What you may need to know
The Florida Legislature passed Senate Bill 4-D in in May 2022, which creates new requirements for condominium and co-op buildings three or more stories tall. SB-4D establishes a statewide inspection program, requiring condominium and cooperative associations to conduct milestone structural inspections and perform structural integrity reserve studies. Here are some key provisions of the new law.
1) Required Milestone Inspection by December 31, 2024. Generally, Florida Senate Bill 4-D requires all condominiums 3 stories or more that are within 3 miles of the coastline, 25 years old or older to have a Milestone inspection. This requires an on-site visual inspection of the building performed by a Florida-licensed Engineer or Architect. After the visual inspection, the Engineer or Architect may recommend a Phase-Two inspection. Most of the expert Engineers and Condo Association Lawyers discussing this new inspection (online and in the Media linked below) advise that most Engineering and Architectural companies will not rely solely on a visual inspection and will require a Phase-Two inspection. This Inspection may employ and rely on more invasive techniques to inspect walls and foundations, etc.…. It will also have more stringent testing for “The Systems” like fire, plumbing, and electricity. Just to give you an idea of the scope and magnitude of the inspection process here are the items to be inspected by the mandatory inspection.
- Roof
- Load-bearing walls
- Floors
- Foundations
- Fireproofing/fire protection systems
- Plumbing
- Electrical systems
- Exterior painting & waterproofing
- Windows
- Any other item that has a Deferred Maintenance expense or Replacement Cost that exceeds $10,000 and the failure to repair or maintain it negatively affects any of the other SIRS items above, as determined by the licensed individual performing the visual inspection.
2) The structural Integrity Reserve Study (SIRS). As it stands today, Florida Senate Bill 4-D (the Surfside Bill) may require a significant increase in the reserve budget for most condo associations. Depending on the current reserve levels of a condo some will need to quickly collect enough money from the owners to meet the reserves required for future expenses dictated by the bill. This could hit many condo owners hard and could also most likely affect the general Florida Condo real estate market negatively.
Requirements of the Study include:
- Visual inspection performed by Florida-licensed engineer or architect.
- Identification of common area elements inspected.
- Estimated remaining useful life of each element.
- Replacement cost or deferred maintenance expense of each element.
- Recommended annual reserve amount needed for replacement or deferred maintenance expense of each element.
- Studies must be maintained for at least 15 years after completion.
The Structural Integrity Reserve Study (SIRS) is different from the traditional reserve study most condo associations use today. Some of the differences include the following: The traditional reserve study is typically performed by a qualified accounting firm for budgeting purposes for elements that will need future maintenance or replacement. The SIRS identifies 9 very specific elements (listed above) to be included, some of which may never have been reserved for, such as, load-bearing walls, and foundations.
Another major difference in the SIRS vs the Traditional reserve study is that in the past, the membership may have been able vote to waive the collection of the funds for the reserves or to only partially fund the reserves. There is now a mandate to fully fund the reserves as specified in SB-4D. The two new requirements of this bill, the milestone inspection, and the SIRS could certainly lead to increases in association fees and the potential for special assessments in the coming months and years.
Because SB-4D is a new law and still open to interpretation and commentary through the end of 2023, additional work may be required to comply with changes to the law as new information is issued by the Florida Legislature, Florida Building Commission, and Florida State Fire Marshall.
To read the full Bill click Below Senate Bill 4-D
https://www.flsenate.gov/Session/Bill/2022D/4D/BillText/er/PDF
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Master Property Insurance cost is one of the main factors for skyrocketing condominium Association fees and Special Assessments:
Florida’s insurance crisis may be worsening. Some state officials and industry advocates have said the pullbacks, along with major rate increases from other insurers, are the latest indications that Florida’s insurance crisis may be worsening, likely leading to a market with only a handful of carriers left standing in years to come.
“All of these companies suspending writing should be the canary in the coal mine for lawmakers,” said William Stander, director of the Florida Property and Casualty Insurers Association of America
The move is another squeeze on Florida condominium owners, which have seen other carriers non-renew, raise premiums, or require more inspection and safety data in the wake of the 2021 collapse of the Champlain Towers South near Miami Beach. The late-night collapse killed 98 people and led to significant legislative reforms, requiring more frequent inspections and more repair funding to be reserved by condominium associations.
So what is the Master Condominium Policy?
The Master Condo Policy is the insurance policy that is held by The Condominium Association. Its premium is typically funded by maintenance fees or association dues. Generally speaking, the condominium association insures your building and the common elements of the building under an insurance policy, typically called the master policy. As a general statement, master policies cover the basic building (i.e., the walls, roof system, flooring, elevators, etc.) and not items associated with the individual units.
After a tragic building collapse that killed 98 people in Surfside, Florida, in 2021, a $1 billion insurance settlement has driven many Insurance carriers away from insuring Florida condos.
What does this mean to owners of condominiums on the Florida Gulf Coast?
Historically, mid-year of each year Condo Associations get a renewal notice with the increase in premiums (rates) for the next year, and this premium is calculated into the budget for the next year. In 2022 there was a significant increase in rates and many of the insurance companies pulled out of the Florida markets altogether due to the heavy losses. This made it harder and more expensive to acquire a master Insurance policy for older Condominium buildings in Florida. This was disturbing but most associations were able to adjust for the increase.
In 2023 even more Insurance carriers made the decision or had to exit the Florida market. When it was time for the 2023 rates to be quoted many associations received a notice of non-renewal from their existing carrier. As panic ensued the association managers and boards scrambled to seek quotes from the few carriers that chose to remain in the Florida condo market. With so little competition and such perceived risk, the quotes were often doubled, tripled, or more as the insurers tried to reduce the risk of loss. The Condo Associations had no option but to absorb the 2023 premiums and pass the increase on to the Condo owners in the form of increases in monthly or quarterly assessments or a Special Assessment.
Fast forward and buckle up for 2024 premiums, 2 reasons why the experts predict 2024 is going to have an even higher percent increase over 2023.
1) The 2023 premiums did not factor in the losses and impact of Ian or Nicole but the 2024 premiums will.
2) Due to Senate Bill 4-D the insurance companies will begin to require much more documentation and scrutiny of the reserves and the newly required Structural Integrity Studies from each building and Condo Associations before quoting and writing policies.
