what we're going to see is that boards are going to be held and associations are going to be held to a much higher standard in terms of not only discharging their duties with regard to things that they know about, but also discharging their duties in regards to continuing almost like wellness of the buildings and the grounds in their communities. We go to the doctor periodically for checkups. There may be nothing wrong with us that we know of at least, but yet we go for an annual physical. We want to know how we're doing, we want to know how our cholesterol is, we want to know how our blood pressure is. Well, I think that's kind of a, an area of the board's duties that's been a bit overlooked and is going to be much more, or increasingly under a microscope as we go forward in time.

I don't know whether there's going to be some legislative activity that comes out of this that's going to affect that or not, but let's talk about what is the typical situation for a condo association or homeowners association in assessing the health of their communities, the health of their buildings, the health of the systems that they maintain. Sometimes associations get reserve studies, sometimes. Maybe they do, maybe they don't. In condo land, there's an obligation to fully fund reserves, and...

Alan Tannenbaum, Esq.:

They produce a budget with fully funded reserves.

Jon Lemole, Esq.:

Produce a budget with fully funded reserves, and so from time to time, a condo association may get a reserve study done, and in fact, at turnover, there's typically a developer's inspection report, which includes a reserve calculation for the things that the developer is supposed to include in that turnover report.

But that may be it, that may be the last time that a condo association board or condo board does any kind of real significant stem to stern type of investigation of the community. And in an HOA, it's really driven by whether the documents require that. There's no statutory requirement as there would be in the condo act and it's purely document driven. So, you may have associations, which are proceeding year to year with very little information about the health of their buildings, the health of the systems that they maintain and are obligated to maintain, and that's a problem.

As we've discovered from recent events, buildings have a finite lifespan, systems have a finite lifespan, and especially in Florida where we have a very difficult environment and difficult climate that takes a toll on buildings and takes a toll on systems, it's very important that going forward associations and association boards start to think about routine investigations, routine forensic investigations, and a board may not be able to rely going forward. I'm not saying that this is law. This is something that may come out of legislation, but at some point we may see case law statutes start to align to impose a stricter requirement on boards to assess the health of the things that they have maintenance and repair obligations over.

What's reasonable? What's a reasonable investigation for a board to not take action with regard to its maintenance and repair obligations over the structure of a building, let's say? Is the board entitled to rely on the mere fact that they don't see anything, that they're not noticing any problems or does reasonable investigation mean that you should have some sort of engineering evaluation of your buildings? And if it comes out that there's nothing that needs to happen, great. Obviously, if it comes out that there's something that needs to be addressed, then the board will have to address that, but can the board just re eye on not seeing anything, not noticing anything, not hearing any complaints, not having any patent visual things that are staring at it and jumping out at it to not take steps in terms of evaluating health of their buildings, or their grounds, or their site improvements?

Alan Tannenbaum, Esq.:

Jon, let me ask you a question. So, Lamden rule, would you agree that it's really a minimum standard, it's talking about where a court is not going to interfere, but not necessarily the best practices for an association? So, my question always to a group is whether you have building problems or not, how can you make decisions about the long term repair maintenance of the building, unless you have a proper investigation that you can rely upon to make those decisions? So, there's a minimum standard, which in order for a court not to overturn what a board does, there has to be an investigation, but the depth of the investigation really is the best practice for an association in proceeding with this obligation to lead the maintenance and repair, you see that?

Jon Lemole, Esq.:

Yeah, absolutely.

Alan Tannenbaum, Esq.:

All right. Jon, let's move to the issue of neglecting repair and maintenance in its entirety. So the question is, you have a board of directors and the owners are really opposed to any kind of special assessment. There's problems with the building, but the consensus of the owners is, look, I'm only going to be here for a few more years, or I'm selling. We don't want to really fund a major special assessment to do the repairs, and the inquiry is whether for either a condo association or a homeowner association, the decision to not do anything in the face of problems that may exist, is that ever a justifiable position? And, we're going to have Brian Tannenbaum at this point take us through the statutes, and show us whether the decision to do nothing is actually something that a board of directors of a condo association or a homeowner association in Florida is authorized to do, to do nothing. Brian, what say you?

Brian Tannenbaum, Esq.:

What say I, I say no. Well first and foremost, 718, which governs condos, 718 111 1A, and what's important here is that the officers and directors of the association have a fiduciary relationship to the owners, so they're responsible to the owners.

Alan Tannenbaum, Esq.:

What's a fiduciary relationship, Brian?

Brian Tannenbaum, Esq.:

Say that again?

Alan Tannenbaum, Esq.:

What does that mean? What's a fiduciary relationship?

Brian Tannenbaum, Esq.:

It means that they're liable to the owners. They have a relationship. It's the next sentence in here, an officer, director or manager may not solicit or accept anything of service or value or kickback for which consideration has not been provided.

Alan Tannenbaum, Esq.:

But, a fiduciary duty is a higher standard than a typical duty that one person in society would have for another, correct?

Brian Tannenbaum, Esq.:

Well, right. It's in the statute, so it's codified in the statute specifically, and if you look at C, it says that the unit owner does not have any authority to act for the association by reason of being a unit owner. So, it's especially heightened because a unit owner can't act for the association on their own. The only way for the association to act is through the officers and directors.

Alan Tannenbaum, Esq.:

So, if on a condo the roof is leaking and the penthouse owner stays in their ceiling, can they hire a roofer go up and fix that roof?

Brian Tannenbaum, Esq.:

They cannot.

Alan Tannenbaum, Esq.:

And, specifically 718 111 C provides that they can't do that. So, if the board doesn't act and get a roofer out there, they're really setting the association efforts of liability. Go ahead, Brian.

Brian Tannenbaum, Esq.:

Right, so that brings us to 718 113 1, which basically defines the maintenance or repair obligations of a condo association, and the maintenance of the common elements are the responsibility of the association. Where this comes into play with inaction some of the time is when there's a project that might be classified as a material alteration, which under the statute says that there shall be no material alteration without 75% of the voting interest of the association.

However, if you have something that falls under your repair and maintenance responsibilities, such as a roof or a failing balcony or windows, where the only way to repair that common element is to make a material alteration, so for example, if you have a roof that was-built maybe 20 years ago, 30 years ago, and the material that was used to build the roof is no longer available, it doesn't allow the board to say, well, because it's a material alteration to use a different material, we have to have 75% of the vote. The maintenance and repair responsibility of the common elements is above and beyond the material alteration section. Now, if there is a similar material or the same material, then there would be an obligation to use that material.

Alan Tannenbaum, Esq.:

Let me ask you a question, Brian, what's the significance of the beginning of that section using the word responsibility? Is that different than may or could? How is that significant?

Brian Tannenbaum, Esq.:

Right, there's no way out of it basically. You have to maintain the common elements. There's no exceptions, there's no excuses, there's nothing you can do. The main maintenance of the common elements is the responsibility of the association.

Alan Tannenbaum, Esq.:

So, would you agree that that sentence alone, standing alone would make the idea in the face of an existing problem, make the concept of a board not doing anything a violation of that provision of the statute?

Brian Tannenbaum, Esq.:

Correct, if there's no maintenance of the common element, then there is a dereliction of duty by the association to maintain the common elements.

Alan Tannenbaum, Esq.:

All right. What's the significance of 718 113 3 at the bottom?

Brian Tannenbaum, Esq.:

So, 718 113 3, it kind of goes with C up here where a unit owner cannot do anything within their own unit through a common element that would adversely affect the safety of the common elements or any portion of association property. So again, a unit owner cannot do anything on their own [crosstalk 00:29:06]-

Alan Tannenbaum, Esq.:

Both within the unit or in the common element?

Brian Tannenbaum, Esq.:

Right.

Alan Tannenbaum, Esq.:

So again, you can't have individual owners in a condo doing anything to the outside of a building, even though there's water intrusion or other damage being caused. The statute says that that owner cannot act and they would be in violation of the act if they did so, correct?

Brian Tannenbaum, Esq.:

Right, so moving on to the remedies, 718 303, what this says is that the association is governed by and must comply with the provisions of this chapter, as well as the declaration of documents creating the association. There are actions for damages or injunctive relief for failure to comply with the provisions, and they can be brought by the association against a member or by a unit owner against the association, or any director who willfully and knowingly fails to comply with the provisions of chapter 718.

Alan Tannenbaum, Esq.:

Now, just to assuage directors, even though that's what it says in 1B, that doesn't necessarily bring about liability upon directors because the director also in addition to that will have had to have acted it with their own [inaudible 00:30:33] gain in mind, or with some malicious or illegal purpose. So, it's not enough to say, well, the board didn't act, it saved that board member of the assessment that would've been assessed against all of the owners, and therefore they're liable personally under 1B. There isn't an additional requirement in another section of the statute, which requires that in order for there to be individual liability that it almost has to rise to the level of a criminal act, not just neglect. I don't want anyone to get overly nervous about 1D because it's a very, very narrow field of potential liability for a director. Even if they fail to undertake the repair process or administer it, but the association does have significant liability. Go ahead, Brian, sorry.

Brian Tannenbaum, Esq.:

And, then the last part of 718 303 that we have highlighted here is that there are attorney's fees that are recoverable as well as reimbursement of any assessments that were used to fund the litigation. So, the owner's assessments are not being used to pay for the litigation against them. They will be reimbursed and they will recover attorney's fees that they spent themselves.

Alan Tannenbaum, Esq.:

What about homeowners association?

Brian Tannenbaum, Esq.:

Homeowners associations are governed by chapter 720. The officers and directors of a homeowners association have a fiduciary relationship to the members, so it's the same as in the condo statute. They also have a fiduciary relationship to the members. The difference is the powers and duties of the association are those that are set forth in the governing documents, beyond what is already in the statute. And again, here it says a member does not have the authority to act for the association by virtue of being a member, so the same thing.

Alan Tannenbaum, Esq.:

Before you pass on that though, just to make it very clear, for condominium associations there's a statutory obligation to maintain and repair on the part of the association the common elements. It's also required in the documents what Jon Lemole is going to go over. In a homeowners association, the obligation to maintain and repair the association owned property or connected town homes within an HOA really comes from the documents. There's no specific statutory obligations to maintain and repair like there would be for a condo. It all comes from the documents. Go ahead, Brian.

Brian Tannenbaum, Esq.:

And, then 723 05, again, are the remedies for homeowners association, and it has the same remedies as the condo statute. The refusal to comply with these provisions may be brought by any member against the association or any director or officer of the association who willfully and knowingly failed to comply with these provisions, and it again, has the prevailing party of attorneys [crosstalk 00:34:02].

Alan Tannenbaum, Esq.:

The key is there's severe repercussions for the association, either in HOA or condo if there's failure to undertake the maintenance and repair responsibility in the face of ongoing problems. Obviously, it will be responded to by the association of insurance carrier, but you have too many of those claims, and all of a sudden the association's not going to be able to get coverage in next year. So, there's a real impetus to thoughtfully undertake the investigation and the repair and maintenance obligations, again, and this answers the question. Statutorily, doing nothing is not an authorized act. That's not going to protect a board under the Lamden rule because doing nothing is not an authorized act of an association in the face of ongoing problems. So, what we're going to do now, because we talked about documents, I'm going to switch it over to Jon Lemole, who's going to give some examples of how condo declaration provision and HOA declaration provisions impact repair and maintenance. Go ahead, Jon. Brian, go to the next slide there.

Jon Lemole, Esq.:

I'm going to jump into that in a second. Christopher Carter asked a great question right now that I think is something that this is a good point to address. He says, does the business judgment rule absolve incompetence? Here's my take on that. First of all, you have to define incompetence. Is incompetence just not making the right call? Sometimes boards don't make the right call, but if they've done their due diligence, if they've done their investigation, go back to the Lamden rule, if they've done their reasonable investigations and they're making a decision in the best interests of the community, it may not always be the perfect decision, it may not always be the absolute right decision, but typically the business judgment rule is going to is going to provide cover for that. Now, if incompetence is that they didn't make a reasonable investigation of the issue that they're dealing with, and they just decided a course of action out of the blue that had no real connection to what the problem may be, that is the heart of the Lamden rule, that is the heart of what the business judgment rule protects and doesn't protect.

So, I think that was a good question, and that'll be kind of the theme that we see as we go forward. Anyway, jumping to some typical governing document provisions. So, you know you have statutory obligations and in the condo act, you've got a very robust statutory scheme and in the homeowner's association act not quite as much. And so for a homeowner's association, much of the association board's obligations are going to be driven by the declaration. And so, it's very key that both board members and managers understand what the governing documents say or the declaration says about these association's duty to maintain a repair.

So, let's look at section 2.24 in this particular declaration, and I'll tell you that this is a town home community, but where you start with, and this is a section that would apply probably to town homes or even single family HOA, but you can see all of the areas, and if you follow my cursor, you'll see that the association shall, not may, shall in its sole discretion install, maintain, repair, and replace any and all improvements within the common area. Such maintenance shall include, without limitation, you all know these things, electrical wiring up to the meters, water pipes up to the meters, cable television lines up to the cable box, sewer lines, landscaping, lighting, irrigation, if that's something that is included in your community, amenities, pools, parks, entry gates, roadways, sidewalks, walkways, paths, trails.

That's pretty common for most HOAs. Now, Brian, if you'll scroll down to the next section, 2.25, because this is a town home community, you'll typically have a second area of maintenance responsibility for town home buildings. Now, this is where it gets a little crazy in town home world, folks. In connected town home world, these provisions run all over the map. They can be very vague, they can be very, very detailed. Now, this one's fairly detailed, painting of exteriors, maintenance and repair of exterior cladding and walls, party walls, roofing, and related components, waterproofing elements, gutters, downspouts, that's, as we've seen a pretty, a pretty robust and well-defined maintenance and repair obligation. Here's an opportunity for each of you to go back if you're in a town connect to town home community and look at what it actually says in your declaration because we've seen declarations where it may say the roof covering.

Now, think about that, think about a town home community, where the association only has an obligation to maintain the roof covering. Well, as you probably all know, sometimes when you do a roof repair, a roof replacement, you may need to repair some of the roof structure, decking, trusses, rafter tails. Is that included in roof covering? Maybe, maybe not, and that creates a lot of problems for an association when they have to make those calls, and it's not really well specified in the declaration. That's always an opportunity for a smart board to go back and consider really defining, maybe there's an amendment that's needed, to define exactly what the association's duties and obligations are in that community because when it's ambiguous, that's where a lot of problems arise. The board is not clear what it's supposed to do, lot owners are not clear about what the board's duties are, and that creates a lot of opportunities for litigation. [crosstalk 00:40:57]-

Alan Tannenbaum, Esq.:

Jon, to clear up the point, because there's no statutory obligation like there is in the condo for the common elements of a condominium, which would be the exterior walls of a roof's structure, it was really left to developer lawyers in connected town homes and HOAs to define the maintenance and repair, and they did it to the developer's benefit, not to the owner's benefit, so that has to be cleared up, but Jon, it's 11:39, I need you to do the condo declaration quickly [crosstalk 00:41:32]-

Jon Lemole, Esq.:

Run through the condo real quick. All right. Folks, condo declarations are pretty typical because they generally would track the statute and there's a statutory obligation as well, but generally you're looking at all of the common elements. So, here you see all drainage and storm warm water systems, driveways, private courts, all water and waste water lines and piping serving unit, which are not contained within the physical boundaries of the unit, landscaping, gates, walls, fencing. I'm not going to go through this and read it in the interest of time, but it's in our handouts, you can take a look at it, but this is a pretty standard condominium declaration provision relating to the condo association's duty to maintain and repair common elements. [crosstalk 00:42:26] specify some other areas where they have limited common elements or other areas where separate condominium property that may fall under that, but I think if you look at what we have here in materials, you'll see something that for those of you that deal with condos, you're pretty familiar with.

Alan Tannenbaum, Esq.:

All right, but Jon, let's emphasize, again, the first line of 7.1, it says... Well first of all, under section seven, you use that word responsibility again.

Jon Lemole, Esq.:

Right.

Alan Tannenbaum, Esq.:

And, then in the first line of 7.1, which is very typical, the association shall, doesn't say may, it says shall, so for condos, you got a statutory obligation that's unambiguous to maintain and repair the common element, and it's backed up by the declaration, which also makes it a mandatory obligation. So, a board of directors of a condo association or an HOA burying their head in the sand or yielding to owners who were complaining about assessments and not taking is a statutory violation and a violation of the documents at the same time will get an association in a lot of trouble. So, let's move into the cases. We have about 15 minutes.

We're going to go through these quickly. Coronado versus Scher, a condo association did not take care of its common element sewage problem. The owners had sewage in their unit. They won a major judgment against the association at an injunction requiring the association to correct it, and you can see in the decision that section 718 113, which we talked about, was cited as a basis to also award attorney's fees. So, that's a very important... It's a one page case Coronado, but it really backs up everything that we've said about what the association exposure is. Go on to the next case, Brian. And, these are excerpts. If you want the whole case, just let Michelle know and she'll get it to you. Coconut Key, this is an HOA, there was a flooding problems in the area owned by the association affected this owner's lot and the association wasn't correcting it.

She was able under 7200, even though they decided 718... Go further in the case, Brian. And if you look at it, you see what the court did. After careful review, three days of testimony, the trial court had issued the injunction. The owner approved a clear legal right. It says the association violated discovering documents by failing to properly maintain the surface border management system. Go on the next page, Brian. She proved the harm, how the flooding problem was impacting her, and she didn't have an adequate remedy and she was entitled to the injunction and then they awarded attorney's fee. So, that's an HOA case, a more recent event. The association did not properly maintain and repair the association-owned property. It caused flooding on this lot, and the owner was able to get a judge to force them to do the repair, and also to pay her attorney's fees.

Go on the next case, Brian. All right, Colony. This is a bankruptcy decision, not necessarily precedent, but a very interesting case. So, the Colony was a hotel condominium and the condo association still had the obligation to maintain and repair the common elements. The owners got to stay in their units one month a year, and for the other 11 months of the year, their unit was in the hotel full for rental to the population at large. Very interestingly, George W. Bush had 150 rooms reserved on September 11th, 2001 at the Colony the day he was speaking at an elementary school in Sarasota, and that's the same Colony that was involved here. So, they got into a dispute with the hotel operator and the board of directors chose not to repair the common element, and there's really great language in here that goes through all the older cases about the association's obligation and basically this was the appeal from the bankruptcy court. It basically said that the association's decision not to do repairs was not authorized.

There's also an interesting ending to it though, which is... Brian, if you go down a little bit. All right, it starts at 563 on the bottom left, further by allowing the Colony to... Go up. Well, to deteriorate. Impermissibly,, altered the common elements to the detriment of a minority of the members. It talks about material alteration. So, what this court said was, very interestingly, that deterioration of the common elements is an alteration that without an owner vote was not an authorized act by of the board. So, it basically said by neglecting it, it altered the common elements and an additional means for the court to act was that was a material alteration that was not approved, very interesting court decision. So, Colony is a very interesting case. By the way, the colony no longer exists because in the end, the buildings went into total disrepair and had to be raised by order of the town of Monroe Key, so that was the result. All right, let's get to Miller, and yes, Miller... Jon, talk about Miller.

Jon Lemole, Esq.:

Miller is a 2019 case, so it's very recent. It's an interesting case. In Miller, a homeowner wanted to build a garage and there were height restrictions, and there was also a restriction against the use of flat roofs. He submitted an application to the architectural review committee, it was approved by the committee, the design, but in construction the design was changed and it appeared very much like it may have been too high and it may have been a flat roof. So, the association notified the owner that it was going to seek covenant enforcement against him. The owner came back and said, look, I've got a statement here from the contractor and from the building department. The contractor says this is not a flat roof as that term is commonly understood in construction and engineering, number one.

Jon Lemole, Esq.:

Number two, the building department verified that the height was X, which meant it was in compliance with the height restriction in the CCRs. Five years after the fact, the association permitted or approved of the as-built garage, relying upon that contractor's statement, relying upon the information from the building department. A neighboring lot owner sued the association and said, you didn't enforce the covenants, and you failed to exercise proper business judgment as a board. The court said no, and the thing that's interesting about this case, the court said, yes, the board's actions after the fact approving this was okay, and the reason why is because the board made a reasonable investigation, they exercised due diligence, they considered the statements of the contractor.

They considered the statements of the municipal building department, and they came to the conclusion that the as-built was compliant with the CCRs and the restrictions on height and flat roofs. And so, the takeaway there is that in some instances the board doesn't have to go out and pay its own people to go make these determinations from them. The board can rely on professional advice, even if it's coming from the lot owner or the unit owner or whatever the case may be. So, that's kind of an interesting wrinkle on the board business judgment rule.

Alan Tannenbaum, Esq.:

All right, Brian, why don't you talk about ho Hollywood Towers?

Brian Tannenbaum, Esq.:

Sure, so Hollywood Towers was a condo case. It involved an association that wanted to perform repairs on balconies of certain units, and the association's engineer said, in order to repair the balconies, we need to demolish three feet into the interior of the unit where the repair needed to start. The unit owner sued to not have that done in the interior of their unit. They hired their own engineer who came out and said it's not necessary for them to be three feet into the unit, and what the court said was that basically in applying the business judgment rule of condo associations, that they limit their review to whether the association has a statutory authority to perform the act, and if the board's actions are reasonable, and this is where they cite the Lamden rule from the California Supreme Court and the court adopts the test court in Lamden to give deference to the condo association decision if that decision is within the scope of their authority and is reasonable.

Alan Tannenbaum, Esq.:

Brian, just to give a little history. So in the 80s, what the court system allowed, if an owner objected to the way the board was doing a repair, the owner got their engineer, the association's engineer, and the battle of experts, and I think the court system got tired of the battle of the experts as it applied to condo repairs, and it metamorphasized into the Hollywood Towers decision where it said, look, as long as the board of directors has appropriate investigation and an engineer supporting the repair approach that the board wants to undertake, we're not going to give any credence to the fact that the unit owner's engineer thinks it to be done a different way. As long as a board's position is supported by a proper engineer, that ends the case, and that's where the Lamden rule actually was developed. It was part of the decision adopted in this Hollywood Towers case, I believe in 2010. So Brian, what about Scher? That's the next one.

Brian Tannenbaum, Esq.:

Scher's a very recent case, and this involved the structuring of assessments levied on different parts of an association, and basically they just reaffirm what it's said in Miller, and they talk about how the court presumes that the directors acted in good faith and the court must give deference to the association's decision if that decision is within the scope of their authority and is reasonable.

Alan Tannenbaum, Esq.:

Well, let's focus on that because this is a good ending point. So, this is a 2021 case decided by the Fourth District Court, which is Broward County across the state, and that one phrase, courts must give deference to the association's decision and look at the requirements. If that decision is within the scope of the association's authority, again, doing absolutely nothing in the face of a problem is not a decision within the scope of the association's authority because both the statute and the documents, do not allow non-action in the face of problems. The second part is reasonable. Well, in order for a board of directors' decision on maintenance and repair to be reasonable there has to be an appropriate investigation. It's not just a willy-nilly decision by the board maybe working with a contractor to fix something that really requires an engineer's overview.

Alan Tannenbaum, Esq.:

It's not reasonable if it's a half solution. It may not be reasonable. I've seen board of directors where they have five buildings, they get an opinion that all the roofs on the five buildings need to be replaced, and a board comes back with a decision that, well, we'll do one roof a year and we'll have a five year plan. It's always interesting that none of the board members ever have their units in that fifth building, but the owner in that fifth building says, wait a second, the engineer's report says our roof is shot today. It's unreasonable to delay the replacement of our roof for five years ahead. So, you could argue that the only reasonable thing that a board of directors can do, when it has an opinion from an engineer that all the roofs are shot, they all need to be replaced, is to figure out a way to do that in one project and not delay it over five years, which may include getting some financing and so forth.

So again, that's a really short recitation, but a good recitation. Arbitrary, capricious, or in bad faith, if the repair request or the need comes from the most obnoxious owner in the community, and the last thing the board wants to do is take care of that person's problem because they've been really a difficult owner for the board, the board can't sit there and say, well, we're not going to do the repair because that's the obnoxious owner that's been showing up all the meetings making our life miserable. So, that also would not be a supportable decision.

Brian Tannenbaum, Esq.:

I see a couple good questions in the chat. I don't know if you want me to read them to you, but [crosstalk 00:58:20]-

Alan Tannenbaum, Esq.:

Go ahead, Brian.

Brian Tannenbaum, Esq.:

So George asked, for amenities such as tennis courts, pools that are under an HOA's responsibility, can they shut them down in order to make those repairs?

Alan Tannenbaum, Esq.:

I think that would be very difficult to justify under the current case law. It's that part of the amenity package. If they are repairable, probably just shutting them down wouldn't be justified. Now [crosstalk 00:58:50]-

Brian Tannenbaum, Esq.:

I think shutting them down to make the repairs was the question.

Alan Tannenbaum, Esq.:

Oh yes, obviously in order to do a safe repair you need to shut them down, but what you don't want to do is, and unfortunately with the delays right now it's difficult, but you might not be able to get that pool repaired until nine months from now. The question is, do you have to try to keep it alive until then? Difficult questions, no clear answer to that. There's a question about material alterations. Yes, the case law says that the material alterations will be trumped by the need to do a repair, and there are cases from the 80s that will support that. Jon, do you have any ask parting word? You're muted right now, Jon.

Jon Lemole, Esq.:

Sorry. Look, always go back to the Lamden rule if there's any question. Look at what the board and the association's duty is, and then if you have a decision to make over how to discharge that duty, make sure that you're doing a reasonable investigation. It all comes down to due diligence, and if you do those things, if you make a decision [crosstalk 01:00:15] reasonable investigation as to something that is in the repair and maintenance authority of the association, the courts, as they are trending, will back that decision up.

Alan Tannenbaum, Esq.:

Brian, any thoughts?

Brian Tannenbaum, Esq.:

No, just doubling down on the attempts to investigate the issue are very important in the court sentence. You just can't do nothing.

Alan Tannenbaum, Esq.:

All right. Well, I have a final thought and the thought is a little bit off point, but any of you managers or board members who are getting proposals from engineers, be very wary of the general conditions that they're attaching, very restrictive general conditions, limitations of liability. So, they're handing you a certificate of insurance for liability coverage of $1 million and they're handing you a contract that limits their liability to maybe the amount of fees that they're going to get paid under the contract, and if you're doing a $1 million repair, $2 million repair, that's not going to cut it, so be very wary of what their insurance companies are requiring that they put in their contracts now before you allow your board to sign that. You need to look that over, so we are very much involved in that issue.

Alan Tannenbaum, Esq.:

We'll stay on to answer a few questions. We've officially hit noon, and I'm going to scroll up to see if there's anything that we can particularly answer. And so, thanks for the people who have to get off now, but we'll answer some questions. What if the maintenance issue is cosmetic versus structural based upon an engineer's report? Obviously, the structural issue should be given priority, but I don't know what cosmetic means. If it's just aesthetic, probably it's not a repair that's going to be number one on your list, but based upon what they said in the Colony, if it's an aesthetic item that will make the property look different than it did originally, you probably do have to get it corrected. Somebody's got a long question about a fence, which I would rather answer offline.

All right, in condos, what remedies are available owners outside of litigation? You're probably not going to get the Bureau of Condominiums to act on... It's now called something different, but to act on a repair issue. So, your circuit court may be the only place you're going to get some relief.

Jon Lemole, Esq.:

Alan, here's one. Is the Lamden rule ever used as a way to move forward with material alterations without getting the needed 75% vote?

Alan Tannenbaum, Esq.:

If it's a necessary repair, you could probably get outside the vote, but there was a key case back to the 80s where a group wanted to go from wood shakes to a more reliable roof system. They didn't get the approval. The engineer said the replacement would last longer and be cheaper, and that association got sanctioned by the court for not getting the vote. So, you got to be very careful where that applies. What sort of direction or action would have been taken if an owner paid for and caused to be installed insulation in an elevator shaft? So, it sounds like they went into the common element, put in insolation. If it was probably a condo, that would've been a violation.

So, that was a self-help opportunity by an owner that was not allowed by the statute, probably not allowed by the documents, and you can take action to have that altered. Frankly, if it doesn't cause a problem, would it be worth it to pursue that? The problem is you don't want to establish a precedent where you've allowed that to occur, didn't take action, then all of a sudden another owner is trying to do something to the common element and they're citing the fact that the board allowed that. So, you may be obliged to take some action there, maybe reach settlement with the owner, so as not to make a precedent for other owners.

Aaron asked a question about cooperatives. I believe you do have similar provisions in the Cooperative Act, Aaron, yes. Somebody asked what common elements were. In a condo, the common elements, it's usually everything outside the unit, unless it's a limited common element. In a homeowners association, you don't use the term common element. There's two types of elements in a homeowner's association. Either you have association owned property, which could be the roadways, the waterway so forth, or you have connected town homes, which are actually still owned by the owners, but maintained to some degree by the homeowners association. So, technically you don't have common elements in HOAs, only in condos.

Yes, 718 needs to be stronger. We are going to see some alterations there. We answered that one. Is a structural inspection only visual or destructive? Well, Ronald, your question kind of answers that. If you have a structural issue and you're only doing a visual inspection, you may not be able to get to the bottom of what's really wrong, and what the engineer will probably recommend is there to be some level of destructive examination in order to actually figure out the problem, so that's a good question.

The Fannie Mae and Freddie Mac condo lending restrictions, I'm not directly familiar with those, but they're going to cause groups to get their engineering and inspections done and do repairs and have adequate reserves in order for their owners to qualify to get Fannie Mae or Fred Mac financing. I think we covered it, so we're going to sign off. If anyone has any questions, you can contact us directly. We'll answer some questions for anybody who has it [crosstalk 01:07:52]-

Brian Tannenbaum, Esq.:
Where do they send their license numbers in?

Alan Tannenbaum, Esq.:

The license numbers are going to go to Michelle M. Colburn at tannebaumscro.com and she has that. You could see that she's highlighted that in the chat. You'll find it there, and again, we hope that you found this helpful. It's a big discussion that's going on right now throughout the state and we look forward to presenting next month to you, so see you next time.

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Connected Townhomes Administered by Florida HOAs

Alan Tannenbaum, Esq.:

Everybody. We're going to try to keep everybody on mute during the presentation. To keep the crosstalk down. We will have an opportunity at the end to answer some questions. If you have questions, send them through the chat feature. We do look at them and hopefully we can get to them.

For those of you who this is your first session, we're Tannenbaum, Scro, Lemole and Kleinberg. We're construction lawyers. We spent a lot of our time representing homeowner and condominium associations first in investigating and pursuing turnover claims for groups that have come through turnover and even some properties that are a little bit more mature but less than the 10 years of age of the buildings, which is what the statute of repose is in Florida. The absolute deadline to pursue construction defects is 10 years. You're a manager and you've just taken over the management of a property that's 9.5 years old and is having problems, please let the green lights go off to know that you might have to get some advice pretty quickly.

The other part of our practice involves construction consulting on major repair projects. We do that for a lot of groups. Our market is from the Space Coast across to just north of Tampa Bay, Hernando and Pasco and down to Naples. We stay out of South Florida, that's to prolong our careers. We stay out of North Florida because it's too difficult to get to. 

All right. We've got to mute there. We'll get started. Connected townhomes, and I'm going to include duplexes in there. It used to be that that type of building, where you had multiple units combined, where every unit started as a ground floor unit, it used to be when they built that product they created it as condominiums.

Until probably the late '90s you had duplexes and connected townhomes, developers placed them under a condominium regime. The advantage of that was the owners owned their unit, everything else was common element and the maintenance and repair obligation was on the condominium association to maintain all the common components of those type of structures. Common mechanical, common electrical, common structural.

If you built a duplex or a connected townhome and it's in a condominium and you have foundation problems, it's the association's responsibility to fix it. If you have roof framing problems, association's responsibility. Certainly the roof. Anything that's not in the unit is typically in a condo, the association's maintenance and repair responsibility. It's actually a system that's worked very well since the first condos were built in Florida in the '60s, which is how maintenance and repair is divided in a typical condominium situation.

Developers I think in the late '90s came up with this brilliant idea, it was brilliant for them, for nobody else, of placing duplexes and quads, and sixplexes and eightplexes all connected buildings under an HOA regime. Now why did they do that? Well, under the Condo Act, if you're a purchaser of a condo unit you have statutory warranties that apply to that sale, they can't be waived by a developer. They're very broad warranties. The warranty is not only from the developer but it's from the general contractor, the subcontractors and the suppliers. Very unusual warranty. The legislature stuck that in the Condo Act in the '70s and developers have tried to amend it out and they've never been successful. If you the developers don't want to give statutory warranties, they look for a way to not be a condo and instead stick these buildings in an HOA regime.

Condominium documents have to be approved by the state. You make a filing with the state, they check your documents against what the statutory requirements are. Sometimes developers got to go through three or four revisions to get their documents through. There's no such review for an HOA set of covenants, conditions and restrictions. There's no submittal to any state agency for approval. It's a fairly easy process, which basically once you get your land use done, file the CCRs and you're on your way. Much different in a condominium regime. Condos are much more heavily regulated, if you've ever measured the thickness of the Condo Act versus the HOA Act, you'll see the Condo Act's much thicker, there's a lot more operational requirements than for an HOA. Again, you have a state agency that administers condos, does not administer HOAs, so a developer has a much tougher regulatory scheme with a condo.

There's also a very interesting statute that's in the Condo Act, which is 718.124, which simply says that a cause of action on behalf of a condominium association cannot begin to accrue until turnover. You know if a condo turnover is delayed that all your causes of action are preserved until turnover and then you have usually four years, let's say, for a construction defect after that. Very conveniently, legislature left that out of the HOA act. There's no savings clause in an HOA act, and so if you have a turnover that's been delayed, there's properties out there, many of the managers probably know of them, where turnover occurs 17, 18 years after the original development started, and it causes a real problem as far as statute of limitations and so forth. Developers in an HOA don't have to worry about that.

There was a lot of economic reasons why developers started to stick these duplexes, and quads, and sixplexes, and eightplexes under an HOA regime. Here's the, it caused a huge problem. I'm going to at this point turn the mic over to my partner, Salvatore Scro, and he's going to talk about the maintenance and repair dilemma that was created when developers chose to stick this type of product under an HOA regime.

Salvatore Scro, Esq.:

Good morning everyone. Thanks for joining us again. I wanted to just touch, I know some of you deal only with condominiums, and interestingly enough, I'm going to share a screen here with you. This here was a condominium, is a condominium. Interesting enough, the way the declaration read, the interpretation by the contractors and the developer was that this was an apartment converted to a condominium, was that the owners were responsible for their own balcony. Even with a condominium sometimes you have some issues that you have to make sure, if you have a poorly drafted declaration with regard to limited common elements, it's important that you look at that. That was one of the battles we had in this.

Believe it or not, I mean, imagine if you are the bottom unit and you need to repair yours, you're kind of responsible for everybody up above you. The same at the top. What happens if you repair yours and you add weight, and unfortunately beneath you will have these type of issues. That's what was in this particular condominium. It was a poorly drafted declaration, but just imagine if each owner had to repair their own balcony in that situation.

Let's talk about the connected home owner association buildings. Here you have, this is a eightplex here. You can see where they tried to cover over the cracking stucco, all the spider cracks throughout the stucco. If the association is responsible for painting the exterior, and one unit has a stucco problem, ironically they all have stucco problems in this one, that needs repair, how is the contractor going to assure that his work is resistant to the weather elements when the unit adjacent is going to have old, defective stucco? It's virtually impossible.

