Milestone Report and Structural Integrity Reserve Study
Despite the Florida legislature’s best efforts, there nevertheless remains confusion with the interpretation of Senate Bill 4-D (SB 4-D), which provides for condominium and cooperative milestone inspections and structural integrity reserve studies. The purpose of this article is to draw attention to many of these glitches in hopes that the 2023 Florida legislature will address these issues by passing a glitch bill to provide needed and worthwhile clarity for Florida’s community association board members affected by this game-changing legislation. First, a couple of glitches applying to the entirety of SB 4-D are addressed, followed by the glitches related to the required milestone report, and then glitches related to the structural integrity reserve study requirements are addressed. This article does not go into detail explaining the requirements of SB 4-D as that was the subject of a prior article from August 2022 FLCAJ, which can be easily found and read HERE.
Glitches Related to the Entirety of SB 4-D
The term “common areas” is used throughout SB 4-D. While this is appropriate for cooperatives, it is not appropriate in the context of condominiums. Chapter 719, Florida Statutes, applicable to Florida’s cooperatives, defines “common areas” as the portions of the cooperative property not included in units. But, as to condominiums there is no similar definition. Rather, Chapter 718, Florida Statutes, applicable to condominiums, uses the term “common elements” to refer to portions of the condominium property not included in the units. This clarification should be made.
Is SB 4-D so very substantive in nature such that “Kaufman language” should be required for its provisions to apply? Obviously, the intent is that the entirety of SB 4-D should apply to all existing and future condominium and cooperative associations. (By way of oversimplification, “Kaufman language” refers to a provision set out in a declaration which makes patently clear that all legislation upon becoming effective, applies to the association. For example, in “This declaration is subject to Chapter 718, as it is amended from time to time, the italicized text is the “Kaufman language.”) There is language in SB 4-D which suggests that the milestone inspection is applicable regardless of Kaufman language. But, there is no equivalent in regard to the requirements of the structural integrity reserve study. In any event, additional clarity should be provided which makes it patently clear that regardless of Kaufman language, all of the requirements set out in SB 4-D apply.
Glitches Related to the Milestone Report
The milestone inspection applies to condominium and cooperative buildings that are three stories or higher, with a notable exception for single-family, two-family, or three-family dwellings with three or fewer above-ground habitable stories. Why does this exception only apply to the milestone report and not the structural integrity reserve study? Any resulting glitch bill should also include that single-family, two-family, or three-family dwellings with three or fewer above-ground habitable stories are exempted from the need for a structural integrity reserve study.
Also, what about commercial condominiums and cooperatives? If a condominium building is taller than three stories, let’s say a 50-story tower, and is a mixed-use building where there are both commercial components, residential components, and even components belonging to a master association; and as a part of the declaration of condominium, certain floors are exempted from the definition of the condominium at issue, then is the entire building subject to the milestone inspection or only those floors which are designated as part of the condominium as determined by a review of the declaration of condominium? Also, what if the condominium does not touch ground, as in a vertical subdivision where the condominium may not begin until the 10th floor of a building? Is the entire building subject to the milestone inspection or only those floors which are included within the condominium subdivision?
SB 4-D is patently clear that a milestone inspection must be performed within 180 days of receipt of notice from local government. But, what if the association already prepared its milestone report in conformity with the statutory deadlines, which are either 30 years from the date of the certificate of occupancy issuance; 25 years from the date of the issuance of the certificate of occupancy if the building is within three miles of a coastline; or by December 31, 2024, if the building is already 30 years past its issuance of the certificate of occupancy? Must that association have another milestone report completed or even expend association funds updating its existing report? In addition, why shouldn’t a condominium or cooperative building that is already 25 years past the issuance of its certificate of occupancy and is within three miles of the coastline also have its initial milestone report completed by December 31, 2024?
The milestone inspection requirements refer to “story” and “stories” without providing any meaningful guidance as to what it means. Is the below-grade parking structure to be included within the definition? How about an above-grade parking structure? Is the term “story” only to apply to habitable stories? Is the definition of the term “story” (i) a part of the building that comprises its different levels, which is situated above or below other levels; (ii) the space between a floor and a ceiling, or (iii) the definition of the term “story” which is used in the Florida Building Code as follows: “that portion of a building included between the upper surface of a floor and the upper surface of the floor or roof next above”?
What is a “coastline”? Section 376.031 of the Florida Statutes, as referred to in SB 4-D, defines a coastline 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 determined under the Convention on Territorial Seas and the Contiguous Zone.” If the statutory definition is applied, then many buildings likely intended to be subject to the 25-year requirement will be instead subject to the 30-year requirement.
