Guidance for Condo Associations in Wake of Champlain Towers Collapse
August 10, 2021
By Raymond M. Roberts & Marilyn Le Lodico with assistance by Gabrielle K. Shaulis
Condo associations face the potential expense of emergency repairs and planned maintenance
The tragic collapse of the Champlain Towers South condominium resulted in many unanswered questions and widespread concern across the country. While investigators continue to search for a cause, it has become clear that the Champlain Towers South Condominium Association struggled to fund necessary repairs to the building. It is believed that a myriad of uncompleted repairs contributed to the building collapse. The association’s financial inability to make needed repairs has been attributed by some observers to an inadequately prepared reserve fund.
Residents of condominium communities pay monthly, quarterly or annual assessments of fees or dues that are used to pay for maintaining or repairing the building or costs of the association, such as insurance. In most cases, condo associations will set aside a portion of the fees or dues collected in a reserve fund, which is essentially a savings account to ensure that it has funds to pay for major expenditures, such as replacement of the HVAC systems or roof repairs. If an association does not have a reserve fund, or has an inadequately funded reserve fund, major, unplanned expenses for significant or emergency repairs would typically result in a special assessment charged to owners.
In the case of the Champlain Towers South condominium collapse, the building had significant structural issues that had been cited in inspections over the years prior to the collapse. The Champlain Towers South Condominium Association did not complete the repairs because it did not have the funds, partly because it did not have a reserve fund for capital repairs and replacement. Florida’s laws do not currently require that condominium associations maintain a reserve fund to execute repairs. That may well change in the future. Likewise, Pennsylvania laws do not contain specific requirements for a reserve fund, but they do require the governing boards of condo associations to act in good faith and in the best interest of the condo association and make decisions that are well-informed and reasonable.
It can be difficult for condo associations to generate the support needed to maintain reserve funds each year. Owners are reluctant to pay additional fees or higher dues, whether it is because of the financial burden, or the belief that they won’t be living there when that repair is needed, so why should they pay for it now. That is understandable; nobody wants to pay more than they believe that they absolutely have to. But, by the same token, the current owners should be expected to pay for the current wear and tear on the building and its components that contribute to the need for repair and replacement while they are living there, just as future owners will have to pay during their residency. A big part of getting owners to accept the need for a reserve fund (and the potentially higher association fees or dues that go along with it), is education. Disasters such as the Champlain Towers South condominium collapse offer the opportunity to open those discussions with owners to educate them on the actual needs of the association and the ongoing maintenance, repairs and replacements that such a building will always require.
One way to highlight those needs would be to hire an independent firm to conduct a reserve study identifying the physical components of the building that require ongoing maintenance and repairs. This inventory of the physical components would identify each item (such as HVAC systems, elevator, windows, roof, foundation, etc.), provide an assessment of their current physical condition, an estimate of their remaining useful life and an estimate of the repair or replacement cost for each item. The reserve study would not stop there; the second part of the study would make recommendations for a formal funding plan to address how the association would pay for those repairs.
In the meantime, condo associations will still face the potential expense of emergency repairs and planned maintenance. Below are some suggestions that could help associations be prepared should an emergency ever occur.
- Create a provision within the association’s bylaws that allows the Executive Board to allocate money to a reserve fund that is not subject to owner override.
- Include a provision within the bylaws that requires a reserve fund to be part of a budget. If necessary, include a provision that only allows an exception in situations of “unreasonable hardship.”
- When outlining a budget, use specific language to describe each expense. Specify the amount of money allocated and its dedicated use. Consider creating separate reserve funds for high-cost projects. This alleviates the potential for owner concern about over budgeting.
- If a reserve fund is not created in a particular year, be specific and transparent with owners about the risks assumed.
- Stay informed on the condition of buildings by conducting reserve studies every 3-6 years. Current information will allow an association to plan and budget for maintenance costs and will help prevent emergency expenditures. .
The aftermath of the Champlain Towers South condominium tragedy could lead to a change in condominium and homeowners association laws across the country, including requirements for reserve funds. Rothman Gordon works diligently to stay current on developments in condo association and planned development laws. If your homeowners association or condominium association is looking for legal counsel, we welcome the opportunity to discuss if we are the right law firm for you. Contact us online or call (412) 338-1148.