What if you start taking apart some of this building here and you find out that there is defective sheathing? Well, you probably can replace the sheathing on the one unit, but I don't think that they put the sheathing on where it stops at one unit and continues with the next. The same with the framing. How would you replace framing or sheathing that carries over to the unit adjacent to yours? The answer is you can't.

I don't think the rot knows where one unit begins and the other one ends. It's going to continue its way. If you're experiencing problems with your unit, one issue again is what if you're experiencing problems with your unit but the source is from your neighbor unit? Here we go back. Here you have issues here, other issues that you may have. We showed this in our last one, some of these, and I cut them short here. If you have issues with some of the windows and it's leaking onto the other units, what are you going to do? Can you force your neighbor to repair them? Can you make them pay? Sometimes a declaration will direct some of these things, sometimes it will not. It's very important that the building envelope and the building foundation should be the responsibility of the association so that it can be done properly, it can be done as one.

Other issues that you have are that insurance may not cover it. If you have construction defects, and I have plenty of slides that show that, I didn't put them on here. If you have construction defects, it's typical that the insurance will not cover a construction defect. They will cover damage from an event. They will cover damage from hurricanes. It'll cover damage from a tree falling. If they determine that you have defective construction, it's unlikely that the insurance company is going to cover that.

Everything that affects the building, whether it be the foundations, the plumbing, the electrical, the HVAC, if you have gas in some instances, but usually not in these connected units. Everything enters the building envelope. That means that there are going to be penetrations through the building envelope that are the possibility for water intrusion that will lead to deterioration of the building, and that should be something that is uniformly addressed by the association. How do you do that? You do it by amending the declaration to make sure that it provides for repair and maintenance of the building envelope, the building exterior. Sometimes they exclude windows, even windows though sometimes should be the responsibility of the association.

The foundation should be the responsibility of the association. Could you imagine if you have a settling problem with your neighboring unit and they're going to either do nothing about it or they're going to do some sort of repair and it affects your building or your unit? How is that going to be addressed? Maintaining these buildings should be the responsibility of the homeowner's association as a whole. I don't know if I could say much more about it than that. I know I'll be talking about when you do that later on as far as the benefits of doing it as a whole.

Alan Tannenbaum, Esq.:

I want to add something at this point for clarity's sake. With a condo, you have a statute that defines the responsibility of the association for the common element. Then you have a developer lawyer who drafts a set of condominium documents, which have to be consistent with what the statute requires. It's very clear what the declaration has to say about the division of responsibility.

In the HOA world, an individual developer lawyer who's hired by a developer to prepare the CCRs or the documents for a particular development designs this line of demarcation between association responsibility and owner responsibility. We've seen enough documents to know that they're across the board. There are eightplex documents that say, for instance, the association's responsible for painting only on the exteriors.

The roof, we were dealing with one that said the association's responsibility is limited to roof coating, which is not defined, but the owners of the sixplex had to decide among themselves when the roof needed to be replaced how that was going to be done. You have HOA documents that run the gamut from a good set of documents that very much mirror let's say what the Condo Act requires as far as the maintenance and repair line of demarcation, to ones that the association has very minimal obligation for maintenance and repair.

You literally have owners, because some connected townhomes are like three stories high, you have owners who are responsible of doing exterior repairs and structural repairs three stories high on their own. Portions of the structure that might tie right into their neighbor's structure, you could see that it's a colossal mess and there's no state regulation of it. I don't know where developer's lawyers come up with these documents, but again, we've seen them across the board. All kinds of anomalies got created.

Anyway. Jon Lemole, my partner, is going to talk about what the anomalies are as far as even investigating defects, depending on what the documents say.

Jon Lemole, Esq.:

Good morning everybody. If you've been on these panels with us each month, you know that one thing that we firmly advocate here is the use of engineers and other professionals to investigate both at turnover and if you have a major repair project. It's always good practice to engage engineers to investigate your buildings, to investigate the work that needs to be done in a repair project so that you can have a good spec developed and delineate exactly what work you need to do.

Let's take the turnover concept a little bit further in this context. I always say, if you're buying a house, you'd never rely on the seller to get you an inspection report. Who would ever do that? Who would take the seller's inspection report as the basis for determining whether or not to buy a house? In a homeowner's association a lot of times that's exactly what happens.

You have a board at turnover, qualified people, well meaning people, but people who are about to be invested with a very large and important fiduciary duty to manage this association. These folks are coming into possession and having to make decisions about millions and millions of dollars of infrastructure, of capital, improvements, building exteriors and things like that. It's a perfect opportunity to do a thorough investigation of site improvements, buildings, especially in connected townhome situation. The buildings, the building exteriors, the roofs. It's also, if you're going to do that, a perfect time to take a look at your declarations. Because the association doesn't have standing to investigate and spend money, the board doesn't have the opportunity to spend money to investigate areas that it doesn't have maintenance and repair obligations over.

Similarly, in a repair project, let's suppose you're doing a re-roofing project, and take the example that Alan just talked about, where you have a declaration that says roof coverings. You're doing a roof replacement, I'll even show you a picture. I have one here I can use to illustrate. Let's suppose that in the process of doing this roof replacement on this building, and this is a typical let's say eightplex townhouse, the roofer uncovers a substantial amount of rot. That rot goes down into the trusses, the framing of the roof. Well, now you've got a roofer that's going to be looking at that and having to expand the scope of work to include removing a significant amount of the sheathing, not only the sheathing but also doing some significant structural repair to the roof. If your declaration doesn't cover that, it only covers the roof coverings, that puts the association in a real quandary for a couple of reasons. Can you do the work? Can you spend the money to do the work?

Secondly, you haven't done an investigation, if you haven't done an engineering investigation you didn't know this going into it and you didn't do this type of investigation because you didn't have standing to do this investigation. Now you have a situation where you've got these necessary structural repairs and you don't have any specification for it, and you may not have the standing to have an engineer actually take a look and do some more investigation, take some of this sheathing off, look at the nature and extent of it, how far does it go? What is the spec that needs to be performed to correct this problem?

The delineation of the maintenance and repair obligation of the association in the declaration, whether it's just for basic turnover, a critical turnover inspection, or in delineating what is the scope of a major repair project, such as a re-roofing project, it's critical.

I'll give you an example. I don't have a picture of this, but let me tell you something from real world application. We had a case where we were investigating extensive building leaks in a townhome community. When we got into doing some testing of the buildings, we found that a lot of the problems were emanating from windows. In fact, what the developer and the general contractor had done is they had basically made all of these, taken single windows and butted them together to create double window units. They failed to, where they joined the two windows, which some of you may know is a mold window, they didn't do that joint properly. They didn't do the mullions properly and there was water that was getting all back in behind the windows, down into behind the stucco. It was creating a lot of problems. When we started to open those stucco, do some destructive testing, we saw that a lot of the framing underneath the stucco was completely just rotted out, obliterated. It was like dust.

Now the problem here is that in this community the windows and the window frames were not within the maintenance and repair responsibility of the association. All of a sudden we have a situation where you've got major problems being caused by windows throughout the association causing problems to areas that the association did have maintenance and repair obligation, and it was a little bit of a quandary. We solved it. I won't get into too many details. It involved an amendment of the declaration to cover those things to enable the association to make those repairs. 

Alan Tannenbaum, Esq.:

Okay. Here's a practical dilemma. The association, let's say in this instance, only has jurisdiction over the roof covering, finds this. There may be no mechanism in the documents for the association to be able to require that owner to correct these underlying problems. What does the association do? Do they put now the roof covering over this mess, which will assuredly fail, but there may be no mechanism in the documents to require the owner to do that.

The other problem here is let's say that the feet title or the boundary on one portion of this roof ends let's say at one of those, looks like tiles, the next tile is on the adjacent owner's property. How do they decide between them as to how that's going to be investigated, how it's going to be repaired? What if the adjacent owner, it's in an estate, tied up in an estate battle? You can't even get an answer from somebody about participating. Many of the documents have no guidance at all on how those adjacent owners are going to make those repair and maintenance decisions. It's a multi tiered problem. Again, the documents are across the board so there's all kinds of different dilemmas for each little project. Anyway. I interrupted you, Jon. Keep going.

Jon Lemole, Esq.:

That's all right. I think I'm getting close to my allotted time, but I'll show you something else real quickly. Here's a situation where you have what was and definitely appears to be significant water intrusion damage that's really showing within the unit. This is a garage, but which is emanating from, again, some other portion above, and it may be even the next lot owner's window being flashed improperly. You can imagine the problem that this creates because this unit owner, this lot owner is having significant damage inside their garage that needs to be corrected. It may be emanating from somewhere else that's not even part of their unit, it's outside their unit and at the exterior of a different unit. Yet nothing can be done about it. You've got very unsatisfied unit homeowner here who's looking at anybody and everybody to fix the problem but may not be able to get relief from anybody. This problem is just getting worse.

Well, let's suppose that this is really coming from a flashing problem, or a stucco problem, you can bet that they're going to want to hold the association to task for that, and the association may be saying, "Yeah, but in our declaration we're only responsible for painting the exteriors because that's what it says." It doesn't include windows. It doesn't include anything other than painting and it leaves it completely open to interpretation. Now you have a huge conundrum, which whenever you have huge conundrums it generally opens the way or paves the way for litigation and claims, and everybody pointing fingers at everybody, and that always means money in legal fees that's going to be spent typically by the association.

What we're advocating here is that it's always good practice, and there are two key points if you have never done it, turnover being one of them. If you're going to undergo a major repair project these are always opportunities to look at your declarations and really have a conversation about what makes sense for the association to cover in terms of maintenance and repair. Don't always assume that the developer has done something which is enlightened, smart or in the association's best interest.

Alan Tannenbaum, Esq.:

Jon, and we touched a little bit on insurance coverage, but the insurance anomalies are that, first of all, the insurance industry has not figured out how to insure a townhome community where the association has repair and maintenance responsibility for some items and not for others. What kind of policy do you issue for that kind of community? The risk is that the association's coverage will be broader than its maintenance and repair responsibility.

If somebody has a problem that's caused by a unit issue that an owner had an obligation to maintain, yet the association's coverage is called upon to pay the claim, and you have a terrible situation of your insurance company covering a claim that the association has no control over the source of. Then a real opportunity to get canceled the next year because you have a claims history and the insurance company realizes that the source of the problem is actually not under their client's or their insurance control. Really tough issues that are following this maintenance and repair dilemma.

Let's go into another issue, which is sometimes these townhome communities have very severe construction defects and there's a desire on the part of the owners to get some recompense from a developer for those problems, but you have documents that don't cooperate. Brian Tannenbaum now is going to talk about the challenges for pursuing responsible parties when you have documents that have very scattered repair and maintenance responsibilities. Are you here, Brian?

Brian Tannenbaum, Esq.:

First of all, there's no obligation by a board to sue a developer or a contractor to get the cost of repairs recouped. If a board wants to undertake all the repairs and do it on their own, that's absolutely fine. If you would like the developer or the contractors to share in that cost of the defects that they're responsible for, it's important to amend your documents because there's an important rule of civil procedure, which I will put on the screen right now, which says ... Can you see that okay? 

All right, so what it says is, "A homeowner or a condo association, after control of such association is obtained by homeowners or unit owners other than the developer, may institute, maintain, settle or appeal actions or hearings in its name on behalf of all association members concerning matters of common interest to the members. Including but not limited to ..."

One is the common property area or elements, so that for an HOA is just going to be roads, any lawns, anything that's a common area. Importantly, number two and number three says, "The roof or structural components of a building, or other improvements." Importantly in this parenthetical it says, "In the case of a homeowner's association being specifically limited to those improvements for which the association is responsible." If your documents do not give the association responsibility for repair and maintenance of an aspect that has a construction defect that a developer or a contractor would be responsible for, you do not have standing under rule 1.221 to sue as an association. The same for number three.

Importantly, what that does is it allows the association to bring the claim, rather than if you have a sixplex, an eightplex, having those homeowners try to bring those claims either together or on their own, which can lead to expensive legal fees, expensive costs. It also doesn't resolve what happens when you recover. If you have six owners who recover a lump sum from a developer or contractor, there's nothing that controls how that money is spent, how those repairs get done. It just leads to more problems and more litigation.

Alan Tannenbaum, Esq.:

To give a concrete example. We represented a townhome community, sixplexes and eightplexes in Pasco County, where about eight years after the buildings were developed really severe ridge cracking developed at the second floor. It was first floor block, second floor wood frame. It was determined that the major driving force in the stucco cracking was deficiencies in the roof framing of these connected townhomes. Association did not have maintenance and repair responsibility over the roof framing. In fact, it said just building painting, so they didn't even have jurisdiction over the stucco system. Massive repairs needed to be done to the framing on 25 buildings, and we told the association, you don't have standing to pursue this claim, or you could try a common law class action, which is very cumbersome.

Brian Tannenbaum, Esq.:

Right, and I have, just for an example. If you think this is small, I have the common law class action rule on the next slide, which looks like that.

Alan Tannenbaum, Esq.:

All right. Well, very complex, difficult. Sometimes it takes a year to get class action status under a 1.220 class action. Whereas 1.221 you have automatic standing. In order for that group to pursue its construction defects, it had to amend the documents to put the roof framing and the exterior wall system under the jurisdiction of the homeowner's association. They did that and then they pursued a successful case. People have asked us, "Can you amend the documents eight years later to put the maintenance and repair responsibility with the association so that you then have standing under rule 1.221?" The answer is yes. We did it. We've done it. Nothing in the rules says that you can't create standing by modifying the documents to match what the rule and procedure requires.

The rule and procedure was created by the Florida Supreme Court specifically to deal with connected townhomes because it was an issue as to what the standing was. The Supreme Court is ahead of a lot of associations because the Supreme Court said, "You have standing, but you better have documents that support your using the rule." Many communities don't. If you want to get recovery in the most convenient way by far, the documents have to be amended so that the association's maintenance and repair authority is expanded to cover an area of the building or a component of the building that may be defective. Good job, Brian. Okay.

Brian Tannenbaum, Esq.:

You had a question about insurance in the chat. About using the HO6 policy, the condo policy, why you wouldn't want to do that.

Alan Tannenbaum, Esq.:
Well, that probably came from Dave McMahon. Dave, you want to talk about that for a moment and we'll make you a special guest star here?

Dave McMahon:

It's a tough one for us. At the end of the day, we really struggle with communities, and quite frankly I kind of walk away from it when they are connected and they're not insured like statute 718, because we do know chaos will ensue when a catastrophic event occurs. The finger pointing will happen. The responsibility of rehabilitation of the property will take much longer. The integrity of the rehabilitation is in question. We don't know if the unit owners are insured correctly. There are no appraisal on the entire property. It becomes a conundrum of insuring that property correctly when you have two, four, six, eight units together.

Many of the ones that I do do have changed and amended their documents to become very similar to mirror the insurable responsibilities to statute 718 in order to bring the fiduciary responsibility of the board to light so the rehabilitation of the property, it's significantly better doing it that way. They feel better in sleeping at night that they will have a community after a problem, like a tornado or a hurricane, versus the other way in which many of these are being done.

Alan Tannenbaum, Esq.:

Yeah. I mean, if you think about it, let's take a worst case scenario that a tornado causes major devastation for a sixplex. There's no statutory guidance as to the insurability of that building. If the insurance proceeds come in, who decides how the building's going to be rebuilt? You've got to have six owners who are going to agree on that. What if the insurance coverage doesn't cover the entire rebuilding? How do those six owners agree on funding the gap? Again, what if one of the owners is incapacitated, on safari in Africa, whatever they might be?

Can't even get in touch with them. Then you have the possibility of up to six insurance adjusters each insuring a part of the building.

Dave McMahon:

Essentially what will happen, and this is a problem, I'm 100% confident that if we had the six or eight unit owners lined up, they would all have different policies. Different limits to the policy. What will happen is the adjusters will pay for the limits that the insured had signed up for. If it's not enough, the unit owner is going to be assessed. Now it becomes do I have enough money to repair correctly? One unit owner wants to repair correctly, another one doesn't have enough money. The proceeds from their insurance are not going to cover it. They will pay into what the limits say on the policy, period.

From there it becomes very difficult what engineers you get, what contractors you get. One wants to do it correctly, another one has to pay for what they could afford. It becomes very difficult. I really have only seen chaos out of this, and consequently I'd rather walk away from insuring it than be a part of the tornado that occurs after everybody starts pointing their fingers at each other.

Alan Tannenbaum, Esq.:

All right. Well that's very helpful. If you haven't figured it out, Dave is one of our great insurance agency partners. Not a partner in our firm, but a vendor that we deal with regularly. Now we're getting a little bit behind, so we're going to cut some of these short. I'm telling my partners because we have 17 minutes left. Sal, talk a little bit about economy of scale in undertaking repairs and the benefit to having the association be the contracting party versus owners.

Salvatore Scro, Esq.:

Anybody that's walked into Publix, what's the first thing you see? The buy one, get one table. It's common sense that the bigger the purchase, the better the price. That's no different when you're doing repairs to a project. There's other things to consider as well. I'll just put a list up here of some of them. Can you read that okay? I hope. These are things that some of these things have to occur no matter what, and some of them, because you're taking on the project as a whole, as a community, rather than each owner by owner, there's a benefit to it.

Typically, what's called general conditions in a project, there would be supervision, either by the general contractors, project manager or superintendent, depending on the size of the project. You're going to be paying for the labor and time for these people. Depending on the type of project, they may need a job trailer, so you're going to pay for them to bring their equipment in. If it's one unit, you're paying for it. If it's 100 units, or 30 units, or 400 units, that price goes down. The time may go up further because you're extending the time to do all the work, but overall it's more cost effective. Storage of supplies. If you're going to be doing a project on your own and they have materials, where are they going to put them? Are they going to put them in your garage, on your roof? Where are these materials going to go? It's just one of those things that helps when you're doing this as a whole.

Transportation for material and the management. There's a cost for transportation, and you know today those costs are skyrocketing. All of these things, it's nice when you can spread them out. Clean up, that's another thing. They're going to put in time every day. I'm sure plenty of you, if you've seen work going on, you may have grabbed a nail in your tire or something. It's the responsibility of the contractors to make sure they clean up daily. That's an added expense that they're going to charge you for.

These things here I'm not making these up, these are in the cost quotes. When we work with clients in construction defect cases, these are the things that people ignore. These are the things that the defense and the insurance companies don't realize are out there. You may have a $2 million repair project for an association and $500,000 of that is incorporated in all of these things. They do get expensive, and they are things that people forget about. Landscape repair.

Alan Tannenbaum, Esq.:

Sal, let me give an example. We had a duplex community under HOA regime in Sun City. The first major windstorm shingles blew off the roofs throughout the project. The replacement of the roofs was on the duplex owners, so you had each duplex owner, the two owners had to agree what are we going to do about this shingle roof problem. Imagine, because there was some engineering done and the engineer said, "This is the worst shingle job I've seen, and all of these roofs need to be replaced. None of them can beat the wind load requirements of the code." Imagine what a roofer would charge on a per roof basis versus a roofer who got the job to do 150 re-roofs. All of the things that Sal is talking about, the economy of scale built into each one is going to be a much greater, the cost per building is going to be significantly less. Sal, that's just a example that we ran into that hits on all of these issues.

Salvatore Scro, Esq.:

I'll wrap this up here just with a couple things that are different. You can see all these things. One of the important things are scaffolding though, every time you have to put it up and take it down. If you're doing a multi unit building and each does it on their own, they'd have to set up scaffolding for each unit. Versus if you do it as a whole, it's in and out with the same scaffolding. Some of the things that you don't realize are the permitting. You can do permitting all at once, that saves you some time and your engineering costs, things like that. Insurance, as far as insurance, that's another added benefit. Not only the insurance that you may have covering any defective work, but the insurance that you may have to pay to cover if there's any hazard that occurs during the construction.

One of the things that you may not do on your own, or even if you're just one or two units, is you may not employ an owner representative. You may not employ somebody to be out there to supervise a project, to look at the materials, to make sure that what you've ordered is delivered and is actually there. To make sure that they secure the materials when they go home for the day.

Then one of the things too, it may be typically it's either not available or it's not financially feasible on a single project, would be a bond, Whether it be a performance or a payment bond. The bigger the project, the more protection you can have.

Alan Tannenbaum, Esq.:

Sal, one thing that's not on the list is that if you're going to have a contractor re-roof 150 roofs, you actually have the ability to afford a construction lawyer to help you with the review of the contracts and getting a good contract. Where an individual owner replacing the roof, it's not cost effective to hire their own lawyer for a re-roof job, so that's not going to happen. Anyway. Quickly on to Brian Tannenbaum, who's going to talk about some safety concerns with owners doing their own repairs sometimes three stories high.

Brian Tannenbaum, Esq.:

All right. Well, if you have owners who are doing repairs on their own without any kind of consistency, what you're going to have is you're going to have different contractors, different employees of those contractors, different subcontractors doing work on different parts of buildings. What that means is if you are in one unit of a building and your neighbor is doing construction work on your building, you may have contractors that don't have worker's comp, you may have contractors that don't have the required permits, and they may be damaging your building, or they may be opening you up to liability for any injuries that occur while on your property. I think that's a [crosstalk 00:47:31].

Alan Tannenbaum, Esq.:

Can you imagine everybody having their own lift? Company coming in with their own lifts, they're going to be damaging paving. Landscaping's going to be damaged. The association has no control of it, and I can tell you the liability with having a contractor taking a lift up to a third story for each individual owner is a ridiculous mess.

Dave McMahon:

I'd just like to say, Surfside was another tipping point on how insurance carriers are looking at high rises too. The game is changing and can't say enough about having the experts involved in looking over everything because Surfside, we're going to see ramifications of that in legislation, but Surfside definitely was a tipping point for high rises. Insurance carriers are looking at them significantly different than before.

Alan Tannenbaum, Esq.:

Yeah. That could be impacted. Jon, I left out the aesthetics. Talk about project aesthetics and the issues real quickly that can be caused if owners are doing their own window replacements and exterior stucco work and so forth.

Jon Lemole, Esq.:

Yeah. Well, I would venture to say at some point if we've ever been over to the west coast everybody's seen these duplex communities that have multicolored roofs between the two units. That's probably not what the original intent was, but that's how it was set up.

Roof coverings usually isn't a problem because usually developer declarations can at least cover roof coverings. Let's take a stucco situation. You may have a problem where a unit owner has to do some stucco repair, which is in association with whatever, repainting or what have you, and a lot of times there may be architectural features on the stucco which they don't like, and so that may be changed, and you may have a hodge podge throughout the building of different qualities of stucco work, of different architectural flourishes, which certainly wasn't what the intent was. Let's face it, aesthetics are important to market value.

Windows are hugely important. Look, folks, proper window installation is a critical part of the building envelope in Florida. I can't tell you how many times when we investigate water intrusion there's problems with the window flashings, and that's a big cause. How many associations put windows within the control of the unit owner? You may have all kinds of different windows, all kinds of different contractors doing good work, not so good work, and that can create problems for other owners next door, down below. Because water travels, water usually goes the path of least resistance and it may wind up two units over, it may wind up down below, it may be in that person's garage like we saw in the earlier picture.

In order to maintain the integrity of the buildings, these are the types of things that the declaration should have in them to maintain consistency, uniformity and the ability of the association to do a good job in its fiduciary obligation, the board in its fiduciary obligation to maintain the buildings and to get good insurance, as Dave said. You have real insurance problems where you don't have solid declarations and a clear understanding of what the association's maintenance and repair obligations are.

Alan Tannenbaum, Esq.:

One of the things that is pretty obvious through this all is property value impact. You have owners doing their own repairs, it's going to affect aesthetics. You're going to get known as a project that has leakage problems and you're leaving it to the owners to resolve them. Eventually the word's going to get around and that community's going to suffer from a property value standpoint.

Let me tie this all together, because the last part of this in six minutes. Now that we've told you all the problems, we're lawyers, we're problem solvers. We're going to spend six minutes on problem solving. Here's the solution. The solution is, you have the ability, according to what the documents require as far as percentage of owner approval, to amend the documents, to correct all of these anomalies. You can create a set of documents that basically mirror the chapter 718 Condo Act line of demarcation between owner repair responsibility and association responsibility.

In a condo, for instance, if you have a mechanical component that's only serving that one unit, or electrical service that's serving one unit, or any of the mechanical electrical that's in the unit, typically the owner's going to have maintenance and repair responsibility over that. Anything that's common, that's a shared structural, mechanical, electrical, is going to be the association's responsibility.

Our recommendation is that the maintenance and repair responsibility be moved over to the homeowner's association to as closely match what would typically exist for a condominium association. Now, we have announced this in public meetings and we've had groups say, "Oh, so you're trying to turn us into a condominium." No. You're still going to own your townhouse, and fee simple. It's not going to affect title to anything. This is just altering the maintenance and repair regime to something commonplace. What I've often told people is the condo method of dividing repair responsibility has been in existence in Florida for 50 years. It's worked. There's a lot of things that don't work with condos, but that has worked, the division of maintenance and repair responsibility. Why not adopt that in the amendment?

Now, the one interesting thing that you can do also is you can exclude things. We've told groups, let's say you have garage doors. People always back into them. They don't always do that, but they sometimes do that. Exclude the garage door. Maybe the association would be responsible for painting it, but if an owner backs into their garage door, leave that problem to them. Front entrance door, maybe the same thing. If the front entrance doors people have different colors of those, leave those out, let the owners have replacement and repair responsibility for that. You might have some architectural control over it, which you can do. There's things actually you can leave out.

What we recommend is that you get a architect, or a contractor, or engineer in, look very carefully at the documents, and the question to ask them, what makes sense as far as the line of demarcation between the association and the lot owner? That will then be the guidepost for modifying the documents to meet that.

A lot of problems get solved with the amendment. The ability to pursue claims. Economy of scale. The ability to have problems appropriately investigated. The aesthetics will improve. Property values will be preserved. It corrects a lot of ills.

The groups that don't do it, 10 or 15 years from now, maybe earlier for some of them, you're going to have huge issues. If a storm, hurricane or tornado, hits any of these properties where the maintenance and repair responsibility is misplaced, and therefore the insurance coverage is misplaced, you're going to have massive battles, a lot of litigation between owners. Either clean them up and have an opportunity for a successful project, or leave them be and you'll have a guaranteed mess, if not today, down the road. That's where you sit.

Brian Tannenbaum, Esq.:
It's about assessments and maintenance fees, aren't they going to go up?

Alan Tannenbaum, Esq.:

Okay. That's a great question. We've been asked this. Well you're talking about now raising assessments to meet a new maintenance and repair challenge. Here's what you tell the owners. Somebody's going to pay for this. Somebody's going to pay for the repair and maintenance of these buildings, it's either an owner coming out of their own pocket to pay a contractor or an engineer, or paying an assessment so that the association can do it.

The reality is that the cost per unit, almost guaranteed, will be less if the jurisdiction for repairs is turned over to the association on common issues, because the association's going to be able to take care of issues on a per unit basis less than an individual owner will be able to. Somebody's got to pay, it's just the method of payment and who's doing the work and contracting. Yes, assessments will go up. At the same time, the amount of checks that an individual owner writes out of their own pocket to a contractor is going to go down. The savings is going to be more so on the association side if they have maintenance and repair responsibility.

All right. Well we've hit 12. We'll stay on for a couple of minutes if anybody has any particular questions. I can't seem to see the whole chat, so I have to rely on Brian Tannenbaum to tell me if there's any more questions.

Brian Tannenbaum, Esq.:

Yeah, there's one more question about where the common elements begin in a condo. Exterior wall-

Alan Tannenbaum, Esq.:

Well, typically the owner's responsible from their interior paint in, and typically the association has a responsibility for everything else. That's a typical division of responsibility. Again, it could easily apply to an HOA. There's some variations on the theme. There's some crazy condo docks that, as has been pointed out, say that the owners are responsible for placing their windows. We have 10 story buildings where in a condo the owner's responsible for replacing their windows and sliding glass doors, which is an abysmal situation because when they leak guess who gets wet? The two units underneath.

Those documents need to be cleaned up. Some of the older groups, they'd never seem to clean them up because an owner just spent $25,000 replacing their windows and they're saying, "Well, I'm not going to agree to change the documents. I just spent the money." It's problematic with some groups who are a little bit older. Thanks for taking our poll.

Brian Tannenbaum, Esq.:

Yeah. Another question for you. Could the owners request that the developer make some of these changes before turnover?

Alan Tannenbaum, Esq.:

Well, developers by design want to put as much of the maintenance responsibility on the part of the homeowners so they can avoid 1.221 and that class action procedure. It's going to be very rare that a developer is going to agree to the transfer of that responsibility and then open themselves up to the potential that now they've created a convenient class action for the association to pursue them. You could try, but I don't think many developers are going to agree to clean that up. Certainly worth a try. All right everybody, we're going to conclude. Thank you for taking our poll. Hopefully this was helpful. It's a battle the industry is fighting all over Florida. It's affecting insurance agents, contractors, engineers, lawyers, managers.

One of the things for management companies, if you go through an amendment process, be sure that your management contract is adjustable to account for the greater degree of responsibility that the management is going to now have. Probably most management companies that are handling HOAs should have clauses in their contract that say if there is an amendment that greatly increases the association's maintenance and repair responsibility that the price per door just went up to accommodate for that increased responsibility. Word to the wise to all the managers out there to certainly account for that. You don't want to get your $3 door and all of a sudden you're in the building maintenance and repair business and your company's losing money. We don't recommend that.

Okay everybody. Thank you.

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VIDEO: Guest Panelist Engineer Felix Martin, P.E., S.E.

Whether new building post-turnover, or a 40 year old building in need of rehab, or streets or other site improvements which are showing signs of distress, building defects are often not discernable without some level of invasive examination and testing. In our next panel, we will feature engineer Felix Martin, P.E., S.E., who has investigated tens of thousands of condominium buildings, connected townhomes, and site improvements in Florida. Learn what is entailed in discovering hidden defects and damage.


Video Script:

Alan Tannenbaum, Esq.:
I'm Alan Tannenbaum of Tannenbaum Scro Lemole & Kleinberg. I have my partners with us today, Salvatore Scro and Jon Lemole and our associate Brian Tannenbaum and we also have our paralegals Meaghan Skillman and Courtney Callahan because I thought it would be really good for them to learn what we do on a daily basis out there in the field when we visit condo buildings and town home [inaudible 00:00:34] so they're joining us and of course Michelle Colburn who sets up these panels for us and runs our technology who's our business development director, she's on with us and we have as a special guest today one of the engineers that we utilize on our cases for forensic engineering testifying and so forth, Felix Martin and Sal Scro and Felix Martin are going to lead the show. Jon, Brian and I are going to interject questions at times and will repeat some of your questions as they go along. Going to be very interactive in the sense of there's going to be a number of photos put up and explanations and so forth, so you should enjoy that.

For managers this is not a CEU course so don't get disappointed with that, but you're going to learn a lot. But before I turn it over to Sal, I would tell my lawyer-engineer-accountant joke, it's very quick. So the question that's posed to a lawyer, an engineer an accountant, what's two plus one? So Felix Martin answers on behalf of the engineers and he's furiously working on his computer for a half hour, he's sweating, he says, "Well, by my best calculation with a coefficient of 4.26, I believe it's approximately three." Then the accountant sitting there says, "Well what do you want it to be?" The lawyer says, "I'm not quite sure but it's going to be a little more than I first thought." So anyway, that's my lawyer joke, lawyer-accountant-engineer joke for the day. So with that said, I'm going to turn the program over to my partner Sal Scro.

Salvatore Scro, Esq.:
Morning everyone. You've heard us talk a lot in all of these seminars and if any of you have been to our CEU courses, you've heard us talk a lot about the importance of inspecting your building and the importance of finding the right person to inspect your building, and I have stressed quite often that in my opinion, if you have roof problems or stucco problems, you don't call the roofer or the stucco in most situations, you should call an engineer. Today, we have Felix Martin with us who is an engineer that we've worked with substantially in investigation of buildings. So rather than hear us talk about it today, you're going to get a chance to see some of the things we do. I'm going to share a screen with you and you should all be seeing the what lies beneath screen and let's make sure I have this okay.

All right, so let's make sure ... You know what? I want to go back here. One thing, let me stop sharing this for a minute and it's working, okay, we're good. All right. So what lies beneath, the importance of looking below the surface and detecting building problems. So this is what we do. We find the problems that you don't see and with that, I have some information on some of the areas that we've looked at in destructive testing, but we have Felix Martin. He's a structural engineer with Marcon Forensics. This is generally what they do. Felix, if you want to interject, I'll let you give a quick introduction of yourself before we get into the meat of things.

Felix Martin, P.E., S.E.:
Sure. Thanks Sal. So as Sal mentioned, my name is Felix Martin. I am an engineer. I have been doing forensics work, strictly nothing but forensics work, since 1996. I have been involved in investigations across the United States, in Florida, in Nevada, in California, in Colorado and Arizona and Utah and in Oregon. I have worked with the Tannenbaum firm for a number of years, probably 10 or 12 years by now, and I have to say that as far as one of the constructions defect law firms out there, they have certainly been one of the better firms to work for as they have a lot of experience in this type of situation. They understand what the problems are and they understand how to address them and how to essentially recover for the homeowners. But with regards to my own work, my firm became a forensic firm in 1996 and since then that's been our focus. We accept no work from developers because we want to avoid any conflict of interest and the work that we do is largely representing homeowner associations so that we can determine when there is a problem, what the problem is, what the extent of the damage is and ultimately how to repair that damage. Back to you, Sal.

Salvatore Scro, Esq.:
Okay. So what we're going to do is show you some things and we may, depending on the time, we may skip through a little bit. But for example, here's one of the first projects I worked with Felix Martin on. Felix, when we first went into this project, we went out and we did a walkthrough of the project. Tell me what you were looking for just walking through, looking at these buildings when we went out there.

Felix Martin, P.E., S.E.:
Well this is a very good project to start out with. This is a project that we worked on quite a while back, about 10 years ago. It's a project that again, it didn't really to the untrained eye, it did not really seem to have a lot of issues. There was some stucco cracking certainly but nothing to the extent that we later found out was evident. So it's the kind of thing that I think someone without the background of knowledge that we have, that Sal and I have, would really not be able to notice right off the bat. But as we walked the project, we could definitely see telltale signs that there are issues and some of those telltale signs are in the form of the stucco cracking.

Now people will say stucco cracks of course, but the question is what sort of cracks are there, where are they occurring? What is the nature of the cracking that we see? What are the conditions that we see that have been historically problematic? Because we have the background, we're able to take a look at areas that we know historically have had problems with water intrusion and damage and we can focus on those as we do our visual inspection and Sal, because like I said, he's done a lot of this work, he's really good at doing this type of investigation as well. He can take a look at a property and already from his background and experience be able to tell what doesn't seem like a lot of damage could actually be problematic.

So as you look at this photograph right here, you don't see a lot of evidence of damage. It doesn't really seem like this is a problematic project and yet as we walked through it, we could see that there was a lot of evidence that was visually available to us to tell us that this was going to be a project that was going to be essentially in deep trouble, even though it didn't look that way.

So the types of things that we look for are areas like I said that we have known previously to be historically problematic, and typically these intersections between the roof and the stucco have been a problem in the past. You have a very code in Florida. The Florida Building Code is a very good document, but there are areas that it doesn't really necessarily address very specifically and that is the intersection of different installations, such as the intersection of the roof with the stucco, and those are installations that are done by two separate subcontractors. You have the roofing contractor and you have the stucco subcontractor, and pretty much a lot of the times they're focused on their own work and they don't necessarily focus on the interaction between the work that they do.

