Unintended Consequences: The South Florida Condominium Association Dilemma Post-Surfside

In the aftermath of the Surfside condominium collapse, South Florida's condominium market finds itself facing a complex web of challenges stemming from well-intentioned legislative changes, insurance carrier responses, and stringent lending standards. These measures, designed to enhance safety and financial stability within the condominium association industry, have given rise to unexpected outcomes that are now reverberating through the market.

The Insurance Carriers' Reaction:

The immediate response to the Surfside tragedy saw insurance carriers in Florida taking action to mitigate risk. They not only increased premiums for condo associations but also mandated extensive and costly capital projects. Associations found themselves tasked with roof replacements, electrical panel upgrades, concrete restoration, road resurfacing, and other projects identified by insurance carriers' risk management teams.

The outcome was swift and challenging: special assessments and loans became immediate necessities for condo association members, leading to substantial increases in association fees. These increased fees compounded an already substantial burden, as insurance premiums traditionally made up over 30% of a typical association's budget.

Tightened Lending Standards:

Banks and lending institutions further complicated matters by imposing stringent lending standards on condominiums. These new standards made it increasingly difficult for associations to secure financing for necessary repairs and improvements. Adding to the complexity, the FHA Condo Questionnaire introduced risk assessment questions that disqualified many older condos in Miami, which constitute a majority of the over 4,800 condominium associations in the city.

Legislative Changes:

The legislative changes aimed at fortifying financial stability introduced another layer of complexity. These changes included revisions to the law governing budget meetings (Section 718.112(2)(e), F.S.) and reserve funding requirements (Section 718.112(2)(f), F.S.):

1. Associations subject to the structural integrity reserve study (SIRS) requirement must base their budget, adopted on or after January 1, 2025, on the findings and recommendations of the most recent SIRS conducted by the association.
2. Reserves must be established for SIRS items according to the condominium declaration.
3. Reserves for replacement costs are not mandatory for items with an estimated remaining useful life of over 25 years, but the SIRS study may suggest deferred maintenance expenses for such items.
4. Non-SIRS associations can waive reserves with the approval of a majority vote of total voting interests.
5. Multi-condominium associations can also waive reserves with an approved alternative funding method from the Florida Division of Condominiums, Timeshares, and Mobile Homes.
6. Reserve assessments may be adjusted for inflation.

Impact on Condo Association Budgets:

As FY2024 condominium association budgets are being finalized, the true impact of these legislative changes is becoming clear. Management companies find themselves caught in the crossfire, even though they bear no responsibility for the situation. Many families are now grappling with tough decisions, contemplating listing their units for sale and relocating to more affordable housing options due to the escalating costs of condo ownership.

Conclusion:

While the post-Surfside legislative changes and insurance carrier responses aimed at enhancing safety and financial stability within the condominium association industry, the unforeseen consequences are now testing the limits of South Florida's condo market. As stakeholders assess the situation, it's evident that a balanced approach is needed to ensure safety without overwhelming condo owners with financial burdens. In the meantime, residents face the stark reality of rising costs and the possibility of uprooting their lives in search of more affordable housing.