Glitches Related to the Structural Integrity Reserve Study
The structural integrity reserve study, otherwise referred to as the “SIRS,” must be completed by all Florida condominiums and cooperatives with buildings that are three or more stories by December 31, 2024. With this in mind, if the association receives its SIRS after it adopts its 2025 annual budget, but prior to the December 31, 2024, deadline, it means that the SIRS reserves will not actually be funded until the association’s 2026 annual budget is implemented. This is not the likely intent of the legislation and should be clarified as to whether this is permissible. The Division of Florida Condominiums, Timeshares, and Mobile Homes (the Division) has intimated that it will require the SIRS reserves to be included in the association’s 2025 budget. If that is going to be the case, then this absolutely must be clarified in a future glitch bill. Governmental agencies cannot adopt laws in contravention to existing legislation. If they take such a stance, then they will have a significant uphill battle if later challenged in a court of law with regard to such a position. Hopefully, a glitch bill will address this issue.
If an association receives its SIRS prior to December 31, 2024, and includes the results in its 2025 budget, so long as the membership vote to waive or reduce the reserves is taken prior to the December 31, 2024, deadline, then ostensibly the 2025 required reserves could be waived or reduced. Is this an intended result of the legislation? It should be clarified.
The SIRS requirements apply to condominium and cooperative buildings three stories or higher. Once again, the definition of a “story” needs to be addressed to provide needed clarity.
The items required to be reserved for (if the SIRS requirement applies) include the following:
- Load-bearing walls or other primary structural members
- Fireproofing and fire protection systems
- Electrical systems
- Waterproofing and exterior painting
- Any other item 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 subparagraphs a.-i., as determined by the licensed engineer or architect performing the visual inspection portion of the structural integrity reserve study.
Can the aforementioned items be “pooled” from the outset, or is a vote of the membership required to do so? (In short, pooling reserves assumes not all of the components will break at the same time and there will be sufficient funds on hand when needed for each of the components’ major repairs and/or replacement.) What if the association already has a reserve pool which includes the roof, paving, and painting and now desires to include that pool as a part of the new pool for the items listed above; is a vote of the membership needed to combine the pools? Not only is clarification needed in this regard, but the association needs to make sure there is a clear record of which components are in each pooled reserve. It is reported that the Division takes the position that the aforementioned reserves can be pooled in one or more pools. Perhaps they will clarify this when adopting administrative rules. However, such clarification would be better suited in a glitch bill.
Effective December 31, 2024, the members of a unit-owner controlled association may not determine to provide no reserves or less reserves for the aforementioned reserve items. With that in mind, consider the following: The board adopts the 2024 budget in November of 2023. Thereafter, on December 1, 2023, the unit owners vote to waive or otherwise reduce the required reserves. Will this be considered a violation? Sources indicate that it will not; however, this too should be addressed in a glitch bill.
While the likely intent of SB 4-D was to require fully funded reserves for the items listed above for buildings having three or more stories, SB 4-D provides that the members of a unit-owner controlled association cannot vote to waive or reduce reserves for those items set out above, without exception for buildings with fewer than three stories. This should be clarified in a glitch bill.
Whether intended or not, the requirement prohibiting the unit-owner controlled association from reducing or waiving the reserves for the items listed above applies to ALL condominiums and cooperatives, not just those three stories and higher. If this was not intended, then it should be clarified that condominium and cooperative associations that are not required to have the SIRS should be able to continue to waive and reduce reserves.
What does a “fully funded” reserve” mean, fully funded for the particular year or sufficient funds on hand for the cost of replacement? The answer to this question truly depends on whom you ask and in which state they reside. In Florida, as applied to condominium and cooperative associations, a fully funded reserve refers to whether the association is properly funding the right amount for the year in question. It does not refer to whether the reserve account has the total sum required for the component’s replacement. For example, assume the reserve item in question has a replacement cost of $100,000 and a life of 10 years. The association has been reserving $10,000 per year each year, and it is year seven. The budget denotes the $10,000 reserve for year seven, too. Therefore, this component is fully funded. A different example includes the same component that has a replacement cost of $100,000 and a life of 10 years. In this example, the association has never reserved for the item, and it is year seven, meaning there are three years left before the component will need to be replaced. With this in mind, the fully funded amount to be included in the budget would be $100,000.00 divided by the remaining three years, which is $33,333.33. Any amount less than that would mean the reserve item is not fully funded for that year. In any event, a definition for the term “fully funded” would provide some much-needed clarity.
Regarding the requirement to reserve for the foundation, exterior walls, flooring, and load bearing columns: will these items ever need replacing? It is doubtful. However, serious and expensive repairs may be incurred. SB 4-D should be clarified in this regard.
Regarding the requirement to reserve for windows: what if the unit owners are responsible for the windows and not the association? Why should the association have to reserve for window replacement if the association is not responsible for the windows? Therefore, clarity is needed.
The SIRS can be performed by any person qualified to perform such study. However, the visual inspection portion of the SIRS must be performed by a Florida licensed engineer or architect. The qualifications required to perform the non-visual portions of the SIRS needs to be addressed in a glitch bill.
SB 4-D does not require that the SIRS be provided to every owner. Shouldn’t it? This should be addressed in a glitch bill.
By no means are the above items all of the glitches contained within SB 4-D. However, by minimally addressing at least these items, the 2023 Florida Legislature will be doing the owners of Florida’s condominium and cooperative units a great service.