So when we get to these areas where the two intersect where you have problems with the flashing at these roof to wall intersections, those are typically areas that have been problematic in the past and in this project, that was exactly the case. As we took a look at it, we could see that the installations that existed, even though again to the untrained eye as you see this photograph, doesn't seem to be a problem, doesn't seem like there's a problem there. The fact is we know that these installations are problematic, and that water is getting in and causing damage.

So once again, you look at these elevations that Sal is showing you here, and you don't really see much that you as an untrained person could see that was an issue, that would say, "Okay, this is speaking to me that I'm in big trouble here." But when Sal brought me out to this project, he already knew that this was a problematic installation because he has, like I said, he's been to these types of projects before and he's learned to recognize the issues or the locations where potential problems occur. So by the time he brought me out, essentially he already had a pretty good idea that this project was going to be something where the construction had been deficient and where that deficiency in the construction was going to allow water to penetrate and cause damage.

Salvatore Scro, Esq.:
I have to say it is important, the managers of the associations, they play a big role in assisting our attempts to recover for the construction defects and assisting the engineer in doing the proper investigation. So I know on this project we had great assistance, so for the managers, don't discount your role in helping the association in addressing these issues.

Felix Martin, P.E., S.E.:
Sal, as we're looking at these pictures, what was the age of these buildings at this point?

Salvatore Scro, Esq.:
This was an apartment complex built in 2004. When we first got out there, it was maybe ... It was converted a few years after and we got out there and I think we did an initial look at the place in 2011 and in 2012 I think was when we did the investigation of the project. So one of the things too here is you're looking at this and walking through it and we knew that there were some complaints of window leaks and stucco cracking, but with Felix out there walking through, the areas that we pointed out in the prior slides, those were things that he identified, this isn't necessarily a stucco problem. There were stucco problems, but one of the major concerns and you'll see is how some of those little pieces that we walk by every day and don't even pay attention to make a big difference in the interior of the building and if you don't address them in a timely fashion, you're going to run into a lot of trouble. So what's this Felix?

Alan Tannenbaum, Esq.:
Before you get there, there's a question. How do we know when to have an inspection if we don't see problems with an untrained eye?

Salvatore Scro, Esq.:
Well that's a really good question because again, that's what it takes. Most of the time, what happens is that you may get a couple of leaks from the roof and you may think, "Well, that's kind of a situation to be expected." But I guess the first answer would be don't minimize when you have some water intrusion. Because the problem is that even a small amount of water coming in can cause a horrific amount of damage.

So the first indication would be if you're having any kind of a problem at all, you should definitely be contacting someone to come out and make sure that what's happening is either not a problem or something that needs to be addressed right away, and that should be stressed. It needs to be addressed right away if it is a problem because even a small amount of water within a contained space is going to cause a lot of damage. Because the problem is that most of the damage that will occur will occur under the building finishes, and so when it comes time to repair, you have to remove the finish, and that makes the repair a very expensive proposition. So rather than stick your hand in the sand, what you have to do is you have to be proactive about this, and if you have any kind of indication that water is coming through, you should definitely get someone out.

But in addition to that, I think that if you have a project that is approaching a certain age, you should definitely have someone take a look at it and the best people to contact of course would be the law firm because they would be able to tell you first of all if there is a chance for recovery should there be an issue, but also they have the resources like someone like myself to come out and call and say, "Hey Felix, can you go out and take a look at this," and we can do that.

Alan Tannenbaum, Esq.:
But what we would recommend and what your general counsel probably would recommend is that all buildings, whether you think they're problematic or not, should be inspected on some periodic basis by an engineer. A lot of times the insurance companies require that anyway, so that would be the answer. If nothing's obvious, have an engineer out there to make sure that what you're seeing is what is in fact the situation. So Sal, go ahead.

Salvatore Scro, Esq.:
All right. So Felix, I'm going to lead you into this a little bit. Why is it that this was a location that you decided to investigate?

Felix Martin, P.E., S.E.:
Yeah, so this is a location that we decided to investigate because it offers a lot of good information when we're doing our investigation. So what you're looking at is the front of the building, and you're looking at an intersection of the lower roof first of all or I should say the lower roof there. There is an intersection between the roof and the stucco and then at the same time it's the lower corner of a window. So by essentially cutting the stucco out in this one area, we're getting information with regards to the window installation, the flashing around the window, the installation of the stucco, the installation of the building wrap, the installation of the roof, and the installation of the flashing between the roof and the wall. So in just this one location, there are a number of components that have historically been problematic and yet with a single cut, we can remove the stucco at that location and get a lot of information as to how that was put together. How did the contractors install the stucco? How did they install the windows? How did they install the roofs? How did they install the flashing? So we select these test locations so that we get the maximum amount of information and we minimize the impact on the community.

So we don't want to be just cutting holes everywhere. We cut a good-sized hole, but we select locations that are going to provide the maximum amount of information as far as all the different traits that were involved in a project.

Salvatore Scro, Esq.:
So how do you select ... If you have multiple buildings or even a single building, how do you select the areas that you want to test? Do you just look for the bad areas?

Felix Martin, P.E., S.E.:
No, no, no, we don't, and there's good reasons for that. The first thing is that when we select the areas to test, we try to get a spread across the site. So we don't focus on just the older buildings, we don't focus on the newer buildings. We try to pick locations that are spread out across the site so that we get a good sampling of data. But to say that the problems are going to occur only where you can see obvious signs of damage is not what we do. Because what we have determined from history has been that even areas that look perfectly good, once you open them up and you test them, you will find that there are going to be massive amounts of damage behind it. So just because it looks good it's not an indication that there isn't water intrusion taking place and damage taking place. So these locations are selected not so much by the way they look as by getting the information across the site. Construction, when it comes to production housing, is repetitive. It's like a car factory. You have people that do the same task over and over and over again. So typically if we find a problem in one corner of a project, we're going to find that same problem across the site because the installer that's doing that installation improperly is going to repeat that mistake all the way across the site.

Salvatore Scro, Esq.:
So we have a question here. Do you participate in the turnover from the developer, and I don't know if the question is to the engineer or to the attorney, but I will tell you from the attorney standpoint yes, we think it is important that you have an attorney participate in the turnover from the developer for several reasons. One is if it's a condominium there's an extensive list of items that need to be turned over at turnover. Some of those things include an inspection report by an engineer, and there's certain things that have to be in that report. So many times, we'll see those reports are either left out or if they are turned over, they are not given with the information required by statute. It's also important to get a list of the contractors and subcontractors and the work they perform so you know if you have problems, not only the general contractor and developer but what subcontractors you should go to to address these issues.

Alan, one of the things we talk about sometimes we hear from the owners is that they have warranties, and they have a one-year warranty, and they should come out and fix these things. What's the response to that with regard to ... That there's other avenues regarding whether it's a condominium, if there's a statutory warranty or HOA? What other means can owners and associations address any construction defect problems?

Alan Tannenbaum, Esq.:
Well, that may be for a whole nother session, Sal. Here is the key.

Salvatore Scro, Esq.:
The quick version.

Alan Tannenbaum, Esq.:
Here is the key, our firm takes HOAs and condo associations through turnover. We help you get the engineering, we help you get the evaluations, and then we handle the claims. So that is basically what our firm does and we bring in engineers like Felix upon turnover and engineers who do site evaluations for HOAs, we bring them in to do the analysis, we help with the scope of the analysis and so forth. So that's what we're here for. But Sal, I want to see the rest of the guts of this building, so get to it.

Salvatore Scro, Esq.:
All right, here we go. So here we are at another position here at a chimney and this was another area selected because as Felix pointed out, he found the area of the roof to wall intersection with some flashing that was an issue. So I'm going to skip through some of these and why don't you explain the process here Felix and I'll slip through some of these as you speak.

Felix Martin, P.E., S.E.:
So again, as you saw initially, before we actually started testing that, the stucco did not really appear to be heavily damaged. But we saw the connection and the way that the flashing appeared to have been done between the roof and the stucco, and we could see that historically this has been a problem. So we selected this as one of the areas that we wanted to test, and sure enough, as you see here, as we started removing the stucco, we found that water had penetrated from the roof into the wall, and then that had started causing the type of damage that you see here.

Now what you're looking at there is as we're chasing the water damage down, you can see the amount of rot that has taken place, to the point where the framing is actually being, the structural framing is being damaged by this water intrusion. Even though there was really no visual evidence on the exterior before we started testing that this was taking place. So this is an example of where a small amount of water, when it starts to penetrate over a long period of time, is going to cause an extensive amount of damage. Keep in mind, this is starting up at the high roof. Water flows downhill, and so as that water is coming in, that damage actually extended all the way from the roof to the bottom of the wall, which meant that the repair for that conditioning essentially required that all of that framing had to be taken out and completely replaced. So even a small amount coming in at the roof to the chimney intersection produced enough damage where you now had to take all the stucco off and take all the framing out and repair it or replace it, which again, gets kind of expensive.

Alan Tannenbaum, Esq.:
All right, everybody's still hearing us, I hope. Yes?

Salvatore Scro, Esq.:
Yeah, I'm having some issues here too. Can you still hear me?

Alan Tannenbaum, Esq.:
Yes. I can. Everybody else out there? Give a wave, yes? We're still good, okay, go ahead. Because we got a strange message.

Speaker 6:
Yeah, it just came back, we're good now.

Alan Tannenbaum, Esq.:
Okay.

Salvatore Scro, Esq.:
Felix? Are you there Felix?

Felix Martin, P.E., S.E.:
Yeah, I'm here. So once again, this is damage continuing down from that water intrusion that we saw at the top. Now as this water is penetrating, it continues to cause this damage. So like I said, you can literally follow the damage all the way down to the ground, where it started up at the top right there at that photograph, where we could see the flashing was not done properly and then as soon as we opened it up, we saw that confirmation that yes, the flashing had not prevented the water from getting it and you can see that the damage above that location has no damage. So it confirmed that the water was getting in at that intersection between the roof and the wall, just as we thought it had started.

Alan Tannenbaum, Esq.:
Sal, there's a question about town home communities, and hopefully you folks can still hear us. There's a question about town home communities and do the same type of issues apply? And the answer is yes. Most of them are built under an HOA regime and not a condominium regime. You don't have statutory warranties as a result. But you do have recovery for building code violations, for negligent construction, and some of actually our larger cases have been HOA town home communities, so it definitely applies.

As far as the question about HOAs, you may not have buildings. It may be a single family home community, but the same process exists. You get the entire infrastructure inspected, you look at the accounting and the budgeting from the developer also, you get engineers out to do those evaluations, and then we handle negotiations with the developer to make things right after the fact. So that is definitely a part of our practice.

There's a question about repairs to existing buildings. We're not going to cover that in this session, but really the same forensic analysis applies. If you have a roof that's leaking in an older building, you had better get a good engineering inspection done of that roof, which may include some invasive testing. Otherwise you really don't know what the recipe for solution is because you really haven't gotten to the root of the problem. So the same forensic process applies, even in those circumstances. Go ahead Sal.

Felix Martin, P.E., S.E.:
Yeah, I'm going to add to that, I'm going to go back on that for a second but the construction, the state of construction in the state of Florida is just horrendous. That's the best word that I can describe it. I mean like I said, I've done work in Nevada and Arizona which are dry states, where it hardly ever rains, and the conditions for waterproofing buildings in Nevada and Arizona are much, much better than what they are in the state of Florida. I've mentioned that there are good codes in effect in Florida, but the fact is that builders just choose not to follow them. So there are rules in place and they just do not follow those rules. That's one of the reasons why you have to be always cognizant of bringing someone in like Sal and Alan who are attorneys that know the rules and know what to do about making sure that those rules are followed or should have been followed or what to do about them.

So Alan just mentioned the whole issue between condominiums and town homes. The construction is just as bad for construction in town homes as it is in condominiums, but some of the rules are slightly different. Condominiums are required to provide a turnover report. Well a turnover report is a well-intentioned document that's prescribed by law, but who pays for that turnover document? The builder does. So the builder essentially pays an engineer to go out on inspection and say that the developer's work is deficient or not. Well if that engineer ever expects to get work back from that developer, what are they going to do? They're going to have these very, very basic reports that essentially don't want to see anything that's wrong. So turnover reports tend to be a source of a lot of misinformation in that they don't really go deep enough into analyzing what was done wrong. We've seen turnover reports that were done by a guy essentially driving through the community, inside his car and taking photographs from the car, without ever getting out of the car.

Alan Tannenbaum, Esq.:
Felix, to clarify that, actually the report is for a different intent. It's more like a reserve study than it is a defect report, and in fact the engineers who do them, many of them put right in the first paragraph of the report, make it very clear that it's not a defect report. So a lot of groups get confused that they get this turnover report, they say, "Well why do we need our own engineer?" The reality is everything that Felix said, but also the purpose of the report is much different. It is not a report to report on defects, it's more in the line of a reserve report.

Felix Martin, P.E., S.E.:
All right. Sal, you had a good photograph up there a second ago. Did we lose Sal?

Jon Lemole, Esq.:
While Sal's doing that Alan, I think another good point that Felix raised is that there's a lot of non-compliance with codes and people might say, "Well it gets approved by the county or the city building official, so what does that mean?" That brings up a good point about approval by the municipality doesn't necessarily mean that you're out of a claim because you can still bring a statutory claim for violating a building code if the contractor knew or should have known, regardless of whether there was approval.

Alan Tannenbaum, Esq.:
Jon, the simple answer is, every defective building in Florida that's occupied has a certificate of occupancy, and Felix will tell you there's a lot of occupied buildings with defects. So building approval at the outset really is not a defense to anybody, and the Supreme Court of Florida has said that. Go ahead Sal.

Salvatore Scro, Esq.:
We are shown the entranceway here and I think we're pointing over to this area here and inside, we found some ... Just a little bit of water. Just a little bit, but this was an area that Felix ... Actually, he found this in his walkthrough, and I have to tell you, and I say this during our seminars about the right expert and the key is to get an expert who can communicate. Somebody who knows what they're talking about and is interesting and I've sat through depositions and Felix is one of the best as far as when it comes to explaining to the general public what the issues are and how they found them, but I'm going to just flip through some of these because we have quite a few slides. This area here Felix, explain what this piece is right here. Because that's something of importance I think.

Felix Martin, P.E., S.E.:
Right. This is what's called a roof diverter and the idea is as you have water flowing down the roof meeting the water flowing down the wall, it serves to collect that water and is called a diverter because it's bent that way so that the water gets kicked out away from the face of the building. Unfortunately, this type of diverter that you see here is famous or infamous I should say for not really being watertight, and the problem with that of course is that it allows water to penetrate. You can see that in this photograph, the damage it's starting cause to behind it. It has water penetrating through a number of areas. I think earlier you saw a photograph of the backside of the diverter, which was not sealed, water got in through that. It also will have water that comes in through the front side of the diverter because the construction of the diverter is such that it leaks into the building.

So there's water coming in from the work that was done by the roofer in terms of not providing a diverter that doesn't leak. There's water coming in as a result of the work of the stucco installer in that the stucco was improperly installed and allows that moisture to get in, and there's water coming in as a result of the work of the painter because the painter didn't provide the sealant behind the diverter to keep that water from coming in. 

Salvatore Scro, Esq.:
I remember one time being in Jacksonville and talking to Felix on the phone and having him explain this to me and having me fold a piece of paper because some of these diverters are fabricated. So my advice to anybody that's having any re-roofing issues out there, if you're going to have a contractor out there, please have your contracts reviewed in advance, but one of the things you should also ask is maybe a review by a professional like Felix to review the contracts because one of the things I would say to specify is that you have a manufactured diverter as required in the project because what they do is they fabricate these out of L-flashing on the site and what happens is there's problems. So it's very important, the minor details, if you require certain things, they will be out there.

Felix Martin, P.E., S.E.:
Here's an example of a location where they actually didn't even bother to build a diverter. So you don't have that piece that essentially kicks the water out away from the wall. So once again, as water is coming down that roof, it gets to that termination and it goes actually inside the stucco. It's essentially being directed to go into or behind the stucco and into the wall cavity, which of course is never a good thing. If you have the diverter, at least you have something that's going to try to divert some moisture out, where you have it completely missing then it's just essentially pouring that water into a wall cavity and that's just going to be nothing but trouble. So you can see that the damage isn't occurring just to the wood framing, it's occurring to the stucco as well. The backside of the stucco that you saw there a second ago had a lot of rusted lath, and that rusted lath eventually expands to the point where it will begin to cause damage to the stucco and then that brings in additional water to cause additional damage.

Alan Tannenbaum, Esq.:
Felix, what is lath?

Felix Martin, P.E., S.E.:
Lath is essentially the reinforcing that's place inside the stucco. It's like rebar in concrete, except in this case it's stucco plaster. So the lath is what ... We used to call it the chicken wire that you put in there to reinforce the stucco so that as it expands and contracts, it controls the amount of cracking that you can have in it. But the other thing that it does is the means by which the lath, or sorry, the stucco is applied to the building, attached to the building. Because the lath is stapled into the building. So if your lath becomes damaged, first of all you have no reinforcing and so the stucco will become damaged, but the other thing that happens is the lath will lose whatever anchorage it has to the building to the point where it actually starts literally coming off the building and falling to the ground.

Alan Tannenbaum, Esq.:
So when it's concrete, when it's stucco on a concrete block, you'd typically have lath or is it just where it's a wood frame structure?

Felix Martin, P.E., S.E.:
No, you typically find lath when you have construction over wood frame. There is some construction over masonry where you can have lath, but typically you don't. When you apply stucco directly on masonry, what happens is there's an actual chemical and mechanical bond that occurs between the stucco and the masonry block, so that when it finally cures, it's actually like a single unit and you want to see that bond occur.

Alan Tannenbaum, Esq.:
Now a lot of the town home buildings that we've seen are built first floor block, second floor wood frame. So you have a different type of stucco application. What kind of issues does that cause?

Felix Martin, P.E., S.E.:
Well you have the same wood issues of course but when it comes to the block what you have is that you have water penetration and that water penetration typically occurs around the windows and then when that water comes in, what it does is it starts to delaminate the stucco from the masonry, and so eventually that stucco starts to pull away from the wall and again literally begins to fall off the building. The other thing that it does is because that water is coming in around the windows is it produces damage to the interior. People forget that even when you have a block wall, the interior of the building is furred out with wood framing and it has drywall which has paper in it, and so when that moisture gets in, it has an opportunity to produce mold behind the wall and that mold can be of course not a good thing to have around.

Alan Tannenbaum, Esq.:
All right Sal, we got about 20 minutes, so use your time judiciously. I won't interrupt again.

Salvatore Scro, Esq.:
Yeah, so I want to get through a couple of these. Felix, I'm going to run through these kind of quickly but here's an area that you looked at and it looks okay, but we're just going to flip through and I'll let you talk as we go through this.

Felix Martin, P.E., S.E.:
Yeah, once again this is an area where we were getting water intrusion around the windows, and that water of course was flowing down. As it flows down, you can see where that is, it's retained at the bottom of that wall and it's just ... Once it gets to that point where it's wet, you can see that doesn't look bad, but when you take it apart, you see that it's produced not just damage to the wall sheathing but to the framing as well. So after a while, you start wondering, "Well what the heck is actually holding up this wall?" Because the damage to the structural components has been so extensive that it's literally in danger of collapse. So again, even a small amount of water. A small amount of water, but every single rainstorm, you multiply that by the number of rainstorms that occur in Florida within a year, it builds up, and when that moisture level reaches a certain threshold, the micro-organisms that multiply and produce the rot just start multiplying like crazy and they just start chewing up on the cellulose and that's where it produces the rot damage that you see.

This is a condition that we see under the windows where the installation of the stucco is done improperly and the waterproofing paper is installed in such a way that instead of keeping water out and away from the wood, it actually guides water into the wood and as you can see there, it produces damage. One of the problems that we have of course is we have wood construction in Florida. Nothing wrong with wood construction, you just have to make sure that you protect it properly. But you have a wet climate like Florida where it's always going to be raining, and the danger is you have to make sure that you protect against that water intrusion, and that's just not being done by builders. You can see in this there's water coming in at the window, that's what you're looking at, and you see the damage directly underneath the window, because that water has come in around the window and through the window, and you can see the amount of damage that it's producing. Once again you multiply that water intrusion by the number of rainstorms within a year in Florida, by a few years, it's no wonder that you get this type of damage because that damage just continues to happen and it just ... It multiplies [inaudible 00:40:03] then you get the rot damage from [inaudible 00:40:07]. Go ahead.

Salvatore Scro, Esq.:
Sorry, explain what you're doing here with this window.

Felix Martin, P.E., S.E.:
Well here again, what we're doing is we have taken the window and we have done a water test on it, and there is a specific water test protocol that's been established by the American Society of Testing Materials where what you do is you mimic what would be wind-driven rain, and you do that water test to try and determine whether the water is coming in through the window or through the stucco or maybe both. So we conduct that water test, you can see that we've labeled it. There is a little dam that's built in the corner there, and we pour water into it. That's one of the first tests that we'll do, and this is testing whether the window itself is leaking into the unit. Because if it cannot hold that water, if the window frame cannot hold the water, then that tells you that the window is inadequate in terms of providing water protection. If the window is inadequate, then that water's going to leak, and you can see a little bit of the damage that's occurring at the very base of the window on the sill and then that water continues to percolate down and you can see underneath the damage that has occurred to the plywood underneath.

Salvatore Scro, Esq.:
So here's when they perform the work inside, just to show an example. [inaudible 00:41:33] they make sure they take everything apart and put it back the way it should be. That is an example of the lath. I am going to skip through some of these. Here's when we opened up inside in between units, and this is something that gets forgotten about sometimes. Why did you open up this wall here?

Felix Martin, P.E., S.E.:
This is a fire separation wall between the units, so this is intended to provide protection if there is a fire in one of the units so that the fire doesn't go across the wall into the next unit. What we find is that that fire separation is not done as required by the code. So what happens is you have things like the separation for example of the electrical outlets that you see there. There's a certain distance that those outlets have to be kept apart. You have to look at the blocking so that any fire that gets into the wall is stopped by the blocking. You have to take a look at the nailing of the wall to make sure that the size of the nails is sufficient to anchor that wall during a fire. Again, nails are made out of steel, so when there's a fire, there's a tendency for that nail to soften by the heat, become softened. If you don't have the right-sized nail, then it will not be able to protect you in a fire, or for a prescribed amount of time, and that fire will come into the next unit.

Once again, water intrusion from poor drainage on the site. In this case, what you saw there was just water coming into the unit at the bottom level because the water drainage was actually being directed towards the building as opposed to away from the building, which is what the code requires. So there's a code requirement but it wasn't met in this location, and the water was literally coming into at the base of the wall.

This is a post-tensioning cable which is used to reinforce the slab. This is what provides your foundation for the building and what we're seeing here is that that post-tensioning cable, which is a high-strength cable that's pulled during construction, and then when the concrete is set it's released, so that it compresses the concrete together, and it guarantees that you have a crack-free slab. Well this one has busted. It was pulled, it was cinched, they let it go, and then it snapped. So what you have is a broken cable here so now you don't have an active foundation system like you should have.

Salvatore Scro, Esq.:
So now we're going to talk about some high-rise buildings. Again, whether they're condominiums or HOAs, it really doesn't matter. Construction is pretty much construction and they should be investigated if you have turnovers or if you have issues or even if you need to know really what the condition of the building [inaudible 00:44:25] was delivered to you. So here's a high-rise that we looked at and they did a walkthrough but I'm going to play a quick video of some of the [inaudible 00:44:37]. When they go out to do their testing and they look a little bigger here because I stretched this video out for the purposes of seeing it here, but -

Speaker 7:
Is it bare concrete? Is it a primer concrete? Okay. Let's start there.  Nice and easy one, we'll move to that above ground planter and just take a look at the planter area.

Salvatore Scro, Esq.:
So they map out what they're going to do. What's happening here?

Felix Martin, P.E., S.E.:
This is what we call a tap test which is a simple test that is done when you have stucco over masonry, and what happens is like I said, when you start getting that water intrusion, the stucco begins to delaminate away from the masonry. So you tap it and you can hear the sound, you can hear how hollow that sound, and that's because the stucco has completely delaminated away from the masonry. That's not a good thing, because over time that will just get worse. This is a high-rise.

Now imagine if you would what would happen if you have stucco delaminating and falling off the building from a high-rise. That is a life safety issue because anybody walking down below, they could be seriously hurt by that stucco. So a few years back, the courthouse in Sarasota had some issues with this where the stucco was literally falling off the building and damaging cars as they were driving by, and so it required an intervention and a major repair if that stucco is not properly bonded to the building. So these tests that are being conducted here that Sal is going through is like I said first of all, we do that tap test to check the stucco, and then we literally cut into the stucco to show that is it bonded to the substrate, to the surface underneath, and you can see again here [inaudible 00:46:32] and then as he finishes that cutting [inaudible 00:46:34] how easily it's coming off because it's absolutely not bonded to the concrete and concrete masonry underneath. So that stucco is not bonded at all, and again over time, it becomes more and more loose as more water gets behind it, and eventually it literally will start falling off the building.

Same kind of situation here. So in this high-rise, we found that most of the stucco was not anchored to the building anymore. So again, a relatively new building, looks great, looks like it [inaudible 00:47:27], and within a few years, you would have the potential for that to literally be coming off the building and causing damage on their [inaudible 00:47:34]. Now this right here is a window in that same high-rise and you can see the water intrusion coming through the window. So here is a problem with the installation, not just of the window but again of the stucco around it, and the flashing between the stucco and the window that allows this to happen. Now once again, this is just proof that the construction was done in such a way that even for a relatively new building like this one, water was coming in and as you multiply that water intrusion over a period of time, it just causes more and more damage to the point where those repairs become just prohibitively expensive.

This again is a demonstration how the stucco is being removed and how it is absolutely not bonded to the [inaudible 00:48:18] underneath, like it's supposed to. You can see [inaudible 00:48:22]. There's absolutely no bonding anywhere on that stucco [inaudible 00:48:25] so that it is supposed to be literally anchored, chemically as well as mechanically, to the surface underneath, and it is not at all [inaudible 00:48:38] -

Alan Tannenbaum, Esq.:
How would that bond be created?

Felix Martin, P.E., S.E.:
Well that bond is created again by how you place the stucco. So the stucco, as you place it, stucco is concrete, is essentially cement, and the masonry, concrete masonry, is the same material. So when the two come together, they will chemically bond. When you apply the wood stucco on it, they chemically bond as well as mechanically because the surface of the masonry is rough. Where you have concrete, which has a smoother surface, you are required to use a bonding agent that chemically bonds that stucco to that surface. So the intent is to produce a finished product that's solid all the way through. Not two separate components, but solid all the way through. Because [inaudible 00:49:28] it creates a means for that water to travel between those two surfaces, and that's just something that you don't want to see.

Alan Tannenbaum, Esq.:
What likely did the contractor do wrong?

Felix Martin, P.E., S.E.:
Well there's a number of things that they did wrong. One of the things that they did wrong was again, they installed the stucco on a surface that was not clean, that had something on it. It can be dust, you can have dust so the surface is dirty, and so that stucco is not able to bond to it. It can be that there's no bonding agent on the concrete and the stucco as it comes onto a slick surface that's concrete will not bond to it. It can be that they misapplied a waterproofing material, something that's not approved, so that what happens is that waterproofing material creates a bond breaker between the stucco plaster installation and the material that it's supposed to attach to. If you have that bond breaker there, it means that that bond will never happen. So what you want is that chemical bond that puts those two together and if you have something preventing that, then you now have two separate surfaces that when it gets wet, that water will travel between and cause additional separation of the stucco.

Felix Martin, P.E., S.E.:
Once again, we did the tap test on these areas and we noticed that they sounded hollow and as you see this [inaudible 00:50:58] this piece, you can see once again. No bonding at all between [inaudible 00:51:04]. There is absolutely no bonding between that stucco and the surface underneath, and you can see the surface underneath is coated with the material. That's an example of the material that the concrete block was coated with, but unfortunately that coating prevented the stucco from bonding to it. It acted as a bond breaker. So rather than protect the construction, it actually created a condition where the stucco is now a separate skin. Kind of a loose skin on top of the masonry, and it's not bonded at all like it should be.

Alan Tannenbaum, Esq.:
What do we have here, Sal?

Salvatore Scro, Esq.:
Here we have some issues with the area beneath the pool. So we brought Felix and Marcon Forensics out there to take a look and you see a pool and a hot tub that looks pretty okay and then you go down below and you're finding that this is the -

Felix Martin, P.E., S.E.:
[inaudible 00:52:14] I was showing you photographs of the skimmer there, we find that the skimmer itself was fine, but the area around the perimeter of the skimmer was not properly waterproofed. So the water is getting in around the edges of the skimmer, and what you see there is the net result of that. Now you have this leak that's coming underneath, and this is constantly let because it's a pool. So there's water that's constantly coming through.

Salvatore Scro, Esq.:
So sometimes there's some testing that needs to be done on windows and I'll just go through some of this here. What are they doing here?

Felix Martin, P.E., S.E.:
So this is a spray test. I mentioned this before, this is based on an ASTM standard, an American Society of Testing Materials. It's a protocol that they've set up where you actually set up a spray rack and you put in a negative pressure on that window to simulate what wind-driven rain would be, which would be ... We're not talking hurricane strength here, we're talking about just a regular rainstorm and then the wind just essentially beating that rain against the window. The windows are required by the code to be able to resist that. They're required to not be able to allow any water to come in under this test. This is essentially the same test that this window would have gone to get certified in the state of Florida, you have to pass this. What you see is that as you start to spray the window and you apply this negative pressure, the water started to come in, and so that obviously tells you that this installation was not done properly, was not done in such a way to not allow that moisture to come through.

Salvatore Scro, Esq.:
Here's another type of building that you looked at.

Felix Martin, P.E., S.E.:
Yeah, this is a recent construction, recent investigation that we did. Once again, this is a masonry building, no wood framing here. Now we're looking at the roof, and the roof has a combination of metal roofing as well as membrane roofing and the metal roofing looked great. We asked them, "Have you had any reports of roof leaks?" And they said, "Yeah, we had a couple. Nothing really major." This is not a very old project at all, it's a relatively new project, and then lo and behold, we looked at the roof and we said, "Oh no. We think we may have some problems," and as we did our testing, you can see that as we removed the roof material, the roofing material from the roof, we found sure enough that there is extensive damage underneath. So there, you can see right there, that's the intersection of the metal roof with the membrane roof and you can see how much damage there is underneath. That's all rotted out. So once again, you get these [inaudible 00:55:08] and if they're not treated properly, [inaudible 00:55:18]. So this is a relatively new project that already has a high level of damage.

Felix Martin, P.E., S.E.:
Now this right here, again same project, this is an installation. Again, this is a spray test that we're conducting, and what you can see here is as the spray test is taking place, we placed this paper, this pink paper, that turns chartreuse when the water hits it. You saw in that video how that water is just coming in. Not supposed to happen. Not supposed to happen at all.

Salvatore Scro, Esq.:
There was nothing that you could really see over the sill or the sheet rock, was it?

Felix Martin, P.E., S.E.:
No. There was no indication that this water, when we first started this test, there was absolutely no indication that this was a problem area, and yet as soon as we conducted ... Well as soon as we opened up the window, we saw that there was evidence that water had been coming in. But from the finished outside, you would not be able to tell that. But once we removed the finishes, we saw some evidence that water had come in, and then we conducted the test, and that definitely determined that the water was coming in, it told us how the water was coming in, and to what extent that water was coming in.

Salvatore Scro, Esq.:
So I want to say something about this particular project here. This is one where we had some issues structurally but when we had this case, I brought Felix in, and all we did was a one-day testing. We probably could have done a three-day testing, but we did a one-day testing and we did ... The value of the case to address the defective conditions rose significantly, not because that we didn't know the defects were there, but because we had the appropriate expert investigation and testimony that made the case more valuable. So that's why I always say it's important to have an engineer in the project. Explain what a, I know you guys call them pot shelves, but explain that.

Alan Tannenbaum, Esq.:
We're hitting the end, so let's pick the best.

Felix Martin, P.E., S.E.:
A recessed window and once again here is a great photograph. It doesn't look bad. it doesn't look bad at all. But we observed that it had a negative slope. We saw how it had been flashed. We opened it up and when we opened up we had the oh my god moment. I mean you can see the lath is rusted, you can see the paper was improperly placed. That's a staple, you can see how rusted it is, and you can see the level of damage underneath it. So this location which did not appear to be a problematic location to the untrained eye, but which we identified as a problematic installation, definitely when we opened it up, we found a serious amount of damage. Sal mentioned this was a one-day destructive testing that we did. Typically we'll do a multi-day, but essentially from this one day that we did testing, we found that the damage to this community was extensive and again through Sal's work, they were able to recover funds and this community now is under repair. But had Sal not become involved with this and brought us on, this community would have essentially suffered some really serious ... I mean it's already serious, but some extremely serious damage to the community.

Felix Martin, P.E., S.E.:
We've seen projects like this that they reach a level of damage where the building department will red tag the project and require the tenants and homeowners to move out because they're in danger, and when it gets to that point, then they have to essentially move everybody out, and as a homeowner, you're still making payments to the bank, but you can't live there, because it's compromised. We never want to see that. We never want to see a project where it's going to get to the level where it's compromised like that, or even in some extreme cases, like the Champlain Tower collapse, where it gets to the point where the building is so structurally compromised by water intrusion that you get to the point where the building department has to kick you out.

Alan Tannenbaum, Esq.:
Well we obviously could go on for quite a long time and we'll keep Felix on for a little bit because I know there's people that have to go but I'm willing to let Michelle Colburn close us out because she has this [inaudible 00:59:53] that she's doing.

Salvatore Scro, Esq.:
One quick second, Alan. I do want to thank Felix because it was nice of him to take the time away today and come and help us out and explain some of the things that have gone on. Really appreciate that and if anybody has questions I'll let you pick up from there, Alan. Sorry.

Alan Tannenbaum, Esq.:
Yeah. If anyone has any questions about anything we provided you today, you can email us offline. If it's an engineering question we can refer it over to Felix, he's happy to give a quick response to something that doesn't take an in-depth investigation. We are involved in all facets of turnover, turnover claims, whether it's a site-related issue, a building issue, whether it's condo or HOA, contact us and we'll tell you whether it's appropriate for your building to have an evaluation. We make recommendations on who should be doing that. We also get involved extensively in repair work, helping with the contracts, helping enforce the contracts, and unfortunately, when you didn't call us in the first place we spend a lot of time cleaning up projects that didn't go well. So we are involved in that process too and again I repeat that the forensic methods that apply to new construction also apply to a mature building when you're trying to figure out how to repair it. Before you start a contract to do repairs, you better look carefully at what you've got before you go forward.

So I'm being told I have to answer the last question. It says we decided to have an engineering inspection on our 37-year-old building, but are having problems getting proposals. Okay, so this is the reality. After Champlain Towers South, a group of very busy forensic engineers became much busier for obvious reasons. So there is a delivery problem, a challenge these days because they're busy. We can connect you with them, use whatever leverage we have to get them out earlier, but that is a challenge. Champlain Towers South was a blessing and a curse or the engineers in Florida because people wanted the inspections done and if you're concerned about your building, you don't want to wait 60, 90 days for that engineer to do their inspection, but there's only a relatively small group of qualified engineers who can do these type of structural inspections. So my sympathies with the managers who are trying to get that done, but it is a challenge. Call us up and we'll try to twist some arms for you.

Speaker 10:
What about the question on who pays for repairs, special assessment or insurance?

