Florida Condo Owners Prepare for Upcoming Inspections and Reserve Requirements

Condo owners in Florida are already facing increasing insurance costs, and they may soon see higher monthly fees as well. This is because the state is introducing new regulations on structural inspections and reserve funds.

In response to the tragic collapse of Champlain Towers South in Surfside, Fla. that killed 98 people, Gov. Ron DeSantis signed a law in May requiring new structural inspections of most condo buildings over 30 years old, or 25 years old if within 3 miles of the coast.

The reports of the inspections must be given to condo owners, condo associations, and local municipalities. If the inspections reveal major structural problems, then local enforcement agencies and condo associations will determine how to move forward, with condo residents having to pay for it.

Even if structural repairs aren't needed immediately, the bill has other major provisions involving reserve requirements that might become a big financial headache for many condo owners. According to the bill, condo associations would be required to set aside a certain amount of money each year to cover future repairs and maintenance. This could be a major financial burden for many condo owners, who may not be able to afford the required annual contribution.

In Florida, it is common for associations to waive their reserves year after year, according to Suzanne Hollander, a real-estate lawyer and professor at Florida International University’s Hollo School of Real Estate. Owners at Champlain Towers South put off paying for repairs partly because owners fought over paying for them.

Under the new law, condos can no longer waive reserves for building components deemed critical to structural soundness. This means that many condo associations will have to make up reserves waived in prior years and provide new reserves for certain structural issues. This change will help ensure that condos are better able to maintain their buildings and keep them safe for residents.

Approximately two-thirds of buildings in the Miami area are more than 30 years old. Many of these buildings will probably pass a visual inspection that won’t be too expensive. “If buildings have been doing regular upkeep, they shouldn’t have a problem,” said Michael Liu, director of the Miami-Dade Department of Public Housing and Community Development.

However, buildings that have neglected maintenance for many years may not pass a visual inspection. In that case, a more thorough inspection may be necessary. The new law also gives local governments the ability to penalize condo associations that fail to address needed repairs.

Restoring reserves as required by the new law could create a hardship for residents, especially those on fixed incomes, Ms. Hollander said. “This law is a challenge for retirees,” she added.

Condos in the Miami area are scrambling to comply with new regulations at a time when insurance rates are doubling and interest rates have put a damper on sales. The condo market in the Miami area was booming until earlier this year.

Real-estate lawyers, project managers and developers expect prices to decrease next year as condo owners grapple with increased costs of ownership. Those effects have started in certain submarkets, including Miami Beach and Surfside, where a building collapse occurred.

There is no available data on the number of buildings that do not meet the new reserve requirements. However, real estate firms estimate that the number could be in the thousands.

"This is going to hit a lot of buildings along the beach," said Greg Main-Baillie, executive managing director of Colliers' Real Estate Development division. "It's going to put people in a really, really tight spot."

One of the condominiums he is working with has an average assessment of $125,000 per unit to deal with structural issues. In order to finance renovations, the building (which has 500 units) is looking for a single large loan on the open market. Another building he is helping has condos priced at around $400,000, with special assessments of $150,000. In this case, residents will need to find their own individual loans.

"The new law is going to have a big impact on condo boards over the next few years," said Mr. Main-Baillie. "You're going to see a lot of people leaving, and prices will go down."

Stonbely, who lives with her 21-year-old daughter at Brickell Place Condominium, has already been hit with a $34,776 special assessment to renovate their pool, roof, parking deck and other structural elements of the building. In all, it adds up to another $414 a month for the next seven years, on top of the $853 she pays in monthly maintenance fees.

Ms. Stonbely said that it is actually impossible to keep her home. She canceled her insurance because she couldn't afford it.

At a recent meeting, Ms. Stonbely and other residents were informed that the reserves were completely depleted. The amount that she and fellow residents would have to pay to fully fund their reserves by the end of 2024 has yet to be determined.

Miami-Dade County has set aside $9 million for zero-interest loans to help condo owners who make less than 140% of the area median income. So far, the county has only received about 50 applications and is working to spread the word about the program.

"We're not sure how many buildings will be affected by this program," said Mr. Liu. "Hopefully it will be a minority of cases."