No More Kicking The Can Down The Road: A New Law Aims To Help To Prevent Another Condominium Tragedy
By Hallandale Beach Mayor, Joy Cooper
July 21, 2022
Last week, I reviewed the new State Statute requirements for Building Safety. As part of the Broward County 40 Year Building Taskforce, we had a robust discussion about the need for Reserves. For years buildings could simply vote to waive Reserves. The new Law establishes a criteria to do a Reserve Study to set a minimum Reserve needed to address needs for specific elements of a building and elements that impact the functionality of the other components that cost over $10,000.
The new Law is called “Structural Integrity Reserve Studies and Mandatory Reserves” which amends Florida Statutes Chapters 718 and 719 that require all Condominium and Cooperative Associations with any building three or more stories in height to obtain “Structural Integrity Reserve Studies” every ten years to determine remaining useful life.
Reserve Studies are simply a budgeting tool, which provide information of how much should be set aside to address future improvements. For example, our City has a Reserve Policy. Our Reserve goal is 16% based on our 3 months of operating costs. In our case, the Reserves do not include asset replacement costs. They are for operational costs in case of disasters. This is a Government based practice. Like Condominium Law we are also expanding our set asides for replacements of major items. (I will cover our Budget in future articles.)
Reserve Studies identify the current status of the Reserves and incorporate an Equitable Annual Savings Plan to offset the anticipated future major common area expenditures. It plans projected analysis of both physical needs and future costs. In short, it smooths out savings so that residents are not kicking the can down the road and getting slammed with surprise Assessments in the future. It also creates a protection for the future, if there are changes to a board. This is important since in the past owners could vote Boards out if they were doing the right thing and making all required repairs.
The new laws require the reserve study to be done every 10 years. It includes a section of the specific physical common areas. The inspection report must include roofs, load-bearing walls or other primary structural member, floors, foundation, fireproofing and fire protection systems, plumbing, electrical systems windows, and waterproofing and exterior painting. There is what I call a catch all profession that includes any other item that has a deferred maintenance expense or replacement cost that exceeds $10,000 and if the failure to replace or maintain such item negatively affects the items listed.
So, what may the cost look like? According to my research just like I noted about our City there are industry based practices. In general, on average funds need at least $2,000 per unit per year to avoid under funding. So, Reserve funding included in your monthly maintenance in this scenario would be $166. This obviously is a projection and depends also on the age and size of the building and how much deferred maintenance. In older and larger buildings, the cost could be upwards to $4,000 per year or $340. Not like all budgeting, these are projections.
The cost of a Reserve Study can vary greatly. During my service on the building task force this topic came up. Factors that can affect the costs included in the size of the association, the type of association and the nature of the common elements. We debated whether they should do them every five years or ten. Ten is not bad because typically buildings should be looking at common areas daily. This goes back to what I wrote about in the last article, shared responsibility of Boards, Managers and residents. Reserve Studies can cost you anywhere between $500 to $10,000.
I was on a recent post where I was already ridiculed for bringing up this new Amendment. I wasn’t surprised as there are always residents that do not understand the costs to live in a building that does not stop at the front door. Many also do not understand that maintenance is different from Reserves. Maintenance does not include large items like roofs that need to be replaced.
I like to use this example of homeownership. Monthly costs include water, sewer, electric, trash removal, insurance telephone, cable, possibly homeowner fees, landscaping and security. An owner budgets for those expenses. After 15-20 years the roof needs to be fixed. The average roof can cost anywhere from $14,000 to $25,000 depending on the size. The Owner put away savings that have to be paid out of pocket. The same holds true for any type of ownership.
Most boards run their buildings responsibly. Sadly, there are some like the Champlain Towers that do not do the right thing. Many of our buildings are doing the right thing and others continue to avoid and delay repairs.
Our City, like all others, have acknowledged that they must be part of the solution. Since the Champlain Towers tragedy we have set up a Building Inspection Inventory. This Inventory is now online at: www.cohb.org. You can find out where your building stands with inspections.
As always, feel free to contact me anytime with your questions, concerns and ideas on how to make our City a great place to live, work and play! I am available by phone or text at: (954) 632-5700. E-mail me at: email@example.com Or visit my Facebook & Web-Site at: www.MayorJoyCooper.com