Alan Tannenbaum, Esq.:
All right, well who pays for repairs? If it's a newer construction, what we do is get the developer to pay for as much of those repairs as possible. If it's a mature property, you either do it by special assessing the owners. You may have an insurance claim, if it's covered under a policy, that covers part of it. We have a lot of excellent banks who are very happy to loan money to associations if you have a fairly small fee fault raise on your assessment collection and a lot of groups rather than hit their owners with a major special assessment will get a credit line to cover an extraordinary expense or at least part of it.

Salvatore Scro, Esq.:
From our standpoint, if we are involved and it's something that we think there's potentially liable parties out there, we analyze your case and if we feel that we can gain a positive result, then that would be much that less if anything that the association would have to pay for repairs and sometimes, especially with newer projects, you may have some significant repairs or significant damage issues of what was supposed to be given. But when it's all said and done, you do have the ability to look at what needs to be done versus what should be done as far as what should be given to you so that you can pace things out so that you can use the money that's recovered to do what is needed to be done and you limit your out of pocket expense.

Alan Tannenbaum, Esq.:
Yeah. If I was to summarize what we do, we get developers, contractors, architects and engineers today as large a portion of the owner's obligation to repair as we're able to in any particular case. If you don't pursue responsible parties, it's guaranteed that the owners will pay 100% of the repair cost. If you do pursue responsible parties, you have an opportunity for the owners to share only a portion of the cost and with the developer and liable parties picking up the rest. So that's basically the guts of what a defect claim is all about. Helping get some money from other parties to take care of the association's problem. That's what we do, that's what Felix does.

Again, we thank everybody for attending. This will be available on our website within a week I am told and we have a really interesting session next month on connected town homes and the need to amend the documents so that there's coherent repair and maintenance and claim ability, so for those who live in that type of community, that should be very interesting. That one is a CEU for managers. So everybody have a great - 

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HOA & COA Guide to Multi-Family Re-Roofing Project

Jon Lemole, Esq.:

Good morning everybody and thank you for joining us. This is a great panel we've got planned for you today. We're happy that, so far, we've got 176 people joining us today. That's huge. We really appreciate that and we're glad that we see a lot of return faces, so I'll take that as a compliment that we're delivering some value for you all and we hope to continue to do that. So today, we're going to talk about reroofing projects, best practices for reroofing projects and this is going to be directed at multifamily buildings, obviously, so we're not talking about single family units. Obviously, those folks typically have to take care of themselves. But if you're an association that has maintenance and repair responsibility for a building's roofs, this is going to be a really, I think and I hope, a good walkthrough of best practices that you can all take to ensure that your project goes smoothly, little risk to the association or as little risk as possible to the association and that you wind up with a completed project that's defect free and will serve your association and its buildings for a long time to come. This applies to both condos and, typically in the HOA world, town home communities.

Why is this timely? You probably are seeing a lot of activity from your insurance carriers in terms of insurance carriers staring to say it's time to reroof your buildings. We're about 15 years out from the building boom prior to the recession and so you've got a lot of buildings that are approaching or have seen 15 years and so a lot of insurance careers are starting to tell you it's time to take care of your roofs. And given what's happened recently over in south Florida, we can expect that insurance companies are going to be even more vigilant and more adamant about building maintenance. We're expecting that a lot of you are going to be dealing with these reroofing projects in the very near future.

We think that we have a lot to bring in terms of advice and best practices. Let me tell you why that is and this may be a little bit against our self-interest as a firm because we handle typically... we do a lot of work in claims, in defect claims, and so we're uniquely suited to see what goes wrong with roofing projects when they don't go right. We know where the problems can be. We've seen all of the areas where things could have been done differently and a project could have... and that could have made a difference in how a project went. Another portion of our practice is to do major repair project consulting and our call to action here today to you folks is if we do have a major roof repair project or roof replacement project, I think there's a lot of people that tend to believe that that's a run of the mill type of thing and it's just a roofing project, but there's a lot that can go wrong and certainly we would encourage you to reach out to a construction lawyer, whether it's our firm or some other firm, and consult with them on the front end because there's a lot of decisions that could be made that can mean a huge difference in the way that your project goes.

What can you do if you have, besides consulting with us or somebody else, another construction lawyer, what can you do to ensure that your project goes smoothly? You can follow the best practices that we're going to run through today. We could spend hours on this, but we're going to give you a 30,000 foot highlight, a snapshot. We're going to talk about a bunch of things today, but obviously any one of these topics we could into in significantly more detail if needed. At the end of the day, I think I want to leave everybody with is the old saying, what did Ben Franklin say? A penny saved, pound foolish. I can't remember. Something like that.

Again, the inclination for roofing projects is that this is a thing that... a kind of a routine type of maintenance project for an association and it's anything but. It's not a time to cut costs, it's a time when an association should be saying, "How do we do this right, do it right the first time, control our risk and make sure that the project is delivered on time, complete, defect free?" because this is one of the primarily defenses to your buildings from water intrusion and the possibility that you could have a poor product, a poor result, which could create a lot of other problems for your building. And as we've seen recently, those problems can multiply, spiral and create significant problems for an association.

Let's just into the subject. Where we want to start is really quickly, and I'm going to introduce Brian Tannenbaum, who's an associate with our firm. He's the next generation of Tannenbaum to be part of our firm, but what Brian is going to talk about real quick is just to remind everybody of what the source of an association's authority is in terms of mainlining and repairing and replacing roofs on your buildings. With that, we're going to have Brian take it away and just cover that real quickly, give us a primer on that subject. Take it away Brian.

Brian Tannenbaum, Esq.:

Fixing the roofs, dealing with the windows, dealing with anything that comes up. But in the context of a multifamily home or a condo, these things are regularly maintained by the association. Now, for a condo, the law comes from Florida Statute 718 chapter 718, which gives the association the responsibility for maintenance of the common elements. It doesn't give an option and there's no ambiguity. It's not vague. It says that maintenance of the common elements is the responsibility of the association. 718.108 defines the common elements as, in part, the condominium property which is not included within the unit. This can be your roof, the balconies in some cases, any part of the condominium that is outside of the unit.

On the other hand in an HOA situation, there is no statutory basis that requires the association to maintain and repair any part of the property. Where the authority comes from is the declaration, so it's important to know what the declaration says about maintenance and repair of the property. For both an HOA and a condo, the board has a fiduciary duty to the members. Because they have a fiduciary duty to the members, it's important that they undertake repairs in a timely and appropriate way so that there's no liability opened up for the association or for the board members. When looking at your documents, you need to know what kind of things is the association responsible for and when do I as a board member or a manger need to make sure that those things get done.

There's a very heavy burden on the association and the board and it's important that those things get taken care of in a timely manner so that you can avoid that liability and that you can keep your building safe and secure.

Jon Lemole, Esq.:

Okay. Thanks Brian. Just a little segway from something that Brian touched on and I want to explore a little bit further before we move on is, and this is more appropriate to HOAs and town home HOAs than condos because the condo statute is pretty clear about common elements and there's not a similar statute or similar provision in 720, it's important to look at your declarations and understand whether, not just what the declaration requires the association to do, but whether the declarations enable and provide the association with the ability to do that work capably and completely. We've run across a lot of declarations that are typically the original declarations that were drafted by a developer, which are pretty ambiguous about what the associations begin and end in regards to roof replacements or roof repairs is.

If you've got a roof project coming up, you've got a situation where you're needing to replace a roof on a town home building for example, it would be a great time to look at your declarations and ensure that you can complete the job and that you don't have some sort of limitation in the declarations which may prevent you from doing a thorough job. Let me explain what that means. We've run across provisions in declarations where the association is responsible for the roof covering, the membrane or the shingles, but what happens if the roof, if over time there's damage to the framing, to the sheathing, to the roof trusses and that's not specified in the declaration as being part of the association's repair maintenance and repair responsibility? That can create some serious problems for an association.

If you've got a project that you're thinking, that you're expecting down the road, it's time to take a look at the declarations and make sure that you can do that work and that you don't have some ambiguity in your declarations. Folks, if you're in an HOA that's coming out of transition, a perfect time to review the developer's declarations and ensure that the association can do the work that it's going to need to do in order to completely, capably and without problems, without ambiguity discharge its repair obligations. What good is it if an association can only replace shingles, but can't correct damaged sheathing? You leave that to the lot owner and that may never happen and then you're just putting shingles over a problem that's just going to continue to further deteriorate the building, so don't always assume that the declarations are going to provide the association with a clear path to do what it needs to do in order to discharge its obligation.

Alan Tannenbaum, Esq.:

It's not only might the declaration impose some limitation on what an HOA can repair, but also arguably you can spend money on investigating the issue if it's not within the association's purview. And for a newer association, obviously the problem is the association can't pursue claims for an HOA for anything it doesn't have maintenance and repair responsibility over, so there's multiple reasons that the documents should be amended beyond just the fact that it constricts the ability of the association to do a full repair.

Jon Lemole, Esq.:

Well said. Thank you, Alan. So with that, let's turn to the subject of investigation. I'm going to ask my partner, Sal Scro, to talk a little bit about what are best practices in determining what you should be doing, what the scope of a roofing project should encompass because I think a lot of times, we just tend to assume that it's just a question of we're just going to put a new roof on the building. This is a time when an association can really take a good look and see what the scope of work should really be and that may involve some need to do some investigation, maybe bring some engineers in, but I'm probably talking too much and I don't want to steal Salvatore's thunder. So Sal, turning it over to you. Talk about investigation and engineering issues.

Sal Scro, Esq.:

Hi. Good morning everyone. The first thing that we're going to talk about is understanding why your roof may need to be replaced. There's a couple reasons. The first would be it's just an old roof, it's time to replace it. That's usually easy to figure out. You have your reserves. You have your reserve studies that usually tell you what your expected useful life is and you know if it's coming to an end. You can tell by the... if you're experiencing problems with an old roof, but then you may have a roof that's not so old and it may just be a bad roof. If that's the case, there's other things you may want to do versus just having to reroof before you just go out and get somebody to do the reroof on an old roof. If you have a bad roof, you may want to do some other things.

If, for example, you're having water intrusion and it may be coming from... you may have bad stucco and I've talked about this several times, you may cracking stucco. You may have water that's coming in through your windows. Water's going to seek its level. It's going to find its way into your building. That could be... One of the sources could from the roof itself. So any time you're having troubles with a roof, the first thing, my suggestion would be is if it's a fairly new roof, if it's something that has been constructed within 10 years, then I would suggest that you contact an attorney that does this construction defect work because they can recommend you to the right person to do the investigation so that if there is a problem with the construction, then you have the right team together to address that with the potentially liable parties.

If you have just an old roof, then maybe a good roofing company, a consultant or an engineer, but also if you have... The more changes you have in a roof as far as what I'm talking about changes, if you have different directions or slopes or different roof to wall intersections, a lot of valleys where roofs come together, chimneys, then you may want to engage the services of an architecture, an engineer to give you a detailed set of specifications so that the person going to do the work knows exactly what to do to apply the materials, to limit any possibility of water intrusion. That's one of the things.

The other thing that you may want an engineer for is, for example, if you plan on changing the type of material. If you have a shingled roof and you want to put a tile roof on it, you want to put a metal roof on, any changes in material, aside from the fact that you need to get approval from associations if you're a condominium, if you're going to change that, you definitely want to engage the services of a structural engineer because the weight. That's the key, the weight is the difference. If you've ever driven by and seen a roofing project and you see all the materials stacked up on the roof, they're all in different locations and it's not to make it easier so that they don't have to walk so far, it's because if they pile them all up in one spot, they're going to collapse the roof because it just can't handle the weight so it's important that you have engaged an engineer if you're ever going to change materials.

Also, if you have a roof that is a flat roof, that's something also you may want to do some pre investigation of before you just let somebody come in and say, "WE're going to just reroof this. And hey, here's your best way to do it. We can put this material in that will cover it. We can add vents to it so it'll let water evaporate out," all these things, my suggestion would be is do some investigation, particularly with an old flat roof because you have different layers of materials under that roof. What is the condition of each of those materials as you dig down? You don't know and you won't know unless you open it up, so I would suggest bringing an engineer in, having them uncover the roof, look down there and give you a detailed set of specifications.

There's a lot of times you can look at a roof and it looks old, but as you open it up and dig down, you find there's a pool under there, there's water, and you're not going to know that, you're not going to see it unless you open up. So if you have an old flat roof, sometimes it's best just to uncover the entire roof.

Alan Tannenbaum, Esq.:

Sal, an example of that. We had one recently. It was a built up roof and the contractor came in and said, "We're going to scrap the gravel, the loose gravel off of the built up portion, and then we're going to put a new roof on top of that." Well, it turns out that underneath this built up roof was a lightweight concrete fill that they used a couple of decades ago as roof insulation and the lightweight concrete fill was water saturated. What really then needed to be done on that particular roof was it needed to be taken all the way down to the structural deck and then a new roofing system installed above the original structural deck, but there would have been no way of knowing that unless somebody did a core through the built up roof, determined that it was indeed lightweight fill under that and do some moisture testing to determine what the condition of that is because you can't put a new roof over a bad subsurface. It'll cause a lot of trouble.

Sal Scro, Esq.:

Right. And we just did a testing the other day on a roof. It was metal and then there was a flat TPO roof. It's a Thermoplastic Polyolefin or something like that is the name for it. Anyway, that roof was three or four years old and I tried to get a video to show you, but I couldn't get it to transfer from my phone, but as we did the investigation, I lifted up some of the TPO roof, the flat roof, and I could pick up the sheathing and it would crumble in my hands. This was a roof that was three or four years old, so age isn't always a factor. It's the construction is very important. Why would want detailed specifications? Again, as I stated, the more cuts you have in a roof, the more differentiation in slopes and levels, you're going to want that.

You will also want to look into the... If you're going to have an engineer and they're going to provide year old with a set of specifications, you're going to want to have somebody look at that contract with your engineer as well. Make sure that they don't have a limitation of liability just for the money that you've paid them. The contract for roof, I had a project that we represented clients on, seven multifamily buildings and their contract to do all those seven buildings for hundreds of thousands of dollars, one page. It was a one page contract. It pretty much said, "I'm going to reroof your buildings," and that was it. You want to do an investigation if you have any type of roof that has layers to it, as Alan said, as well, especially those flat roofs.

You're going to want an engineer if you're having trouble because, as I'll talk about later, you want to make sure you look at this information so that you gather your information and your evidence if you need to address it to a potentially liable party, but you also want to engage a confidence defect attorney because you do not want to destroy your evidence if you're going to do that. You want to make sure you gather it appropriately. And also, if you have bids that you're going to receive, it's nice to have a consultant or an architect or an engineer to help you weigh through those bids. They help you get through the minutia of it. And also, they can bring up things that you may not think about, down to the little things like safety requirements, access to the building during construction for your owners, daily cleanup, daily magnetic sweeps so you're not having nails all over the place.

Those are some of the things that you want to keep in mind when you're about to do a roofing project. The main thing is, is it just old and is it a simple roof or is it a flat roof or does it have a lot of cuts or are you having trouble with it? Then you need to do some investigation. We will turn that over to Alan now.

Jon Lemole, Esq.:

Let me just say one thing to followup on what Sal said before we jump into contractors. Look, there are many, many, many fine roofing contractors in Florida. This is not intended to denigrate any of them. But in my experience and I would venture to say Sal and Alan would probably share a similar experience, when we get called in to bring investigative, potentially bring claims relating to a roofing project that has gone not so well, has gone badly, a lot of times those are projects that did not involve... I mean, it's very rare that we would come across a project where an engineer or a roofing consultant was involved in investigating and setting up a scope of work. Sal is absolutely spot on when he's talking about and especially flat roofs. We've seen a lot of projects where roofers come in and basically covered over an existing roof or some existing components of a roof and a lot of times that's a problem, least of which... Most of which. I'm not sure which way that goes, but you're relying on that existing layer of what's there and is being covered over to watertight and wind resistant.

It may not be a water issue, folks, it may be a wind issue. Unless they've done some uplift testing to determine that that substrate that they're attaching their system to is secure, you may have a roof that's not entirely resistant to high winds and hurricane winds. Those are the scenarios that we typically see is an association has either fallen under the spell of a roofing contractor or it was decided that rather than spend the money to have investigation by an engineer and an engineer involved in setting the scope of work, they've gotten that scope from the roofer. The roofer has either come up with a solution that's not a complete solution and those associations have had to deal with problems further on down the road.

Again, it may be more money, but it's money well spent because the flip side of that is if you have a claim, you're going to be paying lawyers to bring claims. It's going to take a long time. You may be having to do a roofing project in the middle of that because you've got water intrusion that can't be fixed with spot emergency fixes. You may be doing two roof projects where you thought you'd only have to do one. With that, I'm going to turn it over to Alan Tannenbaum and he's going to talk about contractor selection and this is really important in determining how to get the best contractors to come and take care of your project. So thank you, Alan. Go ahead.

Alan Tannenbaum, Esq.:

Thank you. All right. The roofing contracting industry in 2021. I'll give some buyer beware tips. Number one, there are companies out there, they're not actually roofing companies, they are roof replacement marketing companies. They have very good sales people. They travel around the state. Their pricing is pretty good and they have a clause in their agreement that once you signed the contract, they can assign it to another roofing contractor and all these groups do is sign contractors up and then they shop that job to other roofing contractors and take a margin on it. Be prepared or be aware that you need to have actually a bonafide roofing contractor.

Secondly, if you have a particular manufactured system, you want to be sure that the roofing contractor you're considering is a qualified installer for that roofing manufacturer so that you in fact get a bonafide warranty on that roofing system at the end of the day. The third for a HIRA, especially where you have mechanical equipment, drains, air conditioning equipment sitting on the roof, you're not just hiring that roofing contractor, you're hiring the roofing contractor and the air conditioning subcontractor that it decides to bring in to lift up that air conditioning equipment so that the roof replacement can occur. There may be a need for a plumbing contractor to be involved to determine drain size. You may have ancillary repairs like stucco repair and so forth on mansard walls, so you need to qualify under those conditions not only the roofing contractor, but who the heck they're going to bring in under them.

Do not let your roofing contractor do plumbing and air conditioning work that's not within the purview of a roofing contractor. There's a limitation on it. There's an interesting part with permitting. The air conditioning work and plumbing work associated with a roofing replacement, it doesn't necessarily need a separate permit for the air conditioning work and the plumbing work, but what's required is that that appropriated licensed air conditioning people and plumbers actually be the ones performing that work, so qualify your contractors as to their ability to do the totality of the work. The best recommendations for roofing contractors come either from other association and managers, certainly the engineers and contractors will do it, will give recommendations also.

You need to qualify also the superintendent, the subcontractors who might be working on the job. For 40 years, I've been telling associations that you're not actually hiring a roofing company, you're hiring a superintendent and laborers that they assign to your job so you need to know who they're sending. You can get their resumes and qualify them and make sure you get one of their top superintendents coming out. There's a lot of good contractors who take an extra job that they don't have the manpower for and something usually goes wrong on the job where they've either hired a journeyman superintendent and now they're assigned to your job, so you need to qualify.

The most important thing besides third party supervision I think that contractors will always perform better when they know somebody with knowledge is watching what they're doing and you're likely to get better performance. But we go back to the fact that without clear plans and specifications, it's impossible to determine and compare bids. Like Sal said, if you got a one page agreement and it says roof replacement and you have a bid for $60,000 and another one for $80,000 and another one for $100,000, they're not even comparable because you don't know what they're going to do. You also don't know how well insured they are and you don't know if they've even paid their workers comp. There's a lot about qualifying a contractor beyond looking for the lowest number.

There are good ones out there. There are bad ones out there, but I had third category, which is contractors with a really good reputation who happen to do a bad job on your roof because of who they send out or they're too busy or they're subbing things out that they shouldn't. Keep all those considerations in mind. That's my nutshell there, Jon.

As you mentioned, one thing that's important is that the manufacturer may do inspection, but what they're looking for is just whether their particular product was installed the way it should have. They're not looking necessarily at the way the air conditioning systems were remounted. They may not be looking at the flashing. Their warranty is qualified to saying that our system was installed per our manufacturer specifications, but they don't give a totality specification generally for the entire reroofing project so you just can't count on that.

Jon Lemole, Esq.:

Yeah. To amplify something that Alan said, if you're getting multiple bids or proposals or estimates, it's so important to have on the front end a defined scope of work that was set by somebody like an engineer or a highly qualified roofing consultant, and there are some very good ones out there, because then you know that you're getting estimates that are apples to apples and that is key to making a quality choice. You know that if you're taking the least or lowest estimate out of three, they're all competing on the same playing field and they're all estimating the same scope of work. Certainly, the engineer or the consultant can be vital in helping you evaluate those estimates. 

Okay. Let's talk about contract drafting because that's kind of where the rubber hits the road in terms of as association being able to take some steps to really control its risk in this project being completed on time, being completed properly and without problems. We're going to a little bit of time here and walk through some key things that should be in any reroofing contract. We have a whole course, folks, that covers this. We could spend at least an hour, so I apologize in advance if we're going to run through it a little bit quicker. But if you want, you can, the next time we deliver the course, the in-depth course on repair contracts, key provisions in repair contracts, please join us. But I'm going to run through some of the key areas for contract drafting.

Sal brought up an interesting point. He said he's seen projects, and we all have. We've all seen projects where you got a pretty sophisticated reroofing project that's covered by a one page contract and I would venture to say a lot of you folks and managers have faced that situation too. On the other hand, we've seen the full AIA contract that's 15 pages long with its attending general conditions document. I'm not saying one is necessarily any better than the other, probably a one page contract is not going to cover all the bases, but do you need the full AIA long form contract? Probably not, depending upon the nature of your project and the size of it. The takeaway is not how many pages the contract is, the document is, whether it's an AIA document or not, as long as the document covers some very key elements, it can be the AIA form, it can be in a different format or template, but it's important to have a couple of very specific things, some key things that should be in there.

Let's talk first about careful specification of what constitutes contract documents. Okay. I've seen contracts that haven't clearly spelled out what constitutes the terms of the agreement between the association and the roofer. By that, I mean what is the scope of work, whether there are drawings that need to be followed, whether there are engineering specifications that need to be followed. The very first, and especially if you've spent the money to have an engineer involved or a roofing consultant involved, it's important that your contract document specify the engineer's specifications, the engineer's drawings if they've done some. If the roofing consultant has done specifications and drawing, that should be specified. If there's going to be a warranty involved, let's see the form of the warranty that the roofer is going to issue.

I'm not talking about the manufacturer's warranties, a lot of roofers though will provide a warranty on their workmanship. Well, let's see that warranty up front, that form. Let's make that form part of the contract so that you know going into it exactly what kind of warranty you're going to be getting when this project is completed. I've seen many a project where you're arguing over the terms of the warranty after it's too late. So if you have an engineer involved and the engineer has done a project manual, obviously you'll probably have a form contract that's going to specify everything that needs to be in there, but if you haven't gone that route, it's very, very important to make sure that the contract specifies what documents constitute the work that is to be done. That may rely on some others that need to be part of that.

The second main area that you'll want any good reroofing contract to address is the draw schedule. How is the roofer going to be paid? Let's think about a typical roofing company. Every morning, that owner or that general manager, whoever's in charge of running the day-to-day operations of that roofer, he or she wakes up in the morning and has to determine how they're going to staff the seven, eight, 10, 20 different project that they've got going at any one time. Okay. They're going to send their best folks to the project that is either giving them the most grief or has the highest amount of risk to the roofer. The best way that an association can control risk and ensure that that roofer has some continuing day-to-day risk on the project is through the draw schedule or through any of the provisions in the contract about how that roofer gets paid, progress payments.

You want to make sure that the way the roofer is paid during the progression of the job is in a way that that roofer is not... they haven't gotten their profit paid to them yet. There's a lot of different ways you can do that. I can't tell you a specific way, but typically you want to make sure that you're minimizing any deposits that you pay upfront because a lot of times the deposit is the profit. The more of the profit you pay upfront, the less that that roofer is incentivized to come and complete your project on time or in a diligent fashion.

If you can't get away from having to pay some sort of deposit, then you want to negotiate for the lowest amount of deposit or you want to redress that, if you will, that's probably not the right word, but you can maybe build in some retainage on progress payments and pull some of that back to ensure that the roofer completes on time and free of defects. The draw schedule is the best way to, one of the best ways, to ensure that every morning what that roofer is determining who he's going to send and where he's going to send them to, he's going to be looking at your association's reroofing project and saying, "I got to get this thing done because if I don't get it done, I'm in the hole. I'm negative here. I don't have my profit on this job. I'll earn my full profit on this job until I complete it." Don't ever give them a reason to get paid what they're going to ultimately make early on.

Alan Tannenbaum, Esq.:

Jon, the bottom line from my perspective is that you don't want the contractor that having paid 80% of the purchase price when only 60% of the work has been completed because it's awfully difficult to get them out at that juncture.

Jon Lemole, Esq.:

Right. Project supervision is another key area. Who for the owner is going to be responsible for day-to-day supervision of the project? I've seen many a situation where it's they've designated somebody on the board because they've had some sort of experience or because they've dealt with a roof replacement before. There may be some people on the board that are very qualified to do these things, I'm not saying that. But even if you haven't hired an engineer or a consultant to design your project, it's always worth considering having somebody come in, a third party come in and oversee and supervise the completion of the project and take a look at what the roofer is doing, inspect their work as the project progresses, somebody who's got experience in that area because that's usually one of the first... If a qualified person is doing that, they can nip problems in the butt obviously.

If the roof is not going on the right way, it's better to learn that early rather than later because later may mean a complete tear off and redo; whereas earlier may be, "Okay, we've got to take a section and redo it," and it's not a huge problem, so think about and have some provisions in your contract regarding project supervision. Subcontractors. Alan touched on this and especially in the area where you've got other things like air conditioning work that needs to be done, plumbing work that needs to be done, you want to have the ability to know who those subs are going to be that the roofer is bringing to do that work and you want to have some ability to maybe make some objections to that. So at the very least, you should negotiate or try to negotiate a provision which requires the roofer to tell you who else he's going to bring to the job and to allow you to have some opportunity to object or reject those subcontractors. Now, a lot of times you may not get away with being able to reject them, but you should know who they are.

Who determines completion? Does the roofer get to say the project is complete? And completion is a key element in a contract because that may determine final payment. You've got warranties that flow from that. It's evidence that maybe come back to haunt you if you ever have to bring a claim or the statute to repose, so substantial completion or completion of the project is a very important date to fix and should be fixed cavalierly. So are you going to let the roofer determine that or are you going to have an engineer involved who gets to make that decision or a roofing consultant who gets to make that decision? Obviously, I think you know what we would recommend.

How are in-project disputes handled? If you are unhappy with something that the roofer is doing, how are you going to handle that? Is there a mechanism for dealing with that? Are you going to have weekly progress meetings with the roofer? Are they going to do weekly inspections where you get to look at the work and have a meeting to review what's been done? All of that is key. Here's a biggie. Alan touched on this. Nonassignability. I can't tell you how many times we've seen roofing projects where you've signed a contract with somebody and you've got a completely different entity that shows up to do the work. If you picked a roofer for a reason, then make sure that that roofer isn't going to assign the contract or sub the work out to some other roofer. Those clauses are very rarely in contracts and so it's important that you take a look and make sure that you negotiate that into your contract.

The next thing is near and dear to our arts as lawyers, as litigators, because we usually end up dealing with the aftermath of a project gone bad and that's alternative dispute resolution. We'll often see contracts which require arbitration. We don't like those. Arbitration is not all it's cracked up to be in our experience. You'll hear that it's cheaper, it's faster, but, A, it's not necessarily cheaper because the cost to file a lawsuit at Circuit Court is, I don't know, I think like $405. On a couple hundred thousand or a few hundred thousand dollar roofing project, the filing fees at the American Arbitration Association may be thousands of dollars, plus you pay the arbitrator's fees hourly, so it's not necessarily cheaper.

I don't know, maybe faster, but you don't get discovery, you don't get full discovery, you don't get to take depositions under the American Arbitration Association rules, so that's a potential problem. Folks, at the end of the day, we don't recommend arbitration. Certainly in most cases, we would want to be in Circuit Court in front of a jury and so it's important to make sure that your contract doesn't require you to waive your right to a jury trial. We've seen plenty of contracts that we were not involved in negotiating and where we're now bringing a claim that have not had a prevailing party attorney's fee clause and that may be a problem. We would want a method for recovering our client's attorney's fees for bringing a claim for a roof project that was defective and so you need to take a look and see whether there are provisions in the contract for prevailing party attorney's fees.

Alan Tannenbaum, Esq.:

Very quickly, we want to answer these questions.

Jon Lemole, Esq.:

Final payment. How long do you have to do your final payment and release any retainage and under what conditions? That's essential as well.

Alan Tannenbaum, Esq.:

I want to get to some questions. Richard asked how to find a top notch engineer. We do know of some good ones. Do they perform the same in every job? Just like a contractor, sometimes you run into a glitch. If you hire an engineering firm, make sure the person they assign to you is actually one of their roofing specialists. Sometimes they have that capability sometimes not, but we can make some recommendations on that. I think, again, some other management companies and associations might know who they've had a good experience with. Barry asked a question about work that was done by an owner above the roof line. I bet that's an HOA, I hope it is. Who's responsible? Depending on how it was entered into and what your documents say, usually if an owner adds an improvement, it's on them to either remove it so that you can do a proper reroofing job or not, but the devil is always in the detail with documents.

Somebody asked a question about allowances and it's a very good question because, for instance, you may enter into a roofing job, you have a wood deck and there's an allowance per square foot or for board foot of the sheathing removal and replacement. Number one, you want to make sure that the price that the contractor's putting on replacing sheathing is a market price and they don't have an extortionate number for it. Secondly, you need to quantify how much, when it's opened up, how much wood actually needs to be pulled off the roof and how much is being pulled is being pulled off the roof because all of a sudden you get an overage of $30,000 or $50,000 at the end of the job and the wood that was removed has already gone into the dumpster and been taken away and how would you ever verify how much the contractor did, so that's a very good question and it ends up being a real problem.

Somebody, I think Mark [Spursion 00:53:49], mentioned that you also have to be careful of what type of products are going to be installed. There are different types of roofing systems. They carry different types of warranties. Definitely, your choice of roofers should also include vetting the roofing system that they're proposing to install because they are all different types of quality warranty limitations and so forth that come with the roofing project. There's one question about fiduciary responsibility. What is an HOA property management and board's responsibility to ensure proper funding of reserves under Florida statutes and case law? Well, the board has a fiduciary obligation to follow Florida statute and HOAs, there's no statutory requirement for the funding reserves. If it's in the documents, it is required.

If an HOA doesn't properly fund reserves, I doubt that that creates a case fiduciary for a fiduciary violation. It may be a poor business practice, but I don't think that it's going to create liability. So sorry, Jon, I thought we needed to get some of those questions answered.

Jon Lemole, Esq.:

Okay. That's fine. I want to make sure we answer the questions as well. That's good.

Alan Tannenbaum, Esq.:

Right. And we covered project supervision and completion, so Sal if you have something to say about construction defect claims that you can say in three minutes, the floor is yours.

Sal Scro, Esq.:

Yes, thanks for letting me have all this time. There was one question out there that was what about material failure on a fairly new roof? That kind of hits what I'm going to talk about. If you have a roof project, a new one that was done or one that went wrong or an existing roof that is wrong, what do you do? Well, you have four years statute of limitations to act on it, not to exceed 10 years and that 10 years is based upon when it's discovered. For example, if it's a latent defect, so the four years runs from either actual possession by the owner of the certificate of occupancy date, the date of completion of the project. If there's an abandonment of the project, which a lot of times leads to legal action, that would be the date that commences your statute of limitations. The date of the completion of a contract between the contractor, the architect, the engineer and their employer, so if you happen to employ the architect separately, then the time they've provided you with those details, that's your statute of limitations on that part of it. But typically, they're involved in larger projects so it's whichever is latest.

The statute of limitations runs four years. We're talking to community association managers here, so what do you do? You guys get complaints. You get complaints of problems with roofs, leaks, windows, anything like that, you document them because they usually come to you in writing. You talk about them in meetings, so you have meeting minutes. That documentation, what does that equal? That equals evidence. That equals evidence of your knowledge of a defective condition, which if you wait too long can hurt you, so it's good to document things, but you want to make sure you act upon them. For example, if you're having complaints of stucco cracks and you keep patching the stucco and patching the stucco. Later you find out that, well, it's not really the stucco, it's coming from the roof installation and the flashing, don't think that your discovery of that roof problem happened when you discovered it, it may have happened when you found the cracks in the stucco so it's going to be important that you investigate these issues by somebody competent to let you know, not just any contractor that goes out there.

If you see stucco cracks, you call a stucco contractor. He's going to tell you, "Okay, I'll fix your stucco." He's not going to talk about roofs necessarily and he's not going to uncover it, so it's important that you look for a competent investigator, an engineer, somebody to look into it. Usually, you go to the construction defect attorney first. That's what we do. We would recommend the right person for you to do that. One of you I know here today, we talked just recently about owner surveys and I use the word owner in quotes here. Should we send out written document... an email or a letter to all the owners and say, "Are you having any problems?" We recommended, again, if you want to talk to them, great, but if you're going to do these owner surveys, most of the time you're creating evidence, you're creating evidence that is going to probably not get you a lot of feedback and it's going to be more of a problem than it's worth.

I could talk about it for a while, but we don't have a lot of time so I want to touch on the 558 process. Before you commence any action to address construction defects, you have to give notice under Florida Statute 558 and it's specifically 558.004. If you're 20 units or less, you have to give that notice 60 days in advance. Tell them the potentially liable parties, what the defects are, what the damages are, give them a general idea of where the defect is located and they have 45 days to respond. It's 120 day pre suit notice for if you have 21 or more units and that is a 558 process for dummies statement there. There's a lot to it and it's important to use an attorney that knows how to handle these things appropriately to give the proper 558 out there.

Evidence preservation, exfoliation of evidence, destruction of evidence, that's very important. So when you're doing these investigations, it's always nice to have somebody martial it through. I know if we handle a destructive investigation, I make sure I notice the potentially liable parties. I tell them what's going to happen, when we're going to do this investigation. They can come out and look. They can't talk, they can't talk to the owners, they can't direct any of the investigation, it's our investigation. They can go out there and watch it and they can see what's there so they can't say we destroyed any of the evidence and the people you have out there doing it, it's documented. Sometimes this comes into question if you have emergency repairs, water coming in. Well, managers, direct somebody to take pictures before, during, after. Videos are good, but we don't want closeups. You got to start far out so we know what you're talking about.

I can't tell you how many times I get a picture of a round wet spot in ceiling that doesn't tell me anything. I need to have something back to look at to say, "This is the building. This is the street, the building, the unit number, the interior," and then you can zoom in on it. There's a lot to talk about on that, but the main thing is you have four years from discovery, not to exceed 10 years. So any of you with buildings or improvements that were done, any renovation projects that were done that are 10 years or less and you're not sure about their condition, my recommendation would be get a competent person to go out there, do a walk around, do an inspection. We know people that will go out there a lot of times and just do a free walk around if it's something that you think you're having a concern with.

If you're not having concern, obviously these engineers aren't readily available to run out there, but if that's the situation, it's always good to do. Thanks.

Jon Lemole, Esq.:

Okay. So roofs are your first line of defense to water intrusion. One of the most important components of your buildings. You've got reroof your building, the takeaway today is to follow best practices. We've laid them out for you. If you have any questions about a project that you may be contemplating undertaking, reach out to us or reach out to a construction lawyer to help walk you through what would be some of the key things to do in order to make sure that the project goes well. We thank you all for joining us today, you managers. I think Michelle will take care of getting you all of your credit reported to the DBPR. Hopefully we'll see you on our next panel, so thank you very much for joining us.

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Lessons Learned from the Tragic Surfside Collapse

Video Transcript:

Alan Tannenbaum:

I'm here with my partners, Salvatore Scro and Jon Lemole. Our presentation today is on Surfside Incident, Lessons Learned. So, I've been a construction defect lawyer for, going on 43 years. I've also assisted associations around the state in major repair projects, which is the basic substance of our practice. I've been fearing the type of thing that happened in Surfside, a couple of months ago.

It's a product of several factors. Let's start with the fact that it's a common ownership of property, which is problematic in itself. Remember that there weren't condominiums in Florida until the early '60s. And the idea of having many people operating one piece of property that they own, especially a building, is problematic to begin with because, they have to make joint decisions about potentially its maintenance and repair.

You have volunteer boards, many of whom are not experienced in management or building construction, who are responsible for maintaining millions of dollars worth of property, and protecting the people who've occupied the buildings. So, there's an expertise gap.

And then, you have all sorts of pressures on board of directors, you have the owners who show up at the meetings with the primary thought of, they want to keep their assessments down to a minimum, who exert substantial pressure on the board. You have people with different economic pressures in the community, who pull on the board's heartstrings about spending money on major repair projects. You have people that could even be on the board who are looking to sell their unit, and all they're concerned about is setting up a scenario that puts them in the best position to sell their unit this year or next year.

And you have investors and renters who maybe thinking short-term, maybe look at their property more as a real estate investment than as some place that they live. So, you have all these disparate interests all putting pressures on the board, to make decisions that may be contrary to the longterm interest of the building. So, this is something that I certainly have been aware of and our firm has been aware of, as a potential.

There have been buildings in Florida that over the course of the last couple of decades were near collapse, and fortunately didn't. There surely have been instances of portions of buildings that have collapsed, but Surfside was really the most dramatic example of what happens when deferred maintenance and repairs are put off to such an extent that you have the potential for tragedy.

So, I'm going to lay the ground rules again. Stay on mute. Any questions that you have, send them through chat. This is not a CEU course, so the managers are not going to get CEU credit for today. We have an outline. I'm going to turn the program now over to my partner Salvatore Scro, who's going to... Remember, this is lessons learned, so let's go back to original construction. What did Surfside, Sal, tell us about original construction defects and building vulnerability?

Salvatore Scro:

Good morning everyone. Thanks for joining us. Let me start with, I'm going to share some photos with you here to start out. Let's see if I can get this going right. Let's see here. Okay, I'm assuming everybody can see this.

Alan Tannenbaum:

Yes.

Salvatore Scro:

So, here's a condominium with a balcony. Some of you may have seen this before. I apologize, but I have some others here. But here's the balcony, it looks fine. From the street, everything's fine. Now, this building at the time in this photo was probably 45-50 years old. Let's see. So, we're going to look at this area right here, which is the top of the balcony. I just want to show you, there was a little hole here, but the other balconies had no hole. But this is what brought their attention to it.

Under that hole is the cantilevered steel that holds the balconies up, one above the other. That steel goes all the way into the building, and that's what holds up the steel. Now, that can't be seen. This is what it looks like throughout. That's what was holding up the balconies.

Here's another condominium. This is a wood frame condominium. It looks like it's in good condition. I want to show you a few things here. This was built in 1988 I believe. So, we're going to look at areas around the balconies, and we're going to look at areas around these support beams here. This is what you're going to see was behind in the walls. This is what's holding the building up. And you can see, that's the structure. So, it looks beautiful on the outside. And then, here's part of more support around this is what's holding that building up.

Now, these are the support beams we talked about. These beams aren't even touching the ground. So basically, this building was held together by glue of the stucco. That was that particular building. Here, a lot of the newer buildings they have, this is a pool room area, and you will see that here you have all water seeping through the concrete. They tried to seal it up, but you have water seeping through the concrete, and you do have this water intrusion. It's not necessarily a big deal right now, but it will be later.

Some of you may have seen these photos as well. This was a condominium building also. This is all wood frame. We did some investigation of the building and started to take apart areas. And beneath, that is what you found. Now, this was a fairly new condominium, so it did not take long for this to happen. These are the photos of what can happen if you don't address these issues, to start out.

Here's another area around the windows. Again, now, if you look and do your investigation the wrong way, this is what you're going to find. Nothing. But just inches below is where all the problem is. Why? Because you have flashing issues here. So, anytime there's a change in materials, change in direction, you're going to find issues that should be addressed.

Here's another project. You can see they started to mask over some of the cracks in the stucco. This area here is this area right here in the buildings. They're little, they call them pot shelves sometimes, because you lay a pot on them. So, it looks fine. As you open it up, this is what you're finding beneath. So, these are things... And again, here's another area. This is your framing issues that you cannot see, whether or not things are properly strapped. So, those are just a few photos.

Now, the commonality of all the damages in these photos... I'm going to ask a question, what all these photos have in common. Anyone know what it is? I know you're probably not going to answer this in this format, but I'm going to ask it anyway. The commonality is that, no one could see it happening. The other commonality about all these photos is that, they all had an opportunity to discover the defects and prevent this from happening. So the lesson to be learned here is, what you don't see can ultimately hurt you.

So what's the importance of a thorough turnover engineering study? You look at these buildings, the way they sell them, they sell nice clubhouses, they make everything look like it's new and fresh. But especially in new units, you need to take a look at these things. So you need a trained eye to identify the potential areas of the defective conditions. They may be small problems now, but they can result in bigger problems over time. So, it's like brushing your teeth. Today, it may not be a problem if you leave it alone, but over time, you're going to have problems. You're going to have cavities. So you need to address the things that you can't see.

So, what do these trained professionals look for? They will walk the site, they will look at areas where there is a change in direction, a change in materials, to make sure that the construction is performed properly so that they can identify if they need to do a further investigation. And all these investigative works that we've done, that we looked into, these engineers walked out there, they saw the same thing you saw in those photos. They saw a nice building, something that appeared nice. But, their trained eye can see something that we can't. And when you open it up, you find these things.

One of the other things to keep in mind is that, whether or not you want to pursue claims to create a fund to rectify the problems. So, the cost to correct these problems sometimes can be substantial, and it typically won't increase over time if it's not addressed. So it's better to address these things earlier than later. So obtaining a proper study of the building components by a qualified expert, typically we recommend an engineer together with a good team of construction defect attorneys, so that they can direct what should be looked for, is a way to develop an avenue to recover from the liable parties enough funds to use towards correcting the defective conditions.

If you wait too long, not only will you need the funds to correct the defective conditions, but also the funds to correct the consequential damages from the defective conditions, and you may lose your opportunity to recover from those parties as well. You also have the issue that, if you're doing repairs over a period of time, you may be destroying evidence. So it's best to have your properties looked at now at any point. So regardless of the study of the building, regardless, a study of the building components is a good idea. And here's why. If it's not to take advantage of inspecting as work was done, so if you weren't there to inspect the work as it was performed, or if you didn't have somebody competent to inspect the work as it was performed, then you may want to consider investigating the work now.

Another reason is, if it's just old, you may need to inspect the condition periodically. And then the other is identifying the longterm maintenance needs, which leads us to the next area, which my partner, Jon Lemole will be addressing.

Alan Tannenbaum:

All right. Thank you, Sal. So Jon, again, the lessons of Surfside, let's talk about budgeting and reserve funding. What lessons did we learn?

Jon Lemole:

Okay. Well, I think we learned probably what will be the most obvious area for the Florida legislature to address, some change in how condominium and HOA budgets are handled. Because right now in the statutes, as you probably all know, there's a presumption in favor of full funding .

There's a statutory presumption of a full funding of reserves, and especially for condominiums. And yet, you have this opportunity for the membership to determine, at least in condos and in HOAs, it depends on what the documents say, but you have the opportunity for reserves to be waived or reserves to be used for purposes other than for what they're supposed to be used for. So, that's probably the most likely area where we're going to see some change because, I think what we've learned from Surfside is that, buildings and especially high rise condominiums, they're very technical, highly technical structures to maintain. And leaving the line long-term maintenance and repair of them in the hands of well-meaning folks but folks who may have their own and interests in mind, their own short term interests in mind, was probably not the best thing for ensuring the safety of everybody in the building, and ensuring the integrity and the longterm integrity of the building.

So let's talk about reserve studies. Look, I get being a board member is probably one of the hardest things to do because, you've got to make some really difficult decisions that may not be in the particular short-term best interests of everybody in the community or in the building. And you've got to see these folks every day, and you've got to deal with people that are the squeaky wheels at your board meetings, and it's a very hard job. But, like any kind of fiduciary of an organization, it doesn't matter what organization, you talk about a public company, the board of directors has a duty to ensure the long-term viability of that company, and to frankly maximize shareholder value.

Well, a condominium really isn't that much different. The board has an obligation, a fiduciary obligation to ensure the long-term viability of the buildings, and to ensure that everybody's equity in the building is maximized. And so, that means that you've got to take care of the building. Now, a lot of folks who come down to Florida, typically come from up north, somewhere in the Midwest, they're used to owning a home, a single family home somewhere, and they've decided to move down to Florida, and move into a condo because they don't want to have all the maintenance responsibility. They don't have to mow lawns, they don't have to paint, they don't have to do all the things that they used to do when they owned it at home.

And sometimes I think when they move into a condominium or a Home Owners Association environment, they forget that, even though they don't have to do some of those maintenance things, they're still responsible for them. They still have a financial responsibility for it. And so, that kind of amnesia about doing those things is where you have a lot of problems with members who don't want to have to pay for those things. And so, they show up at meetings, they they're vocal, they try to elect board members who agreed with them.

I think that's going to change. I think we're going to have... It's got to change. I think we're going to see the Florida legislature step in here and create some guardrails or some curbs around how that's done. But again, let's talk about, I kind of got off the track, reserve studies. So if you're in a newer... Let's say you just turned over. What happens if, in a condo, let's talk about condominiums, you just turned over, the developers just turned over the condominium, they hand an engineering report that probably has also a reserve study attached to it, and you get a bunch of assumptions about the longterm life expectancy of all of the elements that have to be addressed in that report?

Frankly from my viewpoint, that's like buying a house and letting the seller give you a home inspection report. Why would you ever do that? So there's a huge benefit here to an association periodically, at least out of the gate, getting their own study done, getting their own reserve study done, getting their own engineering study. That goes back a little bit what Sal was talking about before, having the buildings looked at. But also, periodically getting reserve studies to know that you're funding reserve's at the right level, and that you're making sure that you're keeping up, and that the life expectancy assumptions that may have been made at the very beginning, haven't somehow changed.

That's very likely to happen in Florida especially, and with older buildings because, this is a harsh environment. We have a tendency to assume that buildings are constructed well, and that they're constructed with state-of-the-art technology. But think about a building that may be 50 years old. What was state of the art 50 years ago? And how has that held up in a harsh environment like Florida, especially in a harsh environment that's on the coast? So that's why it's important to do those studies periodically and update them, and make sure that you've got accurate numbers and accurate assumptions to reserve.

You've got to resist the urge to not fully fund reserves. Board members I think coming out of this, and management companies that are looking at Surfside, I think they're going to really have to rethink how they're dealing with requests and efforts to waive funding of reserves. I know that's hard. It's going to be very hard to do, and I think the legislature is hearing, the Florida legislature is hearing about that. Again, that's going to be an area where I think some protections are likely to be put in place.

Now, what do you do if you're in an older building and the over the years, reserve funding has been neglected? Now, all of a sudden you've got a problem, and you've got to deal with it. How do you do that? Well, there's a couple of different ways. You're either going to have to pass through a big assessment, a special assessment. Who's going to pay for that? Is it going to be letting the unit owners go out and deal with that? Maybe they have to get refinancing on their unit so that they can cover that, or is the association going to consider attaining its own lines of credit?

One option is for an association to fund that through some borrowing. That may not be available to all associations because, they may have problems with default rates. You have to generally have under a 5% default rate on assessment collections in order to get a lender to provide the association with a line of credit. So, these are some hard choices that are going to have to be made. But, I think there's help that's going to be on the way. I think, again, I think the Florida legislature has to act here and create some guard rails around the whole reserve issue.

Alan Tannenbaum:

Jon, one misnomer that I think people have about the reserve requirements of the condominium actually, there are three particular areas where there's required reserve funding, which is roof replacement, building painting, and pavement resurfacing. There are a number of condos around the state that only reserve for those three items. But, there's additional requirement under the reserve section. It says, "And any other item of the building that has deferred maintenance or replacement costs greater than $10,000." That's where this bonded stucco or cantilevered slabs that are going to need to be repaired or other structural issues in the building, at the pool level, the pool deck and so forth, those items also need to be reserved for under the provision of the statute that talks about replacement costs of greater than $10,000.

So it was a little bit misleading when the legislature created that statute because, it highlighted roof replacement, building painting, and pavement resurfacing, really to the neglect of structural issues, re-piping, which was going to be coming down the road for many buildings. A lot of major expenditures that were not picked up or were not subsumed within those three categories. So that's been a misnomer.

Jon Lemole:

Yeah. And again, what is likely to be more than 10,000 may change over time too because, as your building ages, and you may have environmental impacts, climate impacts that are accelerating some things, that now may become more pressing repair and maintenance areas. And so again, that's just another reason why routine studies of your buildings are going to be a thing of the future. A thing that every board and every association has to consider is, not set it and forget it, and maybe you'll do 30 or 40 years down the road, you'll do a study. Maybe if you're in a particular municipality, or county, or city that is going to require you to do that, so you'll do it.

But I think what every association needs to look at is periodic studies. Whether they have to do them or not by law or ordinance, doing it solely for the purposes of understanding what the current condition of their building is, and what their ongoing reserve funding obligations and efforts should look like.

Salvatore Scro:

I just want to address one thing here. One of the questions here was, so what was the lessons... Okay, I'll state what it says here. "What were the lessons learned from original construction of Surfside?" I guess since that's what we're talking about here, we're focusing at this point on investigating your property. Don't just let the... Don't judge a book by its cover. Surfside had investigations later on that showed issues. Don't ignore them. So the lesson, the main lesson from Surfside in my opinion is, if you do what you're supposed to do as a board, do not ignore what you find. Take action on it. Don't worry about the cost, or what the value of your properties, which is always a big concern. That's not your duty to make sure that you have a high value.

Your duty as a board, as a manager of the board, is to make sure that you're performing your fiduciary duties for the association that's there, and that will be there in the future. So the lesson learned from that is, get the studies and don't ignore the studies.

Alan Tannenbaum:

Yes. And Kevin, it's a good question, and I want to follow up with Sal. We don't know why Champlain Tower South came down, and it's going to probably be a couple of years of study. It may not be able to pinpoint one precise issue. But my A claim from what I've seen is, it looks like there were original design and construction defects in that building, which if they would have been corrected at the outset, let's say within the first couple of years, the likelihood of the eventual conclusion would have been lessened, of the building having to collapse 40 years later.

So, we have seen situations where buildings have had problems 20, 30 years down the road. And usually, there's a component of original construction defect that contributed to it. That if those items had been corrected and then the building properly maintained, then it would have been there. Maintenance is a misnomer because, if you have underlying construction defects that you don't repair, you're putting a band-aid on a problem and not necessarily getting to the guts of it. A good example is stucco cracking. Well, you can patch the stucco, you could even re-stucco. But if the issue, let's say in a wood-frame building, is the actual structure behind the sheeting, that's causing the distress, that's leading eventually the stucco cracking, you haven't really gotten to the problem.

So, the first thing that comes is correcting construction defects. And then, you're talking about longterm maintenance strategy once you've corrected the defect. But if you don't correct the defect, it is going to come back to bite.

There's a question about the life expectancy of a reinforced concrete multistory building, four or five floors. There is no discrete number that you could put on the life expectancy. There's probably some buildings that are reinforced concrete buildings that are going to last 60 or 70 years, and there are reinforced concrete buildings that because of original construction defects or poor maintenance, are not going to make 25 years. So, there's going to be a broad discrepancy. I would say that, based upon the studies that were done in the '80s, reinforced concrete buildings, even well-maintained, were certainly not going to last a century. And again, the one study that came out of it was the early 1980s, said an average life expectancy on the coast, of a high rise, reinforced concrete building, to be 50 years. But to put a precise number on a particular building would be very difficult.

Norman asked a question about reserves. What do you think? The far left says you will require full funding. Well, every year the board's got to come up with a budget that reflects full funding of reserves. The problem in the statute is that, the owners and many times it's at the suggestion of the board, then have to vote when the budget's adopted, to either waive the reserves in their entirety or reduce the reserves with full funding. Potentially, the legislature will, as they have done at some stage, will remove the waiver alternative for the owners, and the full funding be required.

But it goes back to the board having an appropriate reserves study that covers more than just the three designated areas of the statute. It covers any other item that's going to have greater than $10,000 replacement costs, That's going to include piping, it's going to include elevators, it's going to include structural window replacement. Those things are often left out when it comes to reserve funding. So the next segment.

Jon Lemole:

Because, we talk about life expectancy of buildings, and I think we put too much emphasis on... It takes away from what we really should be thinking about because, we tend to rely on, "Well, 50 years? I can sit tight for a little while." The three of us I'm sure, me, you, Sal, we can all point to examples of newer buildings that have had structural problems because, there's been a defect in the waterproofing that you may not see. I can think of two right now that we're dealing with where, there's been significant concrete spalling, and corrosion, and post-tensioning, and other effects on structural concrete, and they're frankly very recent buildings. But if the waterproofing, the latent waterproofing structures are defective, are not well performed, you're going to have a problem.

And so, 50 year life expectancy in that situation is meaningless. So that's why Sal, me, Alan, we constantly beat this drum. Get your buildings inspected. It doesn't matter how old they are.

Alan Tannenbaum:

Yeah. And probably at least every five years for a major structural mechanical inspection would be a good starting point. So, I'm going to get into the next segment, which is, we called it, nipping problems in the butt. So I think you've heard enough about water intrusion. In Florida, the biggest problem other than original construction defect, is the impact of water on the structure. If anywhere on your structure you're allowing water to get in, it can come through the roof, the windows, as Sal indicated, any change of building surface are areas of vulnerability. You're allowing that water to come in, it's going to create rot, it's going to create mold. You're going to have a pretty serious issue developing. So, the biggest target of maintenance in Florida is stopping water from getting beyond the outside surface on the building, and that's the ultimate struggle.

Somebody asked about plumbing. So, there's a lot of cast iron portable water systems or piping, you have your sewage piping, and again, not intended to last forever. The other thing that happens in the construction industry is, somebody comes up with a great idea about using a particular product or material, and 20, 30 years down the road, it doesn't look like such a good idea anymore. I think that is often discovered. I remember many years ago, somebody came up with the brilliant idea of using lightweight concrete fill as a roofing installation. The stuff got poured all over Florida, it was great. Great at energy reduction, you can slope it easily. The only problem was that, after a few years, they discovered that under the Florida sun, that the moisture from the concrete went up into the asphalt roofing that was applied to it, and you had asphalt roofs ever deteriorating well before their time, as a result. So you do learn things.

Now, what I've heard from plumbers or the plumbing companies, because there's companies out there that are doing pipe relining to extend the life of piping and buildings, and I've heard from more than one expert who has said, it's a viable approach, but not if you have allowed your piping to reach the point of deterioration, where it really can't be lined anymore. So, it's a great example of jumping on problems when they first become evident. Because, you're sitting on a piping system in your building, you get it inspected, there's some rust and deterioration. And then, the board sits on it for five years, six years, seven years, finally gets it studied after seven years of the problem first coming.

One of the companies that was going to be doing the pipe-lining shows up and says, "Look, the piping here is far too deteriorated to use our system or our process. The only thing that you can do at this juncture is a full replacement." So, one of the consistent themes that we've seen in buildings is, if you get at a problem quickly, you have the opportunity of correcting it cost-Effectively. If you allow problems to exacerbate, then the repair is likely to be much more expensive, much more difficult, and much more impactful on unit occupancy and so forth. So, get on those problems quickly.

So Sal, what I'm going to ask you to do in the next segment, we have a lot of topic areas that we were going to have you cover, but we've answered a lot of questions and so forth. So, why don't you give a fairly brief synopsis of contracting for repairs?

Salvatore Scro:

Okay. So, many times the defects that you encounter, the problems you encounter are because of poor instructions. You wouldn't buy a desk for example, that had to be put together, and just start putting it together, if it had all these parts. You read the instructions. Well, it's no different with putting together a building or repairing a building. You want to have proper instructions. So initially, you want to have that investigation. I know there was a question in there, Nancy asked, the inspection you recommend five years is separate from our reserve study? Yes. Reserve studies typically just look at the buildings. They don't do any investigation as to what the extent of the repair needs to be.

Alan mentioned cracked stucco. If you have cracked stucco, it may be a stucco problem, but it could be the framing beneath. It could be a lot of different things. So, you want to have an investigation to determine exactly what needs to be done. Because, just patching and painting the stucco, it may be damaged the next day. It won't solve the problem. You need to know what that problem is. So you want to know what the problem is. You want to get on point specifications as to what needs to be done.

To correct and avoid the defective construction, how will you know... How do you know what to do? And how do you know if the appropriate to work is in the plans or in the specifications? A couple of things. Number one, you should have an attorney review the contract, somebody who's knowledgeable in dealing with construction defect matters, and also have a good owner's rep, somebody who's knowledgeable, or engage the services of your own engineer to review those plans.

Salvatore Scro:

The other issue is, who's going to do the work? You can go get any contractor out there, but you're only getting the people that show up on the job. So a couple of things you want to know about these contractors, one, you want to ask for references. If it's a big project, even more so, you want to ask for references. You want to know what the bond ability is, if they need to obtain a bond. And again, with bonds sometimes, those are different amounts for different contractors. So that would depend. If some contractors cannot get a bond, some would pay more than others.

The other thing you want to look for is, if a contractor is asking for a significant deposit, because they have to buy materials or whatever, that's a big issue that will raise a flag to at least do some more investigation about the contractor and what they're able to do. You want to look at what the warranties may be for the work that's going to be performed. How long will that continue?

And then the contract administration, a good owners rep. Many of the community association managers out there, they don't really expect to sign up for that. So if they are going to do that, there may need to be a separate agreement with your community association manager, as to how much and how involved they're going to be. But basically, and I did see a question in here that leads into this, one is, Tasha asked, why can't all the construction defects be addressed before the developer leaves and turns over? Couldn't developers create budgets of properly funding the HOA or condo instead of the practice of having low fees for marketing?

Salvatore Scro:

So here's the reason, my opinion. They built something for a profit. They do not want to go and be there every day to repair these things, to make sure that everything is in order. They're turning that over to you. And the thing you're going to find most is, all these construction defects, they're not defects, they're just failure to maintain. I've heard some ridiculous things in just the last week, in depositions I've been in, where people have stated that, some of the problems that are causing the defective conditions of the association, are because of lack of maintenance. So, how do you see that? And the answer is, well I see dirt on the building. That's not maintenance. You cannot maintain something that is not properly put together.

So a developer or a contractor, most of them will just want to patch the situation, get through their statute of limitations, get a signed release. So it's important that you have your own people. And we've stressed this quite a bit. Investigate these things. That your contracts are based upon what your investigation finds, not what the developer says needs to be done. If they didn't do it right the first time, if the contractor didn't do it right the first time, you have to be concerned as to whether or not they're going to do it right the second time. Did they have the proper plans and specifications? Was all the information in there? How do you know what that proper repair is going to be? And who's going to do the work? Hopefully that was brief enough for you, Alan.

Alan Tannenbaum:

All right. Thank you. So Jon, let's talk about communication with the owners. And really, tying it back to the Surfside issue, what was the challenge that that board had as far as leading the owners, or leading the group to make proper decisions about what to do with that building?

Jon Lemole:

Well, I think first of all, there was a problem with getting... With conflicting information being circulated among membership and even within the board. So, in order to communicate clearly with your members, the board has to have a clear understanding of what their role is, and what the needs of the community are, at any given point. Because remember, again, at the end of the day, the board is there to represent everybody who has an interest in that community, for the long-term viability, and security, and safety of the building, and for management, for fiscal management of everybody's assessment and need to contribute to the management, and security and safety of that building.

And so, if the board doesn't have a clear understanding at the very beginning, of what that is going to entail, then they're going to have a really hard time communicating that effectively and in a transparent way to the membership, or the community. And so, transparency is the key. And look folks, I'm a big believer in risk management. Every entity, every board, every organization wants to manage risk as best it can, and transfer as much of the risk away from itself as it can. That's always just good business practice.

So think of, most boards, they may be some very smart, well-meaning, educated people. They have great and disparate backgrounds in a lot of different areas but, how well do they really know building science? How well do they really know building, upkeep, maintenance and repair responsibility? So look, how do you manage risk in that situation? You put it on engineers. So, if you want to be transparent and clear, and manage the risks associated with managing the long-term viability of the building, you get regular investigations of your building with engineers, and let the engineers speak for themselves, and let the engineering reports speak for themselves.

And if the engineers who also have a fiduciary obligation, and a heightened standard of care as professionals, and certain statutory requirements every time they sign a report or seal a report, they're the ones whose malpractice is an issue, if they're not providing accurate information. So the easiest to me, I'm just one guy, but to me, the easiest way for a board to manage clear and transparent communication, is to periodically investigate the buildings, and let the engineers tell you what needs to be done, because they're the professionals. Don't let the tail wag the dog. You can't let the members who come from all different kinds of backgrounds, they may be short-term, they may be long-term, this may be the place they're going to stay forever, they may be only here for a couple of years, they may just be investors. You can't let them and their disparate interests and backgrounds, be the driver of the decision-making for the long-term safety, security, viability of the structure.

Alan Tannenbaum:

Yeah. And Jon, the distinction, the board is going to have better information than an owner, but they also have the fiduciary responsibility that the owner doesn't have. So, that's really what distinguishes the board. The board is required to lead and direct. The owners are specialists in complaining and obstructing. That's what they're there for. The board can't let the complainers and the obstructors in the building dominate.

What I'd like to do really in the last 10 minutes that we have, my last segment was on termination. We do a whole presentation on that. Obviously, if a building has reached the end of its useful life, termination is going to end up being the solution. In Champlain Tower South, that condo is being terminated because, it can't be rebuilt. The owners are not in a position to do that. So, the property is going to be terminated. It was interesting that one of the discussions was, they're creating the site there as a memorial. Well, tell that to the owners who have the possibility of sharing some of the $30 million or $40 million that the land value was worth, for that to become a memorial. I think what will happen is, the property will be sold and you will see a new development in its place, with the owners sharing the proceeds of the sale of the property.

But I want to go back to really summarize what we've covered here. And again, the topic of the discussion was, The Lessons Learned. So let's summarize the lessons learned. The first lesson is, know your building. That talks about doing periodic, thorough engineering studies, covering the major structural issues, roofing, plumbing systems, mechanical systems, electrical systems, your pool, your elevators. Have the best information that's reasonably possible, so that you know and understand your building, the repairing needs and the maintenance needs of the building.

You can't plan, budgetarily, you can't plan as far as needed maintenance and repair, unless you have an appropriate baseline of information from which to proceed. In Champlain Tower South, they did have some engineering reports. Did the engineering reports cover everything about the building vulnerabilities? I don't know the answer to that question. But that's the starting point, is proper engineering investigation, so that every condo board in Florida knows the challenges that its buildings are facing. That's number one.

Number two is budgeting. It's not only looking what needs to be budgeted this year to take care of what needs to be taken care of this year, but it's funding for five years, 10 years, 20 years, potentially 30 years down the road. That takes a lot of hard work, it takes a lot of study, it takes a lot of forethought. You have to produce a budget that's going to potentially have bad news from the owners about how much their assessment is going to increase this year, in order to include a proper reserve component for future repairs. But, one of the problems that you have seen from Champlain Tower South is, the difficulty when appropriate reserves have not been collected, of then trying to go back to the owners, to collect an assessment that would have been in excess of $100,000 a unit, in order to undertake those repairs. A very, very difficult political challenge for a board of directors.

The likelihood of owners, and there were owners in that building that had just bought it a year before, and all of a sudden, the idea of having to pay $100,000 in addition for the immediate repair project, would have been very difficult news. So the idea of waiving reserves, and then facing a situation 20, 25 years down the road where, now owner's going to be assessed $25,000, $75,000, $100,000-$125,000, we've seen creates a very difficult situation. So really, the second part of it is fiscal responsibility, once you have the engineering study.

The third part of it is leadership. The board of directors has a fiduciary responsibility to undertake the associations statutory obligations to maintain and repair the common elements. So, it's a statutory obligation on the part of the association. The board's got a fiduciary duty in undertaking that statutory obligation. That translates into the board having the onus to make the very difficult decisions, that protect the long-term interest of the building and the membership. So that means that, the board's got to make the first difficult decision, which is, investing association funds to get the appropriate engineering studies.

Somebody asked a question about, how much do engineering studies cost? Well, they are costing more and more because, engineers are being deluged with requests for inspections at this juncture. So, I don't know what they're charging, but they're probably 10 or 20% more than if you would have asked for the same evaluation six months ago. But that's the pressure of the marketplace. So, it's the courage to get the appropriate engineering studies, and go to the owners for the assessments to pay for them. It's then having the courage at the appropriate time, to either with the use of reserve funds or special assessments, do repairs when they're needed and not let the problems exacerbate.

But, also maybe courage in a building that is under severe distress, of even telling the owners that, because the building is in such disrepair, that it may not be occupiable, which is also a possibility. So I would say, the combination of factors, lessons learned with Champlain Tower South, get the appropriate engineering studies, provide adequate funding to do repairs, do the repairs in a timely fashion. And for the board to understand what its obligation is, which is to protect the long-term interest and the safety of the membership, and not be concerned necessarily with owners who again, their interest may be short-term, their interest may be individual, financial difficulties, a whole slew of reasons that an owner's going to resist assessment or reserve funding. The board's got to have the leadership in order to respond to that. I'm sorry to dominate. Sal, Jon, do you have any closing thoughts?

Salvatore Scro:

I think we beat everybody up enough on the thing we see every day is that, the hardest thing for a board to do is spend money. Sometimes you need to spend money to find out what's happening. It's like going to the doctor. But it's also important that you don't take this on alone. You need direction, you need somebody to advise you. And there's a lot. Boards are not ignorant people. They're very smart people. But it's important to get the advice from the professionals that look at the buildings, from the people that deal with addressing the construction defects, whether it be the construction defect attorneys to lead you through the investigation, to make sure you pick the right people, to review your repair contracts, to make sure those are right, and that everything is being addressed so that you don't have a problem later on. It goes back to the question, why can't the developer set up a fund? Aside from the fact that they don't want to spend any more money, you want to make sure that they do it right the first time, and that you're protected. So it's important to get that direction.

Alan Tannenbaum:

All right. There, I see a question from Marshall Wizof about, can associations hire directors with pay? I don't think there's a particular restriction in the statute against that. I've never actually seen it happen. It's probably very unlikely that the legislature will ever require that, or your particular documents are going to allow it. But, it does make some sense.

There's a question about liabilities of the manager when the board doesn't listen to advice. As long as a manager documents what their advice was, and it's in the record, I don't think that creates any liability for the manager in any way. Your contracts have pretty strong identification language, so I don't think there's a great concern there. I think we've covered that.

Reserve studies, all right. Somebody asked a question about personal liability of board members. In Florida, it's a very narrow window for a board, individual board liability. Frankly, unless you're stealing from the association, or giving sweetheart contracts to your brother-in-law, or using your office for vindictive purposes, it's very unlikely that there's going to be a successful suit against an individual director for maintenance and repair decisions.

Now, if a board member gets an engineering report that talks about the building that has significant problems, where there's a threat of collapse, and doesn't present that report to the rest of the board, or the board withholds that from management, there could be a potential for some liability under those circumstances. But generally, the decisions are going to be protected from individual liability. The association, under its liability policy, could have a pretty significant liability.

So, we'll look through the chat, and we'll cover some of the other questions offline. We appreciate everybody participating today. Hopefully the information that we conveyed was helpful. And we will-

Speaker 4:

I've heard Mr. Lemole mention several times, periodic inspections. Could you be a little more specific?

Jon Lemole:

Well, I don't know that I have a particular timeframe in mind, but that's going to be driven by what engineers say, and what you do in response to it. So, if you have a report that recommends... If you have an engineering study done that recommends certain repairs be made, and you do those repairs, maybe the best person to ask for when should we be following up on this, would be the engineer, just like you would do with a doctor, for example. So, no particular schedule of it, but just period... I think from time to time, you have to check the health of your building.

Alan Tannenbaum:

Yes. I'm going to answer David Baker's question. We can hang on for a few more minutes. David Baker says, a question regarding directors and officers insurance. I believe every association is obligated to carry this insurance. Actually not. It is a discretionary purchase. Is $1 million per claim inadequate? I think the bump-up of fiduciary insurance is not that great. So if you want to carry more coverage, I think the insurance people will tell you that, a bump-up over $1 million is not going to be expensive.

Now, the question of how effective is the insurance as far as providing security for board members and property managers? I don't think the fiduciary insurance that a board purchases, it covers directors and officers not necessarily management. But maybe one of the insurance people can correct me on that. The funny part of fiduciary insurance in Florida is that, it doesn't cover misfeasance and malfeasance on the part of the board. So the irony of it is, statutorily, board members have a very narrow window of potential liability, and the fiduciary insurance doesn't cover the issues of misfeasance and malfeasance.

So most fiduciary policies are really there to pay legal defense costs, where a board is actually sued for something that it doesn't have liability for anyway. I know though the insurance companies are very happy to write fiduciary coverage because, there's a very low claims incident against the amount of premiums that they're collecting for the coverage. But, just for the fact of to cover the potential defense costs, I think it's very important that the board of directors have that, but it's not an obligated request.

Yes, getting an engineering report after turnover, if we didn't beat you over the head with that, that's really important. I think we've basically covered the questions, at least the ones we were able to answer. All right. We're going to say goodbye at this point. We'll see everybody next month. Thank you. There will be a recording, and we'll provide you access to it. Thank you. 

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Aging Condo Buildings – Repair or Abandon

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?

Alan Tannenbaum:

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?

Jon Lemole:

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.

Alan Tannenbaum:

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.

Jon Lemole:

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.

Salvatore Scro:

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.

Alan Tannenbaum:

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. 

Salvatore Scro:

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.

Alan Tannenbaum:

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.

Michelle:

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?"

Alan Tannenbaum:

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.

Michelle:

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?

Salvatore Scro:

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.

Jon Lemole:

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.

Alan Tannenbaum:

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-

Michelle:

Sal, did you want to add anything to what Alan was saying?

Salvatore Scro:

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.

Alan Tannenbaum:

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.

Salvatore Scro:

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.

Alan Tannenbaum:

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.

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The Smart Board & Property Manager Legal Guide Key Rules of Evidence Preparing for Court

Alan Tannenbaum, Esq.:

My name is Alan Tannenbaum, I'm here with my partner Salvatore Scro and Jon Lemole. Tannenbaum Scro Lemole & Kleinberg. We are construction lawyers who primarily service the Community Association field and our market is from Daytona Beach across to the Tampa Bay area and down to Naples, that's where we have the bulk of our client load and what we do when HOAs and condos turnover, we assist the new boards and management in analyzing potential deficiencies both from a financial standpoint and a construction standpoint.

We negotiate resolutions with developers and contractors, sometimes in court, sometimes out of court. We also act as construction counsel when an association is undertaking a major repair project and offer consulting services and drafting contracts and in helping administer major repair projects, the bulk of where our practice lies. The setup for this particular course and Michelle Colburn will handle the CEU, if you have any questions about getting your CEU's credits Michelle, you can handle those offline.

The setup for this course is the following. So right now, all of your properties, and either your board members or managers, things are happening. There's people who are maybe tripping and falling at your property. There's owners who may be fighting with each other. Somebody this month didn't pay their assessment. There's a multitude of things that can happen at your property that-

Everybody, please mute. We're hearing some backdrop there. So all kinds of things can be happening, and what you don't know as a manager, or as a board member is which of those incidents are going to turn into a claim. Well, you might find yourself a year and a half from now, a city with a lawyer, lawyers asking you to present evidence and testimony and you say, "Gee, that happened a year and a half ago, my recollection is problematic." Or, "Which issue is that?" And, "I don't have the records and so forth."

And what this course will help do is set up procedures and set up a knowledge base so that you could do the right things today and when something happens in your property, in order to prepare for the possibility that that could be the one incident that is going to end up in court where you're going to have to present testimony and evidence. So we're going to show you some basics or teach you some basics about the Florida Evidence Code. Some of the things will surprise you and we're going to talk about business records.

We're going to talk about incident reports, things that you should be doing on an ongoing basis in the end to prepare an appropriate record for court if one of these issues ever gets there. So I'm going to ask my partner Salvatore Scro to talk first about the attorney-client privilege. Who it applies to, who could waive it so that you have a basic understanding of that.

Salvatore Scro, Esq.:

Morning everyone, good to see you again. So let's start with the lawyer-client privilege and this is important because when we deal with our clients a lot of times, the question is who can know certain things, what can be disclosed, what cannot be disclosed and who can it be disclosed? So the first thing you have to know of when dealing with a lawyer-client privilege, the attorney client privileges, who is the client?

So the client can be ... The way the statute reads if it's under the evidence code which is section 90.502. The client can be any person, it can be a public officer, a corporation, it can be the association or any other organization whether it's public or private who consults with a lawyer, and this is the key part, with the purpose of obtaining legal services, or who has rendered legal services by a lawyer.

So that part means if you're discussing the possibility of engaging a lawyer, that would be an attorney-client privilege. So what can be disclosed? And one would be is what makes the communication confidential? The key is that if it's not intended to be disclosed to a third person other than the disclosure is in further in surrendering the legal services, and also to who can it be disclosed would be those people reasonably necessary for the transmission of the communication and that a lot of times means the association managers, it could mean possibly some of the employees of the association, a lot of times we will have ... We will be asked to give a presentation to owners at an owner's meeting.

Sometimes it could be all of the owners, but it's key that that privilege ends once you insert somebody who is not entitled to that privilege, who is not necessary for the transmission of the communication or who is not there that you're servicing and rendering the legal services. So one of the other things that section 90.502 speaks about is that there's no lawyer-client privilege under this section when, and this is key, the services of the lawyer were sought or obtained to enable or aid anyone to commit or plan to commit what the client knew was a crime or fraud.

So do not speak to the attorneys about how to get away with something if you know that it's a crime or a fraud because you're not going to have that privilege if something turns up later on. So that's the key to the attorney-client privilege is, first, that it's for the purposes of rendering Legal Services, it's not just a discussion out at a restaurant or something like that, it has to be something that is for the exact purpose of either retaining the attorney or already under the retention by the attorney for legal services, that the disclosure is in furtherance of the rendition of those services and that only to those people who are reasonably necessary for the transmission of the communication.

Sometimes that could be also the engineers. We sometimes ask that engineers be retained through our firm so that it's more of a work product. And I'm not going to get too deep with that. But there are differences between state and federal as to what is privileged and not privileged with regard to those communications. But for the most part, that's the essence of the attorney-client privilege.

Alan Tannenbaum, Esq.:

And be careful about inadvertent waivers. We've seen some groups where we give attorney-client privilege advice, and they reproduce our opinion within the body of the minutes. We get it to litigation, the other side sticks to those minutes, and we have a battle as to whether that advice or the privilege over that advice has been waived because you've incorporated your minutes. So we generally recommend that you don't put our legal opinions or anybody's legal opinion right in your minutes where they could end up being discoverable. So Jon Lemole, talk about the account-client privilege.

Jon Lemole, Esq.:

Good morning everybody, well, that ... This is pretty easy, except in one regard because it pretty much tracks exactly what Sal just told you about the attorney-client privilege. So any conversations or communications between the client and the accountant. So in your case, it would be the association, and particularly the board of the association and its accountants would be similarly privileged. And that would extend to people who also like managers who are necessary to the communications between the client and the accountant as long as there's an intent to keep that conversation or that communication privilege.

Here's the interesting thing about the accountant-client privilege. An accountant is defined in the statute, and this is for anybody who wants to geek out on, look at the statute, Florida statute 90.5055. An accountant is defined as a certified public accountant or a public accountant. Now, we've talked about that in the office many, many times. In fact, yesterday, we were talking about it again, and none of us really understand what's the difference between a certified public accountant and a public accountant, here's the best that I can come up with.

It's not a bookkeeper. I don't think it would extend to somebody who's doing bookkeeping functions. It may not extend to somebody doing bookkeeping functions, say at the management company. A public accountant at the very least is somebody who has an accounting degree and holds themselves out with themselves out as an accountant to the public. As far as I can tell, the difference between a certified public accountant and a public accountant is that a Certified Public Accountant obviously has gone through some certification process and only a Certified Public Accountant can file reports with the Securities and Exchange Commission or can do audits of publicly traded companies.

So that normally wouldn't apply to nonprofit community associations. If you're in doubt as to whether the person who is doing your financial auditing, record keeping is somebody that would be covered by this privilege, then by all means, speak to your general counsel, and ask them and get an opinion on there. And like the attorney-client privilege, it's the clients, only the client can waive it, it has to be preserved. If the client says to the accountant, "Don't disclose that." The client and the accountant can't and the accountant always has to presumptively believe that that information can't be disclosed unless somehow waived by the client.

And also like the attorney-client privilege, it doesn't extend to communications in furtherance of a crime or, wire fraud or bank fraud or something like that. So it's not any of those communications, but the regular communications back and forth between the association and its account for audit purposes, for annual audits, for tax filings, all of that stuff is generally going to be privileged against disclosure. The association should guard that privilege zealously in minutes that are going to be available to the public.

If you have decisions that are made with regard to advice provided by your accountants, you should be very careful about how you disclose that in minutes and to the extent that you disclose those communications in minutes. And again, that's something that you can run by general counsel. Easy, right? Okay. Thank you.

Alan Tannenbaum, Esq.:

Well, again, on the criminal side, it's interesting that if you robbed a bank yesterday, you can go seek the advice of your lawyer, your accountant about what you did, that conversation is privileged. If you walk into your lawyer and accountant and say, "I'm planning on robbing a bank tomorrow." That is not a privileged communication. So the aftermath is protected, the planning is not, not that anybody in this audience is planning on that, but keep that in mind. 

I'm going to talk about the husband-wife privilege in Florida. This is not directly pertinent to a lot of management issues, except sometimes you have these husband and wife pairs who let's say manage a beachfront community, it could be a little bit chauvinistic. The pattern is usually for the wife to handle the front office and the husband would be the maintenance guy, but sometimes that's reversed.

So during the marital relationship, you can't force a husband to testify against your wife or the wife to testify against the husband. So any pillow talk, there is a privilege for that. If you get divorced, the privilege still applies to the time that you were married. So if you get divorced, and you're particularly angry at your spouse, and you want to spill the beans about something, your spouse said during the marriage, they will be able to assert a privilege to stop you from doing that.

If you're in a divorce, it's no holds barred, you're able to present any testimony in the divorce and the privilege without apply in that proceeding itself. And to use the example of the breach fund manager if the wife embezzled funds from the association, the husband didn't know anything about that. And they're both charged with a crime of embezzlement and the husband needs to testify about what the wife may have said in order to be exonerated and the charge against the husband, in that circumstance, you can bring up a privileged information. Important, it doesn't apply to common law marriage, only applies to the traditional marriage, and it has not been modernized to cover husband, husband, or wife, wife. And maybe someday the legislature will get around to it.

Right now it's called ... Well, interestingly, it probably could be interpreted to cover illegal gay marriage too, but that has not been ... I have not seen the court opinion on that one yet. So Salvador, tell us about compromise and offers to settle and subsequent remedial measures. Pertinent to the Community Association field.

Salvatore Scro, Esq.:

Okay. So we see this a lot in matters we handle in the breach of contract cases, construction defect cases, things like that where there's claims against the developers or the general counsel or the subcontractors, and there's problems with the construction. The client sometimes will say, "Well, once we start, if they offer to settle, that would not be admissible." And we hear, but they know they were wrong because they were offering to pay us money.

Well, that's really not the case, they're trying to buy their way out of it. So the statute, the applicable statute if you want to look it up is and the evidence code is 90.408 and the way the statute reads is that evidence of an offer to compromise a claim which was disputed as to validity, or amount, as well as any relevant conduct or statements made in negotiations concerning a compromise is inadmissible to prove liability or absence of liability for the claim or its value.

So the key there is that there's a disputed amount. If there is an offer to compromise, that would be something that would not be admissible to show liability, it would not be admissible to show that they owed at least a certain amount of money, or the amount of money they've proposed. You will find that this happens in personal injury cases all the time and insurance company may offer to pay, that would not be admissible.

If an insurance company offers to pay in association for some claim, that's not admissible to show liability. The facts of the situation are what are admissible to show whether or not there's liability. Along with that is Section 90.407 which is subsequent remedial measures. So if somebody slips and trips and falls, say slips and falls, I'm from New York, so we're used to ice, but down here, you're not going to find that. So if somebody trips and falls on the sidewalk, and there's some impediment to walking and the association managers send somebody out there to make some adjustment or change to the sidewalk, that is not admissible into evidence to show liability.

So somebody tripped on the sidewalk, you can see to the jury or to the judge, "Hey look, they slipped and fell on the sidewalk. They knew it was a problem because they went right out there and fixed it." That is not admissible as towards liability. What there is an exception to the rule is that subsequent remedial measures, some action they have taken would be admissible if it's offered to show evidence of something else.

So if they say, "Well, this wasn't ... I didn't own this part of the property, this wasn't mine." Well, you can offer into evidence the fact that they were out there doing some repair or some sort of remedial measure as possibly evidence of ownership, or that they had control if they were leasing that area. Something to show other than the liability of the impediment or whatever the cause was that you're attributing the negligence to.

So you do not need to be afraid to go out there if something happens on the property, you do not need to be afraid to go out there and take some sort of remedial measure. You should not be out there discussing things. You shouldn't be out there saying anything like, "Oh, I knew this was going to happen." But go out there, do your job, take care of the situation, clean it up if you need to, and you can be assured that that would not be offered into evidence has something to show liability.

Alan Tannenbaum, Esq.:

And the concept behind what Sal has just described. That society needs cases to settle, the very ... If every case made it into court, the court system would be totally overwhelmed. So there's a public benefit to people being able to make settlement offers and resolve cases. And if your settlement offers were admissible in court, people would be reticent about trying to settle. And the same thing about the remedial measures, if those were admissible, manufactured items or site deficiencies, nobody would ever get them corrected because they'd be afraid that, "Well, it's going to be an admission in court of liability."

So those really are further in some cases getting resolved, and problems being corrected. The other part of it is if somebody is injured on your property, and there's a defect in that property, you can defend that first case to say, "Well, we didn't know there was a problem, and we weren't really negligent." But if you don't get it corrected, and the second person gets hurt, they now have a record it's going to make their case a lot better. So the issue is you should get items corrected that create some potential exposure.

So let's talk about what you can say or what you should say or what you should do. And let's use a trip and fall, somebody's near your dock, and they fall through a plank that was rotted, they're in pain, they're hurt, we get there, you're the manager, you're a board member. You can ask them how they feel. You can give them ... Make them more comfortable, you can call the ambulance, you can take them to the hospital. You can sympathize or empathize with their situation and it's best to do so because it's far less likely that somebody is going to sue the association if they are treated well at the time that they have a problem or an injury.

So you can write down a note that says, "I'm sorry for what had occurred, I'm sorry for your trouble, I'm sorry for your pain." That's never going to find its way into a court of law, a judge is never going to allow that in to try to prove that, "Well, they were empathetic or sympathetic. That means they must have felt guilty, that means they must have done it." That evidence will never get before a jury because again, from a public interest point of view, we want people to be sympathetic, empathetic, help them if they're injured.

But there's a very important distinction and it says right in the statute 90.4026. The statement or writing or the gesture expressing sympathy is not admissible. But a statement of fault which is part of or in addition to any of the above shall be admissible. So you've got to be very careful. You get out there and you're a manager and you say, "Oh man, it's terrible what happened to you. Are you okay? Let me make you more comfortable." And I told that board six times that they needed to get these planks fixed or the dock worked on.

Well, all the expressions of sympathy can I help you, so on and so forth are not going to get into evidence. But your statement about what the board should have done is readily admissible as an admission. So one of the things we greatly believe in is having a very discreet incident report form that you keep. For every incident, it my occur out of property. It should not talk about anything else, but the facts that were observed the statements that were made, at the time by people who were involved, time of day, photographs, but it really shouldn't get into any board policy or politics or talk about what the association should have done or should do in response to that.

It's all about what occurred to having a record of it and as you'll see later, you'll see why that type of of recommendation is important. And Sal, I'll cover the payment of medical and similar expenses because I think that's related. 

Michelle Colburn:

Okay. And, then hold on one second, then you have another question about a pool. So is it relevant if you have a pool function to have a lifeguard there? That was from Laurie.

Alan Tannenbaum, Esq.:

Okay. Let me get to those in a second. As far as a payment of medical and similar expenses. The association could pay the deductible for somebody's health insurance if they're injured. Again, any of the any of the promises to do that or the actual doing of it is not going to be invisible. So send them flowers, go to see them at the hospital, bring them a gift. If they're struggling to pay their health insurance deductible, it's certainly something the board to consider because it mitigates against the possibility that that party is really going to come against the association. So let me address a couple of the questions that Michelle has pointed out. All right, so [crosstalk 00:27:05]

Salvatore Scro, Esq.:

Alan, with regard to that pay medical expenses, what you said is important there. And this happens a lot, everybody goes to the doctor. Bedside manner is key. If you have a good bedside manner, it's less likely somebody is going to want to come after you for their piece of flesh. So it's always good to be nice. Like Alan said, you don't have to worry about certain things. As far as if you're paying medical expenses, or you offer to pay those medical expenses, that is something that ... The bedside manner is key. So keep that in mind.

Alan Tannenbaum, Esq.:

All right, let me answer Stan's question. That there's a legal opinion that the association wants to share with the owners. The reason the attorney-client privilege you want to make use of it is to protect the association from by a third party outside the community generally who would make use of that legal opinion and further a case against the association. If you get a legal opinion for instance from your lawyer about a covenant enforcement issue where it clearly expresses what the association's rights are, in enforcing the covenants, and you want to send that letter to the owners so that you can assure that your rules are going to be properly enforced.

There's really no impediment to releasing that letter. There's no downside to it. So in that case, what you're really talking about is are there instances where it's appropriate to waive the attorney-client privilege because that particular legal opinion is really helpful for the association to make that disclosure. So in that instance Stan ... Now, if the legal opinion was, let's say you had a construction defect case, and the lawyer wrote a lengthy letter talking about the strengths and weaknesses of the case.

You would not want to release that to the membership. You would not want to release that to or append that to the minutes. So the difference is can a third party who the association has got a legal dispute with make use of that opinion to their benefit? You want to protect the privilege. If it's an internal issue when there's really no downside to the large opinion being released to the community, there's less reason to protect it.

Yes and Laurie, yes, paying a medical bill does not assume any liability. So you can do that. There's a question about the condo is more liable if it holds a social event like a kid's pool party. Should they have guards there? It's a little bit outside the context of today's issue, and it would greatly depend on who's sponsoring the party. Is the association sponsoring it? Is it an individual owner who's bringing guests to the ... Put up your signage, you could probably request that they have a lifeguard on duty in order to approve a kid's pool party, that really gets a little bit outside of our field. That's a great general counsel question. So I'll leave it at that. Jon, you're going to talk to us about hearsay.

Jon Lemole, Esq.:

Yes, thank you. Folks, we probably spent ... Each of the three lawyers here probably spent weeks in law school going over hearsay rules, I'm going to try and distill what we learned in a couple of minutes here. So I hope I hit the points that are important to you all. And after 30 years of being a trial lawyer, and I'm sure other lawyers would agree with me when asked what hearsay is or is in most of us go, "Oh, I know it when I hear it." But here we go.

Let me see if I can share something here. Okay. So hearsay is one of those things that we deal with all the time, all the time in court because so much of what we know or so much of what we learn, and by we, I mean clients, people who may be testifying for the community on a certain issue, the source of that is maybe something that they heard from somebody else, or they saw written somewhere else. And so this is a very common thing that we deal with and that you all would deal with if you're in the position of having to litigate an issue before in court.

So let's talk about real quickly, what is hearsay. Hearsay in the statute is defined as a statement other than one made by the person who's testifying. So there's a person who's testifying in court about something and then there's the statement that's made by someone else who's called the declarant. But don't worry about that term, I'm in court saying that I heard or heard somebody say something, or read something that that somebody else authored or a statement in a document that I didn't see firsthand, or that I didn't experience firsthand.

So it's a statement other than the one made by the person testifying at trial. And here's the most important thing about hearsay is that it's got to be offered to prove the truth of the thing that you're saying. So let me give you a really basic example. And hopefully, this will clear it up for you. Somebody asks you, "When were you born?" You say, "In my case, I was born August 3rd 1966."

I don't know that firsthand. I certainly don't remember it. And if you do, I guess maybe you'd be a special person. But I know that because people have told me that's when I was born. Now, there's exceptions to this, certain family history is an exception to the hearsay rule, vital records. I learned this by looking at my birth certificate, that's all. That's all an exception to the hearsay rule. But that in a nutshell should give you a good idea of what hearsay is.

So anytime you're in court saying, "Well, I heard so and so say something." Or I read such and such in a report. You're going to get from the other side of hearsay objection, and then your lawyer is going to have to stand up and say, "Well, why can I ... Why is there an exception to this that I can prove here?" Let's talk about what a statement is. Okay. So talking about testifying as to a statement that's made by somebody else.

So it's repeating on the witness stand something someone else said or it's a document. I may be offering a document into evidence that contains statements of another person. So an incident report or a memorandum or a security law, gate logs, any of those things are potentially going to receive a hearsay reaction. Here's a new one, we'll have a little fun here. So here's Santa Claus and on the witness stand.

The other lawyer is saying, "So you admit that labeling my client is naughty is based on hearsay from other children, not from any actual facts?" That's just a funny way of encapsulating what the hearsay rule is. Okay, let me stop sharing this. Let's talk about exceptions. What kinds of things and I want to talk about this in the sense of what are some of the things that routinely happened with the Community Association and how you can anticipate these issues when they come up.

Okay, so the Florida Evidence Code defines divides exceptions into two instances. One where the person who said the thing is unavailable, can't find them, they're dead and therefore, you can admit certain statements that they made out of court. There are certain other exceptions that doesn't matter whether they're available now or not. So let's talk about the ones where the person whose statement you're trying to offer an evidence is unavailable.

You can always offer former testimony. So if that person is unavailable, and they've testified ... So let's suppose you have a member of your community, and you're in there, you've got an action against them for payment of assessments and this is the second case that you've had and in a previous case, you took a deposition of that person, and they said, "You know what? I'm never paying the assessments of this community, they're not going to get a red cent out of me." Then they die. You're suing their estate perhaps, to get these assessments and you want to admit that evidence that that prior sworn testimony. Well, you can do that as long as the person is not available or dead.

Here's another one that's interesting and important. Statement under the belief of impending death. So if a person is no longer available because they passed away, let's suppose you had somebody's walking on your property, they fall into a big, open, a hole in the sidewalk and after they fall into this hole and have this horrific head injury, they're lying there on the sidewalk, and they say, "I just fell into the hole. Oh my gosh, my head just went over, I'm going to die."

That statement if that person does pass away and somebody else goes into court say, "That's what he said. He said Billy tripped into the hole. That's what caused the injury, that's what caused him to die." That statement is admissible because it's a statement of a person who's commenting on the reason for their and the circumstances around their belief that they're about to die. Why is that important to a community if you have an incident? Right?

Anytime you have any kind of incident, accident at your community, it shouldn't be some ... There should be a procedure for getting out there. And having somebody get out there and record what's going on in the aftermath. What are people saying? So that you know and you can anticipate these things, and you can tell your lawyer, "Hey, be ready. This is what the guy said, somebody said, a passerby said that the person who fell in the hole said this is what they thought was this was the cause of the accident." That's all important stuff, your lawyer is going to want to know that to give you good advice on how to handle those things.

So the statement under a belief of impending death. The third one where you don't have to have ... Where the person is if they're not available, you can still admit a hearsay statement as if they make a statement against their financial or property interests. Okay, so any kind of statement which would be against detrimental to an interest that they have whether it's financial, or about their property. If they're unavailable, that stuff is deemed so important by the courts and the legislature that we don't take those statements lightly and people don't generally make them unless there's some ring of truth to them.

Okay, so those are the three areas of hearsay where you'd have to show if you want to admit those things that the person is no longer available. Now there's a whole another class of exceptions to the hearsay rule where it doesn't matter whether the person who said the thing. They may be alive and well, you don't need to bring them into court because certain types of statements ring true, they have an element ... And that's what underpins all this, they ring true there.

There's reasons to believe that people don't make these statements unless they're accurate or true or reliable. Okay, so I'm going to run through these real quick because I'm looking at the clock here. Spontaneous statements. Let's go back to the accident. Let's suppose somebody is watching this person fall into this big hole in the sidewalk, get horrifically injured, and they start yelling, "Oh my gosh, that guy just fell into the hole. He's bleeding, his skull is cracked open."

That person's statement about that spontaneous utterance of a condition or a thing that's happening, that is admissible. That person doesn't have to come to court. Somebody else can say, "I heard that person say that thing." Excited utterance, very similar to that. Spontaneous statements, excited utterances is they go hand in hand. There's statements about where somebody is excitedly, they're under the influence of this event or this condition and they're there spontaneously and excitedly utter, saying things about the thing about the condition that they're experiencing.

So again, from the association standpoint, anytime you have an incident, it's good practice to get out there and record what people are saying so that you can anticipate some of these things or it may be the opposite. Somebody may say, "Oh my gosh, that guy saw the hole, walked around it and faked it." You'd want to know that. Maybe that witness doesn't want to come to court, they don't want to be bothered, but you heard him say that. Well, that would be important to know.

So again, good or bad, know what you're dealing with, know what people are saying in incidents. A recorded recollection notes, not memorandums, incident reports. If you make an incident report while your security guard makes an incident report, it's fresh in their mind. It's got to be made in circumstances where it's fresh, it's at or near the time that the incident occurred, it doesn't have to be right then and there, but while it was fresh in their mind, they went back and recorded an incident report. Incident reports are going to be admissible, business records [crosstalk 00:42:56]

Alan Tannenbaum, Esq.:

Jon, before you move on from the incident report. So every manager and board member needs to hear this because in the introduction that I gave at the beginning of the session, we talked about being in court a year and a half after an issue occurred. And there's been a thousand things that have happened since then. And you can't remember precisely what occurred, but at the time that it did occur, you did a good memorandum or an incident report that was very factual, you could pull that report out.

It actually substitutes for your memory that, "I don't really remember it, but here's a report that I did at the time that it occurred." And that incident report or you're reading it, and then refreshing your memory. That's an exception to the hearsay rule. So that's why it's so important that the bias of the court system is recordations or recollections that are made at or near the time of the incident or the issue or there's a bias towards that evidence being admissible, versus eight months later deciding, "Well, I better write a report about that item I was involved in." That's less likely to be an admissible document for recollection eight months later. 

Jon Lemole, Esq.:

No, that's a great point. Yeah, absolutely. And when you think about the turnover that sometimes occurs in let's say with security personnel or guards, maintenance people, you may not have that person available, not that their availability matters under these exceptions, but those reports and the absence of a person a lot, that live person saying what they remember, that report is crucial. And even if you do have the person, they may say, "Well, it was a year ago, I don't really remember what happened, but I made a report about it."

Okay, here's the baby. This is one that lawyers deal with all the time and it's the business records rule or the business records exception. So anytime a company, an organization, a community association, a management company, any records that they regularly keep in the ordinary course of their business, it's a little bit more complex than that, but I'm going to distill it to those core elements. It's the regular records ordinarily kept in the course of the business of this organization and these are the types of records that this organization typically maintains or keeps.

All of those are going to come in under this exception to the hearsay rule. So the importance of this or for an association or management company is to have policies and practices around record keeping, and documentation of things. Okay, so architectural control issues. Let's say you deny somebody's request to paint their home a different color, the architectural review board denies an application. If you don't have a regular process for how you handled those requests, and the records relating to them, then you might not get certain information that's contained, or that was considered that that was discussed about that issue into evidence.

Similar thing would be security, security logs. You're logging, your security guard is logging all the cars that come in, you want to have ... That would qualify as a business record as to who came and went into the community. And so if somebody came into the community and committed a crime in the community, you could rely on that log to show, "Well, this car with this license plate which is registered to this person came into the community." I don't have to prove that ... I don't have to have the security guard come in and say, "Well, I saw it." I could put the records in and they would qualify under the business exception rule.

The key to that though is that you have to be ... The association has to be really careful and meticulous about keeping those records all the time and having policies about those, keeping those records, retaining those records. What are some of the others?

Alan Tannenbaum, Esq.:

Let's talk about assessment collection in particular because the corollary section is the absence of entry and records can also be admissible. So the reason management companies have a particular system for recording assessment payments where when a payment comes in, the software records, the receipt of that paper, or the non-receipt of that payment, you're a year and a half later trying to prove that the owner failed to pay their assessment and the person who for the management company who oversees that accounting system would be able to go in and say, "This is the practice, this is how the software works. Every payment that comes in gets recorded, gets data entry and here's a report for February of last year, and there's no showing of a payment for that particular unit."

That business record is going to get into evidence if it's properly authenticated to prove that that assessment payment is not paid, that particular employee of the management company is not going to remember for the number of associations that they're overseeing that that particular association one payment did not come in last February. But the authentication and the entry into evidence of the technology, the software and the report will get in. I'm sorry Jon, go ahead.

Jon Lemole, Esq.:

No, that's absolutely correct. And where we run into it frequently in our practice would be in how the community handles homeowners complaints or unit owner complaints. If you have strong protocols and procedures about handling complaints, that makes our job easier if we want to put evidence, a homeowner says, "I've got these huge cracks in the stucco on the outside of my building." Maybe we don't need to bring that owner in to testify about that if you've got a written complaint, and it's maintained in the regular course of the community association business and so on and so forth. So that's all really important stuff.

Admissions are always ... You hear somebody make an admission about something, then that's going to always be admissible even if the person is not there to make the admission in court. Former testimony goes without saying anybody gives testimony under oath, that would be admissible too even though it's hearsay. So those are the big exceptions, there's 20 more exceptions, but for our purposes, they're not going to be really relevant to what you all do. And we're getting near the end. So I'm going to pass it back to Alan, thank you.

Alan Tannenbaum, Esq.:

Okay, we're ask Sal, there's a few minutes we have left to talk about self-authentication in public records.

Salvatore Scro, Esq.:

Make this quick. Basically, what would concern the associations and the managers of this particular section goes along with what John said. For the most part, the public records which runs along with this, but self-authentication would be if there's something under seal or you can get a certification from the public officer that where the document is kept, it states that this is kept, and it was properly recorded. So if it's an official record, it was authorized by law to be recorded and actually was recorded, then the custodian of that can give a certification that this is a true document.

You would not need to bring in the maker of the document to testify as to the authenticity of the document. What's a concern for the management companies is just what Alan and Jon talked about, those particular documents. So an original or duplicate of evidence, this is what's coming from the statute that would be admissible under the hearsay exceptions which is maintained in a foreign or domestic location and is accompanied by a certification or declaration from the custodian of the records or other qualified person certifying or declaring that the record was made at or near the time of the occurrence of the matters set forth.

By or from information transmitted by a person having knowledge of those matters. For example, if you take an incident report, and it was kept in the course of a regularly conducted activity of the business, or entity, so you have to say, "For example, we always make these reports at times, events and incidents like this." And was made at a regular practice in the course of the regularly conducted business activity. Now, along with that, and I'll touch on this very briefly as public records.

Again, official records or documents to be recorded or file that actually were if they're authenticated as stated by the custodian of those records. So why would you need a copy of the records for example, if you have a dispute as to who has ownership of a particular condominium and you want to bring in a recorded deed or something like that? That may be an issue where you need to go to get a public record and get a certification of that public record, but for the most part, that's about where we're at on that.

Alan Tannenbaum, Esq.:

Yes, Sal, let me mention the assessment situation. If you're in an assessment collection, action, you are about to go to court, you have maybe one of the younger lawyers from the law firm showing up, please ask them if they have a certified copy of that assessment lien because a shrewd lawyer defending that unit owner with the lawyer presenting a copy of the assessment lien trying to get that into evidence can object to it on the basis that it's not a certified copy and I defended a unit or a very large assessment claim early in my career where the lawyer for the association did not have a certified copy of the lien.

We objected to it, the judge would not allow a recess and the lien count, and the ability to get attorneys fees fell with the fact that they couldn't get the lien into evidence because it was not a certified copy. So a little tip.

Salvatore Scro, Esq.:

Okay. Well, we have a few minutes and I'm sure we have some questions that we needed to address.

Alan Tannenbaum, Esq.:

There were some questions set in advance, which is better, arbitration or mediation? They actually are not ... Mediation as a settlement process. Arbitration is a situation where a private party determines a dispute and it's binding upon you, somebody who's not a judge. So we like circuit court, if you're going to take a matter to dispute to go to state court with it if the association's generally the plaintiff, but we believe and most cases end up getting mediated. So they're not really in opposition to each other. Let me see what else we had.

Salvatore Scro, Esq.:

One of the questions that came as I was speaking was, how do private emails apply to all of this? I believe that had to deal with either ... I don't know if that dealt with hearsay, or public records, or whatever, but private emails, again, if you're the one testifying in court, and the email was sent to you, then you would be able to testify as to the receipt of the email and who it was from. If you just want to introduce somebody else's email, that won't fly unless you or somebody copied on it.

You can't say somebody gave me this email, there would have to be some authentication to that. But again, as board members, you need to be careful about what you discuss through each other as a board between emails because those can be considered association records which would be discoverable. So I think [crosstalk 00:57:34]

Alan Tannenbaum, Esq.:

Yeah, we're going to answer a number of questions offline because we got a lot of good ones and we don't want to hold anybody up here. Really, the takeaways from today, get your procedures in order so that you can authenticate appropriately the business records that you might need to get it to evidence. Don't be afraid to be sympathetic to somebody injured on your property, that's not invisible. Definitely repair items that have the ability of causing further damage.

And don't combine your incident reports with opinions and policy and so forth. They should basically be a discreet document that as Jack Webb used to say, "Just the facts." Definitely recording what people said at the time, photographs appropriately marked, and so forth. So those are some of the takeaways. You could fill out the poll if you like. I see the Michelle put that up. Michelle will deal with CEU credits for all the managers, so contact her offline if you have any questions about that.

We'll try to answer as many questions as we can offline. Like I said, there were some very good ones, but this was a packed presentation. And anybody has any questions and follow up, we're happy to respond as long as again, it's within our areas of trial practice and it's construction, we're happy to respond to those. Other than that, we've hit noon.

Salvatore Scro, Esq.:

Thank you very much, good seeing everybody.

Michelle Colburn:

And Sal and Jon and Alan are available at anytime, so please feel free to reach out to them via email or me and we will answer your questions and thank you all for joining us, and we will see you at our next Smart Board and Property Manager Guide, Legal Guide in July.

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The Smart Board & Property Manager Legal Guide - Key Elements in a Contract

Condo and Homeowner Associations have substantial leverage for dictating favorable contract terms in major repair and construction contracts. Our panel will highlight key features favorable to associations which should be negotiated into repair contracts to increase the chances the project will be completed on time, within budget and with a minimum of flaws.

Video Transcript:

Alan Tannenbaum, Esq.:

I'm Alan Tannenbaum. I'm here with my partners, Salvatore Scro and Jon Lemole. I think Salvatore's here. We are construction defect lawyers. We take associations through Central Florida. From Tampa Bay down to Naples. Through turnovers handle construction, defect claims, financial claims. We've taken hundreds of groups through turnover. That's a major part of our practice.

Alan Tannenbaum, Esq.:

But we're going to be talking today about the other side of our practice which is advising condominium homeowner associations on major repair and renovation projects. The topic for today is, key elements that a repair contractors can apply to clubhouse renovation too. It's not only repairs but it's also renovations.

Alan Tannenbaum, Esq.:

The reason I mentioned the construction defect side is that when we get a call from a client about to take on a repair project, we take off our construction hat for a moment and put on our construction defect hat and say, "Well, before you jump into this project, are you a property whose buildings or improvements are less than 10 years old?" If so, we will ask the questions about have you considered whether this is an original construction defect and that there may be responsible parties who will pay for at least a portion of the repair costs that you're about to entail. We will ask that question.

Alan Tannenbaum, Esq.:

The other possibility is, you had a repair job done two years ago or three years ago and the reason for your repair today is because that repair job failed. We will then ask questions about whether there's a potential culpability or breach of a warranty coming out of the prior repair project.

Alan Tannenbaum, Esq.:

I want to mention that. That's a question that should be asked before you jump into things because if there are culpable parties, you've got to look to issues like preserving evidence. Putting them on notice. Giving them an opportunity to inspect all of those things in order to protect that type of client. But beyond that, we're going to get into the central issue of this subject matter. I just want to make sure, Salvatore, are you there?

Salvatore Scro, Esq.:

I am here.

Alan Tannenbaum, Esq.:

Okay. Well, the first topic that my partner Salvatore Scro is going to attack are detailed and on target plans with specifications. He's going to tell us why that's a key element if you're about to undertake a repair project. A key element to have in the contract.

Salvatore Scro, Esq.:

All right. Good morning, everyone. My name's Sal Scro. I'm going to take probably a little bit longer on this first part than the rest of the parts that we'll do today and then they'll shorten up as we go through. But this is a pretty important part. I'm going to share a screen with you and you'll see... It's a little PowerPoint that I put together. Let me just start this out.

Salvatore Scro, Esq.:

Can everybody see this slide here that says, why this is important to you. I guess you can nod your heads and that'll be fine. Number one, you want to protect yourself. You also want points of direction for your client and your association.

Salvatore Scro, Esq.:

A lot of responsibility is put on the board members and the managers particular lead the managers [inaudible 00:04:06] from the board to help lead them in the right direction. A lot of the things you're going to hear today, we don't expect you to absolutely know everything about them. But at least you should have some knowledge to say, you need to contact these particular people so that you can show that you're guiding your association and in the right direction.

Salvatore Scro, Esq.:

You don't want to take it on alone either. A lot of times, people will look at one particular manager or board member and say, "Hey, you run with this." Well, running with it, the right thing to do in this situation is look to get help from the right professionals, whether it be engineers, attorneys, whatever, to make sure that you are in the best position possible to take on this task.

Salvatore Scro, Esq.:

You want to protect your client. That's another. You want to protect your client, your association. Whoever you're working for, you want to protect them. You want to give them the benefit of your knowledge of these issues. That's why you're here today so that you can get a working knowledge of these issues. Then ultimately you want to successfully accomplish a task.

Salvatore Scro, Esq.:

Contract. These are some of the different contracts you may want. One is with your design professionals. A lot of this depends on how big your project is. You may need a contract with your design professional. The engineer or the architect, whoever that may be.

Salvatore Scro, Esq.:

The contractor. Obviously you'll need a contract with your contractor. The owner representative. If you are going to be using an owner representative to help guide yourself through this, you may want to have a contract with that owner representative. Then sometimes your community association managers, they don't expect to take on these tasks, but they're saddled with them. You may want to look at, what is in the association manager's contract and what are they going to do? Is this part of their duties or not? You have to address those things. Those are some of the things.

Salvatore Scro, Esq.:

Why do you need a contract? You want to establish the job. What are they going to do? Define in detail the work, which is what we're going to get into. The target plans and specifications and the clarity of those expectations. Also when you have a contract, it's a disincentive to bad behavior. A lot of times you will say, "Hey, you're not supposed to do this, or you're supposed to show up at this particular time, or it was supposed to be done in this way and it wasn't done. Why is that?" You can point to the contract and have a reason why it wasn't.

Salvatore Scro, Esq.:

You have a problem. Whether it be because of age, defect, whatever it is. You want to find out, what is it? You want to find out, where is it? You want to find out, when did it occur? Those are the things you want to know. Why do you want to know, when did it occur? Because you may have a cause of action against the party responsible for the defective condition. If it was a bad installation. If it was a code violation. Whatever that may be.

Salvatore Scro, Esq.:

Who should you contact? If you have a roof problem, you call A, and everybody can say it out loud. I can see your lips. You're going to call a roofer. If you have a window problem, you're calling somebody to take care of windows. If you have a stucco problem, you call stucco. Everybody said the same thing, I'm sure. But I disagree with all that. I don't think those are the people you call because we don't know. Then you're looking at me like this. But you do not know who that problem is. You need to know where the problem comes from.

Salvatore Scro, Esq.:

A stucco problem, could be a stucco poor installation. It could be bad flashing. It could be bad window installation. It could be bad framing. A case Alan had some years ago, they kept trying to repair the stucco. The biggest problem wasn't the stucco, it was the framing. You need to know what to do.

Salvatore Scro, Esq.:

To do a proper investigation, you should probably get the original plans and specifications of your project so that you know what you're looking at. You want to know if you had any prior work contracts so that you know what work had been done to the original work. You do want to invest some money before you start doing work, especially the more detailed the project, the more money you want, you may have to spend. That may be that you need some destructive investigation. Some destructive testing so that you can identify what needs to be done so that you can prepare proper plans and specifications.

Salvatore Scro, Esq.:

I know Alan's used this example sometimes where if you go to the doctor and they say, "We don't know what's wrong with you. We're just going to start... Bring you in for an operation and start cutting you open." Well, that's really not the way to do that. They take tests. They take MRIs. They take x-rays. They do blood work. They want to know what they're doing before they start going after it.

Salvatore Scro, Esq.:

Why do you want to have destructive testing? The benefits of that investigation are this. You identify the extent of the defects. You identify who the responsible parties are. If you're within statute of limitations period which is four years from discovery, not to exceed 10 years from the work, those are your statutes of limitation and repose. You want to look and see in that investigation where the problems are. If somebody was responsible for them, maybe you can have a cause of action against those people to address those issues and have them pay for your repair that you're about to undertake.

Salvatore Scro, Esq.:

You also need to know, if you're going to do that, you're going to go after some parties. You're going to want to know what are these problems? Because under Florida Statute Chapter 558, you need to give them a notice. You need to give them a notice of what those problems are and give it in reasonable detail so that before you commence any action to address that, sometimes you can settle it through that 558 process.

Salvatore Scro, Esq.:

Also, you limit change orders. Why do you want to limit change orders? I showed this to you guys. Some of you may have been with me last time, but there's that big boat that says change order. There is the original contract. You do want to get an idea of what has to be done so that they're not opening up your building and saying, "Geez, we just found this. We need a change order." That's where you're going to spend all your money. That's not part of your budget. You do not want that.

Salvatore Scro, Esq.:

You want to have that investigation so you can know as much as possible. You spend a little money up front, but it's going to save you money in the long run. You limit change orders. You get detailed and on target plans and specifications. You get a repair protocol from those experts. They will tell your contractor exactly what needs to be done.

Salvatore Scro, Esq.:

That protocol will be set forth in plans and specifications that will be incorporated into the contract so that you will have a complete set of instructions. Just like if you buy something that has to be put together for your kids, you're going to have something that says how to put this together and how it's going to be done. What's going to be used. There's not going to be any questions if you have the right expert to provide those specifications.

Salvatore Scro, Esq.:

That's pretty much just a summary, a quick summary about why you would need detailed plans and specifications. There's other things that I'll get into later on that relate to those plans and specifications. But we'll go on to the next topic.

Alan Tannenbaum, Esq.:

All right. Jon, draw schedule. What is a draw schedule and what do you mean on this category about it being balanced? Why is that important?

Jon Lemole, Esq.:

Hang on one second because I think there's something I wanted to put up here. Okay. Time is money and you want your project to get completed on time. Think about a contractor just like any other business owner. They come to work every day. They've got costs. They've got overhead. They've got payroll. They've got subcontractors to pay. What are they in it for? They're in it for whatever it is. The profit that... Whatever percentage of profit on your job that they're making. 15%, 20%, whatever it is.

Jon Lemole, Esq.:

Like a lot of other business owners, a contractor wakes up every morning. A general contractor wakes up every morning and he has to decide if he's got five or six different projects going at once and that's probably the case. Maybe even more. He's got to decide, or she's got to decide, where am I going to put my people today?

Jon Lemole, Esq.:

If it's a bigger project like a big project where there would be a lot of subcontractors involved, a lot of different trades involved, that general contractor has to figure out which subcontractors am I going to have show up on this project today? All of those decisions are going to be impacted by whether or not that opportunity showing up on your job is going to provide that contractor with a profitable day. Whether he's got risk in the project or not.

Jon Lemole, Esq.:

This is an area where we spend a lot of time negotiating with contractors. When we're representing community associations and we're looking at repair contracts, we spend a lot of time looking at the draw schedule. The reason why that's so important is because you never want to be in a situation where the contractor has no risk on your project. Where he's disincentivized to show up because he's already been paid profit that he's going to earn on the job.

Jon Lemole, Esq.:

And so maintaining or coming up with a very balanced draw schedule, a draw schedule that's going to basically delay that contractor getting his profit on the job until the end of the job, it's critically important to getting the job completed on time. And you and your community association board not being those people sitting there in the orange vests waiting and waiting and waiting for the completion of the project.

Jon Lemole, Esq.:

Deposits. A lot of contractors ask for deposits. We try to resist that. A lot of times you'll hear, I've heard many a general contractor that say that their deposit is their profit. Why would you give a general contractor the profit on this project right upfront? We would definitely urge when we're looking at contracts, we would try to negotiate out any deposit upfront for the work.

Jon Lemole, Esq.:

Then finally, retainage at the end. It's always a good idea to hold some money back. At least hold back some portion of this contractor's profits so that they complete the work, including all punch list. Because we've seen a lot of projects where basically the contractor's been paid. There's a lot of punch list things that need to be completed and it just drags on and on and on and on.

Jon Lemole, Esq.:

How it works with every contract is going to be a little bit different. There's no one size fits all draw schedule. But that's an area where we definitely say, if you're doing it yourself, take a really good look at that. Hard look at that. Make sure that you're coming up with something that makes sense. But most times get a lawyer involved. Get us involved or any other construction lawyer that has a lot of experience with dealing with draw schedules and ensuring that the contractor has risk on the project throughout the entirety of the project.

Alan Tannenbaum, Esq.:

Yeah. Push your design professional. They usually create a draw schedule or have a comment on it. But you really have to push them to look carefully at it. What you want to avoid as a bottom line is the contractor having been paid 80% of the contract price and only 60% of the contract having been completed, you're going to be in a lot of trouble getting that contractor back to complete the job.

Alan Tannenbaum, Esq.:

We are also strong believers in retainage. The industry standard is 10% so that 10% of the contract price is withheld until the time it's final payment, which is a very strong incentive because the contractor's profit is going to be tied up in that 10%. We're very strong believers in that.

Alan Tannenbaum, Esq.:

With deposits, they will tell you we need to purchase materials. If you happen to go along with that, just make sure that those are actually materials being purchased for your job and the contractor is not using it to pay their 90 day balance with their supply house for materials used on other jobs while frankly your materials they get somewhere else. Be careful with that.

Alan Tannenbaum, Esq.:

I'm to get into a couple of topics about insurance requirements and damages for delay. A few things. Let's talk about the design professional first. Most design professionals will have a million dollars of professional liability coverage. What they've been providing associations over the last two years are contracts that have limitations of liability. That may say that the design professional is a limited liability to the amount of fees that they're paid on the job or some stated dollar amount significantly less than their insurance coverage.

Alan Tannenbaum, Esq.:

When you get a design professional contract where they're going to be the design professional on a major repair that's maybe costing into the seven figures, you don't want to limit their liability. You want it to at least be the amount of insurance coverage. There's one issue. We've had projects that are five million, six million, $12 million with a liability policies of only a million. You can actually buy those coverages up to a greater level and increase the insurance coverage. That's something that's available.

Alan Tannenbaum, Esq.:

When you want your contractor to have minimum insurance for general liability for automobile, certainly automobile coverage there are standard policy requirements. Really important that you negotiate to be the name insured under the insurance policy. Now, why is that important? It's important because you then have the right, you're now first party under that coverage. If you had to eventually sue to collect damages under that insurance policy, under Florida Statute you're entitled to attorney's fees under first party claim.

Alan Tannenbaum, Esq.:

It's really important to be named insured. It gives you a lot of leverage against the insurance carrier if you get a claim pay. Most of them will agree and negotiate that. Include that in your negotiations when you're looking at the insurance requirements.

Alan Tannenbaum, Esq.:

Damages for delay. Damages for delay typically sets forth a particular deadline for completion by the contractor. They don't complete within that time period, there is a per day penalty for the contractor if it goes beyond the completion date. I think anybody who's contracting for work today, there's some contractors who are signing contracts to say, "Look, we won't even be able to start this job until September." There's even a backup on initiation.

Alan Tannenbaum, Esq.:

It's really important to have that damages for delay as a great incentive for the contractor to assign the subcontractors and personnel in order to get your job done. Just think of a general contracting company. They're taking on five jobs. They've just started five jobs. The question is, which of the jobs are they going to pay the greatest attention to? Assign their better subcontractors to? Assign their better superintendent to? They're going to be the jobs where there's a contract that they enter into that has some disincentives as Sal indicated against bad behavior.

Alan Tannenbaum, Esq.:

If they have five jobs that they're starting and two of the jobs have penalties for late completion and the other three don't, and they have to make some very difficult decisions about assigning subcontractors and assigning personnel, the owner of the company is going to be very aware that this particular contract has things like damages for delay. It's a penalty, but it incentivizes the contractor to actually get out and complete your particular project over projects that they won't.

Alan Tannenbaum, Esq.:

We see contracts every day that say that there's no particular completion time. There's no penalty for delayed completion. I'm always wondering a year and a half later, when a group comes to us and says, "They haven't completed the job." We look at it and say, "Well, there was no requirement that they complete it within a stated period of time." You're going to be in a lot of trouble.

Alan Tannenbaum, Esq.:

With that, Sal's going to cover a couple of topics. Work inspection and rejection rights and the right to reject or replace subcontractors. Sal, you have your speaker off. There you go.

Salvatore Scro, Esq.:

All right. Work inspection and rejection rights. Who's going to inspect? That's what needs to be decided by the association. When you take on this repair project, who's going to inspect? Who can reject? Is that going to be the owner's representative? Is it going to be the engineer? Would it be the architect? Those are some of the things that you need to decide.

Salvatore Scro, Esq.:

A lot of times you put the inspection rights into your engineer. Or sometimes depending on how minor the project might be, your owner's rep. Your architect. But, can they accept as well or should you have some right to do that and should there be some reasonable time? You need to make sure that you have enough time and that you have some control over your representative. Whether that be the engineer or architect, whoever that is so that if there's something that is not suiting what you intended and it's under the contract, that you can direct your representative to say, "No. That is not acceptable. You need to do that."

Salvatore Scro, Esq.:

The other thing is, if there's a problem, what do you do? Especially if you have multiple buildings. I've talked about this in other seminars we've put together. If you have multiple buildings, you may want to open that up to see what the problem is. If you're going building by building and you have some leaking going on, you may need to do some destructive testing.

Salvatore Scro, Esq.:

Again, find out where that problem is so that you can identify, is this just a one-time problem? Is this a systemic problem that is in the plans that is not working out right? What is it? What is that problem? Spend some money having your contract, that if you need to open up something, that if it's their fault, that they're going to pay for all that expense.

Salvatore Scro, Esq.:

If it's something that you've asked them to open up is unreasonable, then maybe you might have to meet that expense, but at least you know it. You do want to have provisions in your contract for that, as far as who's inspecting? Who's rejecting? If there's a problem and you need to investigate, what do you do?

Salvatore Scro, Esq.:

Also when you hire these contractors, you're not just hiring the company, you're hiring whoever shows up that particular day. You want to make sure that if you have a problem with the workers that are there, the superintendents, who are they? The contractor typically decides who the superintendents are. Who the subcontractors are. If you've had experience with other subcontractors in the past that you do not want on your project, you want to let your contractor, your general contractor know that in advance.

Salvatore Scro, Esq.:

You also, if you have the right people reviewing your contracts, they may want to see. For example, we deal with subcontractors every day. We know what subcontractors names we see all the time and depends on how we see them. If we see them in a litigation matter, then we know that we've seen them for these reasons. If we see them as repairs, then we know we've seen them for that reason. You want to have some right to reject or replace your subcontractors and a right to approve and or terminate the superintendent and those subcontractors.

Salvatore Scro, Esq.:

Let me just go back. We're not going to talk about prevailing party attorney's fees right now, but you do want to have the ability to have some control over who's being there. I'm taking a little shorter time on this one because I went longer on the first one. But let's go on to, I think we're going to talk about protection against liens next.

Alan Tannenbaum, Esq.:

Well, before Jon gets started, Sal, the issue that you brought up is really being a proactive owner. It's your property. You want to have knowledge of actually who's walking towards your job every day to do work. Even before the contract is entered into, you could have provisions in the contract that they have to give you the list of who's going to be the superintendent on your job. Who are they going to be the subcontractors. If they choose to have somebody else but that superintendent and those subcontractors, they have to notify you and you have to be able to qualify those people again.

Alan Tannenbaum, Esq.:

Every contracting company that I've dealt with of any magnitude, they have a handful of superintendents who have been with the company for 18, 20 years. They have vast experience. Then they have the guy they hired last week. A journeyman superintendent. They got a lot of work in or one of their key superintendents retired. Now you're dealing with somebody that they don't even him very well who's now assigned to your job. It's a matter of qualifying them and being proactive. You have the right to insert that in the contract to be able to do that. Jon, now you're going to tell us about protection against liens.

Jon Lemole, Esq.:

Well, I got to tell you how unenthused I was when I drew this topic. Because folks, I'm going to be honest with you. Even for lawyers, lien law is confusing. And so for managers, for boards, I can't stress enough how important it is to take the topic of protection against liens seriously.

Jon Lemole, Esq.:

Here's a practical piece of advice before we get into some more details about liens. The practical piece of advice is that, have somebody on your project. Whether it's the engineer, if you've got an engineer who did the design work, or you've got a construction consultant. But it always makes sense to have somebody who is tasked with ensuring that any potential liens are avoided. Released. Protect your property from problems down the road with contractors and subcontractors, potential liens from that project.

Jon Lemole, Esq.:

Your engineer, if you've got an engineer, if they provide that kind of construction management or services that you can pay them to do, then it makes every bit of sense in the world to do that. But let's talk about liens for a second in general.

Jon Lemole, Esq.:

It's really a question of a very dedicated management of the projects' paperwork. Okay. Because you want to make sure that there's a lot of different things that get... For example, you start a project, you need to absolutely make sure that you file a note or record a Notice of Commencement. You want to put the world on notice that there's a project and protect yourself. That's the way that you protect yourself from potentially having to pay twice for the work.

Jon Lemole, Esq.:

It also is a notice to any subcontractors on the job that if they want to have any lien rights, they've got to file Notices to Owner or serve you the owner with Notices to Owner. They've got to do that within 45 days of starting the work or providing the supplies.

Jon Lemole, Esq.:

Filing, I'm sorry. Qualifying according to Notice of Commencement is the first step that you as the owner should do on any repair project. If you've got a bigger project and there's a lot of subs on that project, tell the contractor, ask the contract, the general contractor, you want a list. You want to know who are the subcontractors and suppliers that they're going to be using because you want to be able to anticipate who may have potential liens. You want to keep track of whether those people have filed Notices to Owner or served you with Notices to Owner.

Jon Lemole, Esq.:

In a contract, if you're negotiating the contract, things like that like providing a list of the subcontractors and suppliers, are all things that could be put into the contract. Could be requirements that you can negotiate into the contract.

Jon Lemole, Esq.:

As the project goes forward, here's a mistake a lot of people make. It's just a common thing. I don't have to worry about liens if I pay. I pay. I paid what I was told to pay. As long as I paid, I'm good. Remember, you're paying a general contractor. You're not paying the five, 10, 15 subcontractors who you have no contractual privity with. You're relying on that general contractor to pay those subcontractors and ensure that by you paying the general contractor, that you're not going to be exposed to liens from subcontractors.

Jon Lemole, Esq.:

And so that's why it's critical to manage all of this paperwork. It can be confusing. That's why you should always consider having somebody do that for you. Somebody who's got a lot of experience doing that. Whether it's the engineer, like I said, or some other consultant or project manager that's working just for you to do that.

Jon Lemole, Esq.:

But every time you make a payment, you should be ensuring that you're getting a release or a partial release for that work. That release should be specifying the work that is being paid for and being released. It should specify what subcontractors are being paid for or what subcontracted work is being paid for. You should be insisting on getting partial lien releases from those subcontractors or completely releases from those subcontractors.

Jon Lemole, Esq.:

You should be knowing every time that you make a payment, what work you're excluding from the potential of being liened. That's just a day-to-day recordkeeping type of thing that has to go on, on a project. Smaller projects, it's a little bit easier to do. But if you've got a big project [inaudible 00:33:29] a lot of subcontractors, that can be a very confusing thing to do.

Jon Lemole, Esq.:

All of these things, all of these requirements need to be specified in the contract. Because if you don't, then you're just relying on the good faith of the contractor to do things that are going to potentially help you ensure that you don't have liens on the project. But they have really no obligation to do. You want to make sure that when you're negotiating this contract, you're anticipating all of those things that you want from that contractor to ensure that your project is paid for, not liened by him or any of his subcontractors or suppliers.

Jon Lemole, Esq.:

Then as you go forward in the project, you've got to keep meticulously on top of that record keeping and all that paperwork. That's it. There's really no trick to it. It's just being really, really proactive about organizing and maintaining those best practices.

Alan Tannenbaum, Esq.:

If you want to really be proactive as an owner, within that 45 day timeframe of a contractor, subcontractor providing work on the project or material supplier supplying materials, you get this Notice to Owner. I don't see any problem unless it's prohibited by the contract with making contact with the contractor who submitted that Notice to Owner or the material supplier and saying, "I got your notice and I'm very interested in your being paid everything you do on your contract. Please let us know if you're having any payment difficulties during the progress of the job because we want to avoid the potential of you enforcing a lien against our property."

Alan Tannenbaum, Esq.:

A lot of general contractors will tell you, "We don't want you talking to our service suppliers." A standard response that I give is that, "Well, that's fine because they just sent me a note and I'm a very... I have good manners and somebody sends me a communication, I acknowledge the communication and say thank you for sending this." And that line of communication has started.

Alan Tannenbaum, Esq.:

Again, at the end of the project, you need final releases of lien from all the parties who filed Notices to Owner and you get something also called the contractor's final affidavit, which you must get before you issue the final payment to the contractor. Which is an additional protection against liens. Okay. I'm going to talk about payment-

Salvatore Scro, Esq.:

I just want to just say two things because Jon reminded me of it and you did also. One of the things that would be nice to see in a contract when you're negotiating it is if you have your general contractor, if he's going to hire subs, if you can require in your contract that any contract that the general contractor signs with a subcontractor, that you're identified as the associations identified as a third party beneficiary.

Salvatore Scro, Esq.:

Sometimes they'll do it, sometimes they won't. But it adds an added layer of protection because now that subcontractor is contractually liable to you as well. Also in the insurance that the general contractor has, I've seen it in some of them, but it's nice if their insurance policy ensures the work of their subcontractors. Most of the time it will not ensure the work, but if it does ensure the work of the subcontractors, you have another added layer of protection there.

Alan Tannenbaum, Esq.:

Thank you, Sal. Payment and performance bonds. Payment bond is a bond that protects the owner when the general contractor doesn't pay its subcontractors and materials suppliers. That surety will come in under those circumstances and cover that bond. The subcontractors only, and the material suppliers only have rights against the bond rather than your property. That's the advantage of having a payment bond is that it removes the prospect of your property being lien.

Alan Tannenbaum, Esq.:

Performance bond. The surety agrees either to pay for the completion of the job or to provide you with another contractor who completes the job at the surety's cost. It guarantees a performance of the contractor. On a major repair project, we definitely recommend payment in performance bonds. There is a price to it. Roughly speaking, it's going to add 1% to the contract cost depending on the particular contractor involved. On a major project, if you have a three and a half million dollar project, you're talking about 30 odd thousand dollars of additional cost. But it's great to have the protection.

Alan Tannenbaum, Esq.:

But there's a underlying reason why there's a preference for payment in performance bonds. The reason is, the general contractor will never want you to have any communication with the surety and make any claim against that bond because it not only affects your ability and their level of bonding capacity the next year, but also the premiums that they would have to charge an owner because part of the premium cost of a bond is based upon the amount of claims ever made against that particular contractor.

Alan Tannenbaum, Esq.:

What I said before about delayed damages, same holds true about having payment in performance bond as being a disincentive to bad behavior. Because if I'm a general contractor and I'm starting five projects, and again, two of them have a performance bond in particular, the other three don't, as the owner I'm going to show up on the jobs that have bonds more. I'm going to by nature assign my best people to those jobs. Because the last thing I want is that job to fall into default, the surety be contacted and it affects their bond ability on jobs going into the next year.

Alan Tannenbaum, Esq.:

That's an end reason why a bonded job, you're apt to actually get better performance. They're not going to risk not paying their subcontractors and have the surety contacted, which is going to affect their future ability to get work. Jon, with that, spend a few moments on dispute resolution procedures. Why is that important? What does that mean?

Jon Lemole, Esq.:

Well, you hope that your job goes well and that there's no problems and you don't need to access the dispute resolution procedures, but that doesn't always happen. There can be problems that occurred during... Disputes or disagreements about how the work is being done that arise during the project. Then there are the big disagreements or disputes that arise after a project's completed and perhaps you find out that it wasn't done quite the way that it should have been done.

Jon Lemole, Esq.:

And so it's really important that when you negotiate these contracts, you look at what do you need to do or what are you going to be required to do in order to ultimately resolve a dispute with this contractor if it comes to that. Now, there are three things that you need to be looking for because we see them in a lot of general contractors contracts.

Jon Lemole, Esq.:

The first is, where can I bring a claim if I have to bring a claim. Let's suppose we haven't resolved this thing and I've got to bring a claim against the contractor or vice versa. Let's assume you pay the contractor and it's really a question about defects in the work that was done or defects in how it was designed or the scope or whatever.

Jon Lemole, Esq.:

What you'll see a lot is a preference in the contract for avoiding Circuit Court and requiring you to arbitrate your dispute. A lot of people have this mistaken idea that arbitration is better, faster, cheaper. And so, yeah. That sounds like a good idea. Why do I want to go to court? I'd rather go to an arbitrator.

Jon Lemole, Esq.:

I have to say that we typically don't like and recommend arbitration for construction disputes. It's not always cheaper. In fact, it rarely is cheaper. Sometimes just the filing fees at the American Arbitration Association alone could be 5,000, $7,500, $10,000, depending upon the size of your claim. You pay a filing fee of $400 in Circuit Court.

Jon Lemole, Esq.:

Don't ever forget that your project has not just you and the general contractor, but there may be other parties that are involved as well. There's a lot of subcontractors and maybe you want to bring a claim against the subcontractor for their defective work, but you're not in contract with them. You can't force them into arbitration. If you want to bring a claim against the GC, you've got to go in arbitration. But if you want to bring claims against subcontractor too, you've got to have a separate action in Circuit Court. All of a sudden your expenses are exploding.

Jon Lemole, Esq.:

Maybe the general contractor does have in his subcontracts arbitration. Maybe they bring those subs into the arbitration, but maybe they don't. You don't have necessarily any control over that. Circuit Court is always preferable because you can always claim, bring your claims against everybody and anybody that's involved in that project in Circuit Court. You can't always do that if you're forced to go into arbitration.

Jon Lemole, Esq.:

Arbitration is not always cheaper. Definitely not as efficient and a lot of times, just as slow as Circuit Court. The other drawback of arbitration is that you don't get the same type of discovery that you get in Circuit Court. You have no set right to take depositions, get documents, asking a rogatory and all of those things that lawyers typically do in order to find out what the facts are and make the best case that they can for their client. In this case, you, the association.

Jon Lemole, Esq.:

The other thing to look for and what we typically find with general contracting contracts is a preference for, if we do go to Circuit Court, you're waiving a jury. Jury waivers, that's a case-by-case thing. But don't make that decision right at the front.

Jon Lemole, Esq.:

Look, there may come a time if we're representing a client, we may say, "Hey, maybe we should not try this in front of a jury. Maybe it makes more sense to try this in front of a judge." But if you've already waived in the contract the right to try it in front of a jury, you don't get to make that decision. A jury may be the best place or your lawyer may think that's the best fact finder for this case. You'd rather be in front of a jury.

Jon Lemole, Esq.:

The other thing that we see and that you need to be aware of, and this can work to both parties advantage is prevailing party's attorney's fees. In America, under our system of law, unlike in some other parts of the country, the loser doesn't necessarily pay the winner's legal fees. It can happen if you're contract to do that. Or if there's some statute which requires you to do that. Lien law might be one area.

Jon Lemole, Esq.:

But if you're just suing your contractor, if your contractor's done a really bad job and has done the work with all kinds of building code violations and other problems, if you don't have a contractual provision for prevailing party's attorney's fees, you're not necessarily going to get attorney's fees if you win. It cuts both ways, but we always recommend that you put a prevailing party attorney's fee provision in your contracts. [crosstalk 00:46:32]-

Alan Tannenbaum, Esq.:

Understand the standard industry form contracts do not have a prevailing party attorney's fees incorporated in them. If somebody had joined AAA or a AGC a form contract, you actually have to add the provision of prevailing party attorney's fees.

Jon Lemole, Esq.:

That's correct. The AIA contract has this built in preference for arbitration so be careful with that. We see the AIA contract being used more and more by contractors. It's got very, very confusing and frankly onerous during the job dispute resolution procedures. What do you have to do? Who do you have to bring it to? Who has to make a decision? Engineers, architects, everybody has to get involved in that. Those provisions aren't always conducive to getting the work done quickly.

Jon Lemole, Esq.:

Dispute resolution procedures, we can spend a lot of time on this. But the point is, if you see those things in your contract, think about them. Run them by an attorney and make sure you spend a lot of time in determining and negotiating how are we going to deal with situations that arise where we just can't agree and we've got a problem that needs to be resolved?

Alan Tannenbaum, Esq.:

Sal, do you have anything else to offer on that topic because I want to answer a few questions?

Salvatore Scro, Esq.:

Yeah. I just wanted to touch on a few things that I think are important in any contract that sometimes are overlooked. I'll go through these real quick. Again, the prevailing party attorney's fees Jon touched on, but that is an incentive to do well because of the risk of paying the fees. But it's a double-edged sword too. If you're not holding up your end of the bargain, you have that risk as well.

Salvatore Scro, Esq.:

Also it's an incentive to settle a weak case. But there are things that... I'm not going to go into documenting the job or project close out. But other terms that I think may be important in any contract would be hours of work. A lot of times, oh, you hire them. You give them the deposit. They don't show up. Those are things that you may want to discuss. Have in your contract. What days of work are they supposed to show up?

Salvatore Scro, Esq.:

The entrance and the use of the premises. How many people are going to show up on your project to work every day is an important thing to consider. Staging and storage areas. Who's going to maintain the materials? Where are they going to be staged, stored? How are they going to be protected? What happens if there's a storm? You need to address those things as well.

Salvatore Scro, Esq.:

Clean-up. That's an important thing as well. The clean-up, you want to make sure sometimes that they'll sweep the area for nails and things you don't want. You want a magnetic sweep every day so your people aren't blowing tires, running over nails, things like that.

Salvatore Scro, Esq.:

Notice of work areas to your owners and the owner's access. If they have to shut down portions of access to the buildings, where will that be and how is that going to be done? How much notice are your owners going to have if they can't use a portion of their building and what is their access and who's going to provide that access and the protective area for them?

Salvatore Scro, Esq.:

Those are just some of the things. If you do have a litigation matter that may come up, you do not want to destroy evidence. You want to make sure that you notify your attorneys in advance so that they can make sure that parties are there to view what needs to be viewed. Stored evidence, categorized evidence, things like that. Photograph evidence. Those were just some of the things I wanted to touch on before we go to questions.

Alan Tannenbaum, Esq.:

Let me raise the issue of assignability. I've seen this in some roofing contracts that have come across my desk. Make sure you have a provision of the contract that it can't be assigned. Because there are companies out there, they're more like roofing marketing companies. They have fancy brochures. They have a big online presence. They sell roofing jobs and then they assign them to other roofers to actually perform them. You don't even know who's showing up on your job.

Alan Tannenbaum, Esq.:

Really important that you have a provision of the contract that says it's not assignable without your permission. I want to cover a couple of questions. We have a short amount of time and I know Michelle wants to do a poll. One of the questions is, what's the difference between a surety and a payment in performance bond?

Alan Tannenbaum, Esq.:

The surety is actually the entity that issues the payment in performance bonds. The surety, it's not an insurance policy. They're not an insurance company. They're a guarantor. It's a guarantor agreement where they agree to come back behind the contractor and either agree to pay money that the contractor is obligated to pay its contractors and subcontractors and material suppliers. Or come in and end up performing the project.

Alan Tannenbaum, Esq.:

I have a question about attorney's fees. How much does it cost for us to be involved in the contracting process? The first thing that we will do is usually you'll be handed a proposed contract from the contractor for a fairly nominal charge, depending on the size of the contract. Maybe between $500 and $750. We can go through what the contractor has provided and tell you what's in there that's going to come back to bite you. Or what should be in there that should be there to protect you.

Alan Tannenbaum, Esq.:

Then you can come back to us and say, "We want to revise this contract. We want some suggested language." Which we can come back and do. But a lot of times, even on a relative, let's say a contract of a $100,000, for a relatively modest amount of money, we can offer some suggestions that can greatly improve that contract from the aspect of protecting you as an owner.

Alan Tannenbaum, Esq.:

All right. We're going to send the poll out because apparently that's not working. Are there any other questions because I want to respect everybody's time. If you have a particular question, you can unmute yourself. Paul asked a question about a 110,000 to $120,000 pool resurfacing contract.

Alan Tannenbaum, Esq.:

We do think a contract at that level justifies some level of attorney review to make sure you're protected. Should we consult with an engineer on a project like that? I think that's certainly enough of an expenditure to justify it.

Alan Tannenbaum, Esq.:

In the area of contracting, I would have to say and I hope I don't insult any former pool contractors who may be on the call, but it's not the highest level of achievement in the pool contracting industry. It's probably an area where you should have somebody knowledgeable out inspecting there.

Alan Tannenbaum, Esq.:

It doesn't have to be an engineer. It could be somebody whose head was in the pool business for 40 years, who now is a consultant. They're going to maybe cost less than an engineer, but at least it's somebody to have their eyes on the project.

Alan Tannenbaum, Esq.:

Again, when you talk about this, it's set up to bad behavior. A contractor who knows that somebody knowledgeable is going to be observing their work, and at the time of the first draw is going to have the ability to reject it, is really the greatest incentive for that contractor to get the best people on it and look carefully at the work that's going to be done.

Alan Tannenbaum, Esq.:

Yeah. The key is, and I'll conclude with this. I use this in my presentations. When you're contracting with a contracting company, pretend that you've just hired a group of 17 year old boys to come to your project and do work. Think about the type of disincentives you would want in a contract to make sure those 17 year old boys behave properly and use that as a psychological basis for approaching the contract work.

Alan Tannenbaum, Esq.:

One of the things, everybody, at least the 99 people who got on, because I see that we had 99 participants. Then I think because of the Zoom problems today, everybody above the 99 didn't get out of the call or didn't get on the Zoom. We'll be dealing with all the managers on your certificates for today's session.

Alan Tannenbaum, Esq.:

Anybody have any other questions, you can provide us an email, I'll get your questions answered. For most major projects, we offer free one hour consultation. A lot of what we end up doing is educating your [inaudible 00:56:47] for your managers. It's educating your boards on spending the money and time in order to protect themselves. It saves them a lot of money in the long run if they approach the job properly, have a good contract and so forth.

Alan Tannenbaum, Esq.:

Thank you everybody for your participation. Hope you heard some things that were valuable for you today. Make sure in your engineering contracts then, you want to look for those general conditions that limit liability and get rid of those. I've seen too many of those lately. See everybody hopefully next month.

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The Smart Board & Property Manager Legal Guide: Tips to Avoid Major Repair Headaches and Heartbreak

Take advantage of the experience and wisdom of our trial team in What Every Condo and HOA Board Should Do Before Launching a Major Repair Project.

Video Transcript :

Alan Tannenbaum, Esq.:

All right. We're going to get started. I'm Alan Tannenbaum of Tannenbaum Scro Lemole & Kleinberg. We are construction lawyers with our major focus being on community associations. We do turnover claims for HOAs and condos. We take groups through turnover. We handle major repair projects, support them. The subject is near and dear to us. I've been personally advising associations for over 40 years on hopefully successfully undertaking major repair projects. And the tips that we're going to give you today arise from those experiences. We have several that are pending now. We're really in two categories. Either we're preparing a group to do a major repair project or they didn't call us, that we're trying to help clean up a project that didn't go well. We work in both specters.

Alan Tannenbaum, Esq.:

My partners, Salvatore Scro and Jon Lemole, the three of us are going to go topic by topic, take different topics as we go along. You have an outline that I think at one point was projected. I'm not sure if you're seeing that in front of you now. But we're going to go in somewhat of a logical order.

Alan Tannenbaum, Esq.:

We're going to hit the fine points. We're not going to get too far into the weeds. Really what this is going to help you to do is identify things that you should be thinking about if you're undertaking a major repair project. We don't have enough time within an hour to give you all the formula for effectively carrying it out successfully, but at least we'll give some of the issues to think about. So let's get started. I'm going to hand the program over for a few minutes to my partner, Salvatore Scro, who's going to cover the first topic, get the right expert. You're on Sal.

Salvatore Scro, Esq.:

All right. So good morning everyone. Thanks for joining us again. It's nice to be able to see everybody that showed up. Probably one of the most important things we're going to speak about today are not only things that you need to remember, but these are things that should be in writing and in the contract for repair. First off, I'm getting some feedback from somebody, and I don't know where. But anyway.

Salvatore Scro, Esq.:

First off, if the building's less than 10 years old, the board should consider and a manager would be wise to inform the board that a forensic inspection and possible investigation of the common element should be performed, or if there was repair work that's been performed within 10 years and a symptom of a defect has appeared. So you're going to want to do some investigation if you have to take on a repair. Regardless of the age of the building when there's a significant repair project to be undertaken, you got to know what's the first step. For us, we recommend it's to retain the services. There's a horn going out there if you can hear it. I don't know why. It's to retain the services of an appropriate expert, whether it be an architect, an engineer, or some other expert that would provide the necessary services of investigation of the area that needs to be repaired.

Salvatore Scro, Esq.:

So who should select that expert? Typically, our advice is always to retain a qualified forensic engineer, and for every building problem, there's an associated expert that's appropriate to investigate the issue and specify the appropriate repairs. Some engineering firms have experts on their staff who cover most of the issues that you may deal with. However, if they don't, there's specialty experts that can be called upon to supplement the review.

Salvatore Scro, Esq.:

The selection of the expert is something that should not be primarily based upon the cost. As one astronaut put it once when he was asked how he felt about to go up in the space shuttle, he said, "How would you feel being strapped into a rocket built by the lowest bidder?" So you really want to make sure that you're choosing the right expert and not just the lowest bidding expert. One of the things that people might say as well, "In an association we have to get bids and take that lowest bidder." That's not the case. And right now everybody's probably looking at me and maybe looking like that. In any event, you don't need to take the lowest bidder. Section 718.3026 of the Florida Condominium Act applies to that and that is not a requirement.

Salvatore Scro, Esq.:

As construction defect attorneys, we know certain matters require us to bring in various experts or consultants. We know we're not engineers. We're attorneys. We know what we may need to present as evidence to win a case on a construction defect claim, so we bring in the appropriate experts to provide the opinions to support the claim. Those experts do not know what of their opinion or investigation may fall short of providing adequate proof to win a case, so we guide them. Similarly, is the case with board members and association managers. They can recognize a problem they know there needs to be a repair. But to retain the right expert and know whether that expert has performed the appropriate investigation and obtain the proof necessary to support the claim, they should not take on that responsibility alone and they should consult with someone to identify who that expert they may want to retain it.

Alan Tannenbaum, Esq.:

Yeah, obviously, for board business judgment, one of the requirements for the protection of the board business judgment role is that the boards rely on appropriate experts. You may have people on the board who are former contractors and engineers and so forth. Not really a good idea to rely on in-house expertise in undertaking especially a major repair project. Besides the fact that those folks are not insured usually in Florida which could get them in personal issues. So Jon, Jon Lemole. Knowing fully the problems requiring correction, why is that an important step in having a successful repair project?

Jon Lemole, Esq.:

One of the things that we see frequently in our practice is a failure of the association to understand what are the effects of a problem that they're having that they're repairing. Let's take an example. Let's suppose you have leaks around the windows in your building. So you bring in a contractor and they verify that, "Well, we need to make some repairs to the ceiling around the windows," or, "there's some flashing issues that need to be addressed." And a lot of times that's where the inquiry and the investigation ends.

Jon Lemole, Esq.:

And as probably a lot of you know, and I'm going to share a screen here, water doesn't always ... You don't know where water goes. Water sometimes winds up in very interesting places in your building. So if you're having an issue that you need to repair that's based upon water intrusion, one of the first things that any decision maker should do in that situation is think about, "Well, how do I fully delineate where this problem may have wound up. It may not just be confined to the area where I see it, where I patently observe it."

Jon Lemole, Esq.:

I'm showing you a picture here where there were observable leaks around these windows. And also, you can't see it up here, but there was also some water intrusion that was observable up on the roof to wall transitions. So if you're seeing that and you're making a decision, "Okay, we've got to repair the windows, maybe we've got some roof repairs that we need to do to control this," you may think you fixed the problem. And in fact, you haven't, because when we took a look at this building and did some forensic evaluation, you have water migrating down through these windows and along this corner and it's creating a situation where the entire framing down here at a much lower level is completely rotted out. I'll give you another even better picture.

Jon Lemole, Esq.:

This is a situation where we had observable leaks in the roof up here. Oh, I'm sorry. To get back to that. The initial reaction would be, "Well, we've got to bring in a roofer and we've got to make some roofing repairs." And if you just ignored, if you just did that and you didn't investigate where this water may have wound up any further, you would have missed all of this framing damage underneath. And you've literally got a situation here where the interior, the building structure is rotted away as a result of water migrating.

Jon Lemole, Esq.:

The takeaway is that when you're faced with a repair issue, you've got a condition, you think you may know where, what the repair is, you may have a contractor who's coming and saying, "I know exactly what needs to be done here." Don't stop your inquiry there. Talk to general counsel, talk to a construction lawyer, and think about bringing the right experts in, as Sal said, to take a look and see where the problems may really have wound up, so that you're not just repairing the observable condition but you're also going to take the steps to repair what that observable condition has caused. Because repairing the observable condition may just be half of the story.

Jon Lemole, Esq.:

That's why we say know fully the problems requiring correction. It's not always obvious, and you may have to do a little bit of digging, but don't neglect that very important step because you may not be doing ... You may be solving a problem that is just putting a band-aid over a much bigger issue that you're going to find three, four, five years down the road. It's going to get much worse. It's going to create a very significant financial burden on the association.

Alan Tannenbaum, Esq.:

So failed roofing projects keep our team very busy. I've seen a few recently. There's a lot of roofing companies that are selling roof overlay products. No need to tear off your current roof and go down to the roof structure. We could merely put this product as an overlay over your existing roof. And there's not proper forensics done of the condition of the underlying roof, the insulation underneath and so forth. And putting a new roofing product over an overlay that is not in good shape is generally not a good idea, and we've seen it over and over. So that's an instance where have you really understood what your roofing problem is in order to determine what's the appropriate step, what's appropriate roofing system to put on your roof, and really from a pricing standpoint there's a lot of groups that are going for those overlays and it's really not correcting the underlying problem. So we have seen that.

Alan Tannenbaum, Esq.:

All right. Engineering proposals. I'm going to cover this topic. It's really a pet peeve of mine because a lot of times a group comes to us, say, "We would like your help in drafting the contract with our repair contractor for this major repair project," and I say, "Well, what about your engineer?" "We already have the engineer." "Have you signed a proposal with the engineer?" And usually we get, "Yes, we've signed it." Groups are not looking carefully at the engineering contracts, and there's some members of the engineering community who are not very happy with us and pointing this out. But several years ago, really bolstered by their insurance companies, engineers started to put general conditions into their engineering proposals. Sometimes they're on the back of their form. Sometimes it's an attachment.

Alan Tannenbaum, Esq.:

So what are some of the typical clauses in engineering contracts to be wary of? One of the most important ones is limitation of liability clause which say for instance that the limit of the engineer's responsibility if they screw something up is the amount that they've been paid or some fairly modest dollar amount. I've seen $50,000. I've seen $100,000. So you're hiring an engineer who may have a million dollar professional liability policy and too many groups of shiny contracts that have a limitation of liability clause of a much lower level, and we end up when we're asked we negotiate with the engineers to at least increase their limitation of liability level to the level of their insurance coverage, which I think is a fair compromise.

Alan Tannenbaum, Esq.:

But there's other things. There's venue clauses. Sometimes they want the venue in the county where they're headquartered. It may be different than where your project is. And sometimes you have a contractor who submits a contract that has a venue for any dispute, and yet a third county. Those have to be appropriately aligned. Prevailing party attorneys' fees clauses are important too.

Alan Tannenbaum, Esq.:

We suggest, I mean, you can do your own internal review, but when you're handed an engineering proposal, especially on a major project, look at the fine print, look at the conditions. You can even run them by us and we'll take a look at them. The engineers would reluctantly agree to renegotiate those and take some of those clauses out, so just be wary of that.

Alan Tannenbaum, Esq.:

So I'm going to give the program back to my partner Salvatore Scro, and he's going to tell you why having detailed and on target plans and specifications are important for a successful project.

Salvatore Scro, Esq.:

Okay. Let me just ... I had a screen up there with a shot for you, but I want to ... Okay. Sorry about my guy there, but here's the issue that you have. If you don't have detailed plans and specifications, all right, the problem is that there's going to be requests for information, there's going to be different questions that arise during the case of the project. So you want to know initially what the detailed plans and specifications are so that you can get the proper bid for the project. They tend to be generic. Your engineering firm that prepares a plan, you should urge them to make sure that they have detailed specifications. And it's also good to have those plans reviewed by a construction consultant because the contractors are the ones that actually do the work.

Salvatore Scro, Esq.:

What happens is if you don't have that done, a lot of times the original contract is the little one and the change order is what causes the grief and the expense. Many times the contractors that perform the work as I said will not have very detailed plans available to them, and the contractors, they'll construct their work based upon what they believe should be done in accordance with the building codes. And we find a lot of times that those contractors' interpretation of the building code is not always on point, or they may possibly assume that if the plans did not call for certain work to be performed, then it was not necessary that it be performed. So supervision of the project not just by the owner rep. That role will be discussed later on. But by the general contractor and subcontractors or possibly the design professional you retained is key.

Salvatore Scro, Esq.:

The staff of the general contractor and some contractors are not always of the same experience. Subs bring in laborers to do that what they may be told, but are they doing it correctly? You need someone to be sure that they're being supervised, and that the person supervising them has knowledge so that they know whether or not they're performing the job correctly, another contract term that should be included in the contract.

Salvatore Scro, Esq.:

You really don't want to end up with a situation where your plans are not detailed and the left hand does not know what the right hand is doing. You do want to make sure you have those detailed plans and specifications.

Alan Tannenbaum, Esq.:

All right. Jon Lemole, let's talk about repair contract preparation.

Jon Lemole, Esq.:

And here we're talking about the contract with the contractor, and this is really where rubber meets the road in your repair project. I look at my role in reviewing repair contracts as involving two big areas, other areas besides those two big areas, but the two big areas are how do we ensure that the project gets completed in a timely fashion for the association. We'll discuss that a little bit later in this program. And then what happens when things go wrong, because they will go wrong.

Jon Lemole, Esq.:

I've not seen very many projects that go off without a hitch. And I'm looking at the chat. For example Alice, and I'm going to get to your question, you're talking about a situation where you had a balcony reconstruction and now you're seeing some cracks in the work of the contract. And what do you do about that? What's your recourse? So when I look at a contract from a contractor, and I see them ... I've looked at contracts that are page long and I've looked at contracts that are 50 pages or 60 pages long. There's no right answer as to the how many pages that this contract should be. It's what's right for the project. But, there are certain things that are key that we want to do to protect an association when things go wrong.

Jon Lemole, Esq.:

There's a lot of ways that contractors try and skew that in their favor. Alan and Sal talked about indemnification, limits of liability clauses, and sometimes we'll see that. Where you can sue this contractor? What kind of forum you have to bring your claim? Are you allowed to bring your claim in circuit court or do you have to go through arbitration? Contractors seem to like this idea of having claims brought to arbitration. We're not a fan. To tell you right now, we don't like that, and we would always try to reserve, negotiate that out of a contract. We've seen contracts where the contractors had the right to assign their work to somebody completely different and the work ... So you have somebody showing up to do the work that you don't even know who they are. So you want to address all of these issues to make sure that when things go wrong, that you've got effective recourse against the contractor in the place that you want to have that dispute heard. And for us, that's always circuit court.

Jon Lemole, Esq.:

One of the other things that we frequently see is dispute resolution procedures within the contract, in other words when things arise, sometimes you get these convoluted things where the first has to be brought to the architect and the architect has to make a decision, and then if the architect makes a decision that nobody likes, then we have to bring in a couple other people, a panel of people to figure out what the right path is, and all these complex different ways that the contractor tries to make it where you put roadblocks up to you folks, your association, having quick and significant recourse against that contract.

Jon Lemole, Esq.:

So getting back to Alice's question, what do you do, we've got a problem. The answer is I don't know, I'd have to look at your contract. But presumably you have some remedies in there. And if you've had a lawyer look at that contract and make sure that they've done all they can do to protect the interests of the association, then you should have very effective recourse against that contractor. But without looking at the contract I can't know because that's what controls everything. It is the most important thing in your project as far as I'm concerned, is have that contract reviewed by counsel.

Alan Tannenbaum, Esq.:

What a lot of engineers typically do is and architects too is that they will put a form industry contract in the bid documents. Those contracts are pretty sophisticated contracts, they're very thorough contracts, but they have provisions embedded in them that are not particularly helpful to associations, and they're not really aligned for a repair project in Florida. I've often said that these form agreements, they're great if you're building a 50-story high-rise in Manhattan, but they're not particularly designed for a re-roofing project in Florida or a balcony repair project.

Alan Tannenbaum, Esq.:

So what we do many times is that we see those form contracts, we do addendums to them to clear up some issues. They generally don't have prevailing party attorney's fees clauses. There's other issues that need to be cleaned up in them. So we do that. But be wary of that.

Alan Tannenbaum, Esq.:

All right. What I have next on the agenda is selecting the owner's representative. I'm talking about a major repair project. The engineers never understand this. Why does the owner need an owner's representative? That's what we're there for. I've been doing this long enough to know that everybody who you bring onto your property needs to be watched and overseen. The engineers are not there all the time. If they were, you would be paying a fortune for project management. They're usually only there at limited amounts of time. You have people coming to your project all the time.

Alan Tannenbaum, Esq.:

What some groups do is say, "Well, that's what our manager is for." I know there's some managers there might be already shaking your head that we already have enough on our plate, we're not construction experts, we're not here to oversee a major repair project, plus the repair project gives them extra workload anyway, managing parking and renters and funding the project budget and so forth. We are great believers on a major repair project associations bring in a outside owner's representative. Could be a retired contractor. There are owners representatives who exist out there on a consulting basis, to really watch the job, handle the communication. They don't make decisions. They will confer back with the board on a major decision that needs to be made, but it's a third ear to be there, to be looking over things.

Alan Tannenbaum, Esq.:

Engineers miss things. Contractors miss things. Sometimes you have subs showing up. There's no project superintendent there. What are they doing today? We are a great believer in having owners representatives, usually an outside party. We're talking about a major repair project will generally save a lot of headache. Now, I've seen some groups say, "Well, we got this retired contractor on the board." Perfect. That'll be our owner's representative. The project starts in January. This board member's doing a bang-up job, keeping things in order, and come Easter he's heading back up to Michigan for the summer and who's overseeing the project through the summer months? Usually that's generally a bad idea. And again, volunteer owners representatives can end up being more trouble than they're worth.

Alan Tannenbaum, Esq.:

All right. Sal, carefully vet bidders and qualify the repair team. Why is that important for a successful project?

Salvatore Scro, Esq.:

All right. So you have different projects, different repairs. You want to choose the appropriate contractor for the job. When you have an idea of who that contractor is that you may want to select, you want to ask for references relative to the work that you're proposing and you want to interview them. You want to speak with them. Be sure that they specify who their superintendents are, who the subcontractors they may want to bring out to the job.

Salvatore Scro, Esq.:

When you interview them, you want to get references from them, you want to know what projects they may have done, take a look at those projects, see how they've turned out. Also, you want to see how busy they are. You want to make sure that they can devote the time they need to to your project. So it's important in the contract that maybe you put in required days, hours on the job, required number of personnel that they'll have on the job, the laborers to do the work, make sure that they have the materials.

Salvatore Scro, Esq.:

You also want to know if they have the funds necessary to provide the materials for the job. If they're asking you for money upfront, then that's something you need to consider. Are they well enough off to handle your project or are they taking your money and buying materials for a different project? If you do give them money upfront, you want to make sure that you allocate that money to the materials that you're going to use for that project.

Salvatore Scro, Esq.:

And find out who they're going to be bringing on the project. Not just their own staff. A lot of times general contractors don't even have any of the laborers to do the work. They subcontract everything out. So you may want to check with the attorney handling your contract, whether they have any knowledge about the general contract or the subcontractors that may be considered for the project.

Salvatore Scro, Esq.:

Construction defect attorneys sue contractors. That's what we do. Not because we love to sue contractors, but because they're the ones that created the defective condition causing the problem for our clients. So we do have experience with these different contractors and subcontractors. And while anybody can have a day, a bad day sometimes, a bad day over and over again is something to be cautious of.

Salvatore Scro, Esq.:

Also, you want to make sure in the contract terms that the subcontractors that they use are subject to your approval, and that you have the opportunity to accept or reject the subcontractor. The same thing with maybe the personnel that are supervising the project. So it's important that you know the viability of the contractor that you're using, who the subs are that they may use, put in there what the minimum hours are, and also find out what they do to prepare for the project, what they do during the project. Do they do the cleanup every day? How are they going to store their materials? All these things are important things that you need to look at when you're seeking out the right contractor.

Alan Tannenbaum, Esq.:

When you get references, call them because I think there's an assumption that if somebody gives you a list of references that they all had good experiences with your company. Not always true. Or they may say, "They ended up doing a great job but they assigned Tony to the job as the superintendent. We hated Tony. And they gave us a much better guy. You should really ask for that guy, would be the better superintendent." So you will learn things about the job. So it's really great to call those references, find out what their experiences are, what tactics did they use to get the best performance out of that contractor. So call your references.

Alan Tannenbaum, Esq.:

Jon, let's talk about draw schedules. Why is that important to a successful job, to have a balanced draw schedule?

Jon Lemole, Esq.:

Okay. Folks, I want you to remember two things. And if you remember these two things, you're going to be way ahead of the game. Number one, your project is not your contractor's only project. They have multiple projects going at the same time. Number two, they're probably not staffed to do all of the projects that they have going at the same time. Every morning whoever's making the decision, whether it's the owner of that contracting firm or some scheduling people or supervisors or management folks, they have to make a decision as to how they're going to staff the projects that they currently, the multiple projects that they have going at any one time. They've got to put their people in the right places. They've got to order materials and make all of these decisions about staffing, supplies, things like that. Those decisions like for any business are going to be made upon the issue of where they're going to get the most bang for their buck, where are they at risk.

Jon Lemole, Esq.:

So if they don't have any risk on your project because you've paid them more than they've provided in value, likelihood is that they're not going to be putting too much of an emphasis or a priority on getting to your project versus a project where they've got more value in the job than they've gotten paid. And I can't tell you how many times we see associations just accept whatever draw schedule they get in the contract that they're presented with by a contractor. And by and large the contractor has come up with that draw schedule knowing full well that they want to make sure that they have as little risk and they're not financially behind in that project.

Jon Lemole, Esq.:

A lot of these folks have it down to the science. They know how long it's going to take them to get supplies. They know what kind of credit terms they have with their supply suppliers and material suppliers. So they're looking to create a draw schedule that's favorable to them. And when they have a draw schedule that's favorable to them, that is a golden opportunity for your project to get delayed and not be completed on time, and perhaps not even on budget.

Jon Lemole, Esq.:

So a good construction lawyer who's really familiar with these concepts of risk and contractor risk is going to look at that draw schedule and say, "Okay, I want to make sure that my client, his association gets this job done on time. So I want to make sure that this contractor, every morning when he wakes up, he's looking at my project and saying, 'Man, I got to get people out there because I got to get that next draw payment because I don't want to be upside down at any point in time on this deal.'" And that's essentially it. It's a very simple risk reward calculation that needs to be made, but what you're presented with by the contractor is very rarely ever going to be in your favor. And you can address that. You need to address it, and it's one of the most effective ways to make sure your project gets completed on time.

Alan Tannenbaum, Esq.:

Be very careful about deposits. What we try to negotiate for associations is the first payment made to the contractor is after there's some work has been completed and the first draw request is made. Deposits, I've seen some contractors take the position that what you've handed them the deposit is part of their profit on the job, they don't even use it for materials applied to your work. So be careful of deposits.

Alan Tannenbaum, Esq.:

All right. Sal, document the conditions before the work begins, why is that important?

Salvatore Scro, Esq.:

Okay. All right. So we're back. We left off here. But you want to ... This is a really simple topic and a quick topic. You're going to have work done to your buildings, to your units. Maybe they have to go inside the units. There may be some heavy work being performed outside and percussion or something. So you have your interior unit. You may want to document the conditions, because especially if they have pictures on the wall, if they have valuables, if people have to go into their units, you want to ask your owners to go in and just document the conditions. You want to document the conditions outside. There's two reasons.

Salvatore Scro, Esq.:

One is for the protection of the association in the event there's damage to property of an owner, whether it be inside their unit, outside their unit, vehicles, whatever. Also, it's important to document the conditions so that when you identify a problem that the contractor doesn't say, "Oh, that happened before." You want to make sure you let them know, "Hey, I have a document of the conditions and here was a problem."

Salvatore Scro, Esq.:

Don't be afraid to document not only the buildings but a lot of times pavement, sidewalks. We find a lot of times that pavement is damaged with the placement of heavy equipment. Sidewalks are damaged, are stained with certain paints or materials that they're using. But if you don't document those conditions, what happens is for example if this is the unit of one of your owners and the lamp that they got for $10 at Walmart now all of a sudden gets broken, the next thing you know is this is what their place looked like and this is what they want to be reimbursed for. So you want to make sure that you document the conditions to protect the association.

Salvatore Scro, Esq.:

Take photos, dates of the photos if you have date stamps. If you don't have date stamps, you want to have some evidence of when the photo was taken, where it was taken. Make sure you take wide-angle views of things so that when you have to zoom in on certain things, you can identify where they are. But you do want to have proof of existing condition so that if there's trouble, you know what the condition was and what was damaged.

Alan Tannenbaum, Esq.:

All right. I'm going to spend just a few minutes on payment and performance bonds. A payment bond assures that your general contractor pays their subcontractors and suppliers. That's what the payment bond is for. Performance bond protects you if midstream in the project general contractor goes out of business and you have somebody to complete the project or otherwise defaults, you have somebody to step in and complete the project or pay you to complete the project. They're very important protections on major repair jobs, but there's a hidden value to especially the performance bond because the general contractor never wants an owner to have contact with their surety.

Alan Tannenbaum, Esq.:

So if a general contractor is starting five jobs at once and two of them are bonded jobs and three of them not, they're going to have a tendency to put their best people and give their best attention to the jobs that are bonded because the last thing they want is their surety contacted for a claim to be made against the bond which can result in either the bond capacity for that contractor for the following year to be reduced or the bond premiums to go up in cost which could affect the business that they're able to take on in the subsequent year. Contractors do pay more attention to their jobs that have bonds because they don't want that type of owner contact, they don't want any claims against those bonds.

Alan Tannenbaum, Esq.:

One of the things in requiring bonds is some of your contractors who are financially insecure and not bondable, you can strike them off your list because they say, "Well, we're not able, we're not bondable, we're not able to get a bond for a job like this," and then you know you're dealing with people who are qualified financially because one of the prerequisites for securing a bond is you've proven to your surety that you're a company that's financially run has appropriate reserves in order to qualify for bonding.

Alan Tannenbaum, Esq.:

One of the things you'll find if let's say you get three bids and it's a bondable job where you're requiring a bond, you may get different premiums quoted because usually the owner pays the premium, and all of a sudden one contractor will say, "Well, our premium's $7,500," and another one, "It's $4,500." And that's usually because the one that's $7,500 probably had some claims against their bond or maybe they're not as financially secure. And we've gone back to contractors and say, "We're happy to pay the $4,500 worth of your bond, but you're going to have to pick up the other 3,000 because your bond premium is too high relative to these other contractors." So keep that in mind.

Alan Tannenbaum, Esq.:

But it ends up being an incentive for the contractor to pay their subs and suppliers and to complete the job. That's kind of the incidental impact. I mean, I would have to say that part of the answer as to why to have a construction lawyer as part of your team is when they know that a firm like ours is involved, they actually tend to pay greater attention to that job and make sure it comes out right because they know you have a construction lawyer as part of your team. That's another incidental impact of our involvement like would be a performance and payment bond.

Alan Tannenbaum, Esq.:

Jon, keeping regular job minutes and confirming understandings in writing in a timely fashion, why would that be important?

Jon Lemole, Esq.:

And this will be pretty quick. I think it goes, it's obvious, somewhat obvious, goes without saying. But like Sal's discussion about documenting things prior to the start of the job, it's equally important that as the job is progressing, that you document things that are happening on a routine basis. Even if there's nothing that is unusual going on, it's always best practice to have a routine job inspection. Your owner's rep should be meeting with the contractors and inspecting the work that's been done so far and documenting that. But certainly, if there's problems or if there's things that need to be changed, that should always, always, always be put in writing.

Jon Lemole, Esq.:

I'll give you an example of where not doing that became a little bit of a problem. We overcame it, but we had a case a little while back. It was a mid-rise condominium building and it was a re-roofing project. And about a third of the way through the re-roofing project there was a very, very big rain event and the contractor hadn't tied in the new with the old roofing very, very effectively and they had a pretty large flooding problem. And where we had some problems was the failure to have really good documentation about what type of remedial work that contractor needed to do in order to fully ensure that there were not other problem areas with the roof that had already been put down, because again, as you know, water can travel in very different directions.

Jon Lemole, Esq.:

So what happened was this roof got finished and what was discovered subsequently is that there were still some really very wet and moist areas underneath this roof that continued to exist. There's a lot of water trapped under this new membrane. We did a great job. We got a great result for that association. But one of the things that I personally wish I had as a lawyer was much better documentation by the people involved in that project of the type of work that should have been done in order to fully delineate that. We had a lot of wrangling with the roofer as to what that they did what they were required to do, that they fully delineated it, they didn't know where this water was coming from. It certainly wasn't from this rain event. And if we had really good records and minutes on the aftermath of that, it would have made the case a very ... a whole lot easier to deal with.

Jon Lemole, Esq.:

So the takeaway is routinely get out there, document the job, keep minutes, circulate them. If there's things that you and the contractor are going to agree to do, make sure it's in writing. Don't ever assume that we all know what's going to happen. Put it in writing and make sure that everybody confirms that understanding.

Jon Lemole, Esq.:

One other quick reason for that, is if you do find yourself in a dispute and you end up in litigation, one of the things that you want to do is tie that contractor's insurance carrier into this litigation because that's where the checks are going to get written to settle. And a lot of times the CGL carrier only has responsibility for consequential damages. In other words, they don't insure the contractor to repair the work that they did, but they do insure the contractor for damages that their work caused to other areas. So if you do have a problem, documenting what other damages that problem may have caused, other consequential damages, may be key in helping ensure that their carrier comes to the table and that you're not dealing with an LLC that's not adequately funded so that you get a judgment which you may never collect.

Alan Tannenbaum, Esq.:

So at the end of the day when you've had a meeting at the site with the contractor and they made certain promises, doesn't have to be too fancy. We're talking about job minutes. You could just shoot out an email that says, "We had this meeting today and this is what you agreed to," it could be a time, it could be something that's included in the contract. It's not going to be an extra. You confirm it and you can just say at the end, "If I have not properly summarized our discussion today, let us know," and if you get no response, that should be sufficient.

Alan Tannenbaum, Esq.:

Sal, nipping issues in the bud, why would that be important for a successful project?

Salvatore Scro, Esq.:

Okay. Before I touch on that, I did see a question come up that was where do you find an owner's rep. And that's interesting, because you can look for an owner's rep whether it be a contractor could be an owner's rep, an engineer, architect could be an owner's rep. It could be a board member or it could be an association manager. I've had cases where I've had association managers handle the matter and they've done an outstanding job, but they know what their limitations are. They know when to ask questions. They know who to go to to find out if they need additional assistance. So owner's reps, I know Alan can touch on this some more later on, but I just wanted to mention that, because I saw that question. You want somebody who's knowledgeable in what to look for and when to know that they need more assistance as well.

Salvatore Scro, Esq.:

As far as nipping issues in the bud, this is important, especially if you have multiple buildings that work is going to be repeated over and over again, then you want to address what if there's an issue right away so that it doesn't repeat itself over and over again. Usually around the first draw request when the work is completed for that first draw request, you'll have an inspection to make sure the work is performed properly. That's when you need to let the contractor know if there's a problem, and you need to be strong about that. Again, owner's reps are key with that as well because some of them just look and approve and others are very diligent and tough to deal with, and that's a good thing. I've seen both, and the ones that are tough, they may give the people a hard time but they know they mean business and they're going to be on their toes from then on.

Salvatore Scro, Esq.:

I remember when I was young, my parents were building a house and my father was pretty involved in the plans, and he asked for rooms to be insulated on the interior. This is up in Syracuse, New York. We didn't just want the insulation outside but he wanted rooms to be soundproof so that you don't hear noises going through the house. The sheetrock was up, the drywall was up. He went in and he said, "Is the insulation in there?" And they said, "Yeah, it's in there." He said, "Put a hole in the wall," and they said, "We can't do that." He said, "If it's there, I'll pay for it. If it's not there, then you didn't do your job." They put a hole in the wall and there was nothing there, so they had to rip out all the drywall and do it over again. So you need to make sure that those things are done right away.

Salvatore Scro, Esq.:

Most of the contractors are capable of doing good work if you keep them on their toes. Make sure they keep good accounting records so that you know what materials were used so you're not paying for materials that were on another job. So have details of what was used, what materials went into the project. Don't just accept what they say. You want to really scrutinize the job and the accounting, things like that. I actually learned from that at a young age.

Salvatore Scro, Esq.:

The first home I bought, I think I was 23 years old. I bought a home. It was a new town home and I went in, I walked down the carpet and didn't feel the same. So I went and at my closing I said, "The pad isn't right." Well actually before the closing. So they ripped out all the carpet on the two floors, they put a new pad in. I went back in. It still didn't feel right so I went to the model, I lifted up the vent, I ripped out a piece of the pad in that unit. I went to the mine and I ripped it out. One was a quarter, one was a half inch. And the general contractor said, "Well, the subcontractor, that was his fault." I said, "Well, I know it's not my fault. So it's either done or it's not." So they ripped it all out again and put in the new pad.

Salvatore Scro, Esq.:

If you let them know you mean business and you have certain protections in the contract, which is why it's important to have all your repair contracts reviewed by an attorney because we would look at those contracts, we would look at what the possible pitfalls are, what it may be that happens throughout the course of the project that may cause you trouble and put in protections in there that you have the right to inspect and to require inspections and changes if it wasn't done appropriately.

Alan Tannenbaum, Esq.:

All right. The last subject which I'll handle in two minutes is final payment job close out, really crucial. That's the last time you're holding money that the contractor would like, especially if you have retainers it could be a substantial amount of money, that's when you have leverage to get items corrected, to make sure the finances are in appropriate form, to make sure you get all your warranties. One that I've seen, one thing I've seen in project is really project exhaustion, where you've had a board member, owner has been dealing with this repair project for a long time, they're exhausted at the end of the job, and there's got to be a burst of energy while you still hold that final payment to make sure that you get documentation all your lien releases, things get corrected.

Alan Tannenbaum, Esq.:

I'm a great believer in punch lists being done before the contractor has all their money because getting a contractor back to do punch list work is very difficult when they've been paid or there's only a small amount of money that is there.

Alan Tannenbaum, Esq.:

All right. Let me answer a couple questions. Does the engineer or the contractor get the required permits? It's generally the obligation of the contractor to pull the permit. That's who the building department is going to want to see. Who pays for performance to payment bond? That's generally an owner obligation to pay for that bond, but I've seen owners say and negotiating the contract that require the contractor do it, but generally it's an owner obligation. When is arbitration an acceptable option? We don't as a whole like arbitration for owners, generally because the people who are on arbitration boards for construction cases are generally contractors, engineers, architects, construction lawyers. There's no managers or condo board members on typical national arbitration boards.

Alan Tannenbaum, Esq.:

The other thing that you don't have is full discovery rights and you don't have third party practice. A lot of times if something goes wrong, you need to have other parties in the forum, a dispute resolution besides the contractor. Arbitration has great limitations on that. So we generally strike those clauses and go for circuit court for owners.

Jon Lemole, Esq.:

And Alan, it never ... usually it's often said that arbitration is cheaper, and I don't think that's the case. For example, the filing fees for the American Arbitration Association for example are very high. There's a barrier built in at least from the contractor's perspective because when you're looking at a $10,000 or $12,000 or $15,000 filing fee at the AAA, that's a lot of money.

Alan Tannenbaum, Esq.:

So think about it, and Jon's correct, think about it for circuit court, you may have a $400 or $500 filing fee. AAA arbitration, it could be $15,000. And then the judge is getting a salary paid by the state of Florida to administer your case. If you have a three member AAA arbitration panel, you're paying generally half the cost of some very high hourly rates for those arbitrators to review your case and eventually decide it. So actually is not in the end even administratively a procedure that is inexpensive.

Alan Tannenbaum, Esq.:

We've taken up our hour. You could see that we hit some highlights of issues that would need to be ferreted out in greater detail which we can't do today. Hopefully we gave you some food for thought. If you have additional questions, and some of the questions we didn't get to, we will answer them. Hopefully this has been helpful kind of general orientation.

Alan Tannenbaum, Esq.:

The next session we're going to hold in April is going to be on what to include in a good repair contract. We're going to get into the weeds of repair contract, what provisions should be in there, what provisions you should be wary of. We're going to do a full session on that topic, and we're going to carry on every month with these sessions as long as there's a demand and there was a great group of folks came today. There's an evaluation form that's anonymous that you can fill out. Let me see if there's any other questions before we go. Somebody, Michael asked a question about a restoration project. That's something that we can handle offline. We're happy to answer that question for you.

Alan Tannenbaum, Esq.:

I hope this was helpful for everybody, got a little bit of orientation. We have offices in Orlando in St. Pete, Sarasota and Fort Myers. We handle the I-4 corridor and from Hernando County down to Naples. If you're managing a project in Miami, I'll send it to a good construction lawyer down there, but we stay away from the south Florida market for our services. That's allowed me to still be practicing law after 40 years that I got out of south Florida as a lawyer 1983.

Alan Tannenbaum, Esq.:

Thanks everybody for attending, and again, we'll be in touch offline for anybody whose questions we didn't answer. Michelle Colbert will let you know about the video being available because she did record this. So have a great day. Thank you.

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The Smart Board & Property Manager Legal Guide to Resolving Claim Arising from New Construction and Major Repair Projects

The Smart Board & Property Manager Legal Guide - Resolving Claims Arising from New Construction and Major Repair Contracts

  • Has your association recently transitioned to owner control?
  • Are your buildings less than ten years old, and latent defects have become apparent?
  • Are you about to undertake a major repair project?
  • Did you complete a major repair project and are now sideways with the contractor?

If your answer to any of these questions is yes, take advantage of the experience and wisdom of our trial team with over 50 years of combined experience in resolving such claims. 

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Addressing Needed Building Repairs

The Smart Board and Property Legal Guide: Addressing Needed Building Repairs.

"The primary purpose of Florida condominium and homeowner associations is to maintain and repair the common areas and other components under the jurisdiction of the association. The Board of Directors' duty to direct proper maintain and repair steps is heightened by both the Condo and HOA Acts placing directors in a fiduciary relationship with the owners while at the same time, through statute and the governing documents, prohibiting owners from undertaking self-help measures. Securing appropriate engineering studies, with guidance from construction counsel both as to the choice of the engineer and the scope of the investigation, is suggested in order to assure that the Board is meeting its fiduciary obligation." 

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