Cost of Condo Ownership Likely to Rise Pending New Law In Wake of Surfside Tragedy
Currently, Florida lawmakers are about to pass on a bipartisan basis one of the strictest condo inspection and reserve funding requirements within the United States. The legislation is an attempt to prevent tragedies such as the horrific Surfside, FL collapse last June, which raised issues of condo ownership, collective responsibility for condo maintenance and upkeep, and inadequate reserves.
Picture courtesy Tampa Bay Times
Under the Florida House bill that passed, the law would require condo buildings that are three stories or taller be inspected and recertified when reaching 30 years of age, and those condos within 3 miles of the coast to do so every 10 years, Under the Senate version, condo inspections near the coast would start in at 20 years and be required every seven years thereafter.
Both of these bills involve an initial visual inspection, and if that identifies potential structural problems, a more intensive second inspection. Inspection reports are then provided to unit owners and local building officials, providing for local officials to penalize condo associations that fail to remedy the repairs.
Further, condos would have to conduct periodic reserve studies to determine how much reserves are needed to fix the repairs. Under the House bill, unit owners would not be able to waive collecting reserves, as they currently can, while the Senate measure would tighten the requirements for waiving. Funding Reserve studies would be provided to each unit owner.
How may this affect condo purchases in South Florida?
According to the Wall Street Journal, more that 900,000 of the approximate 1.5 million condo units in Florida are at least 30 years old, and they have more than 2 million residents. Both the required inspection and reserve reports envisioned by this new law would provide potential purchasers of such condos further insight as to the structural integrity…and the financial strength of the property itself.
With more transparency, unit owners who currently do not have any or have minimum reserves may have significant increases in their maintenance payments. Some sellers may even have to lower their selling price to adjust to such increased costs, especially if the condo has extensive repairs to be done.
While there is an issue of affordable housing in South Florida, this new law may result in increased demand for new condo construction coupled with developers and investors potentially negotiating and offering lowered prices to tear down existing structures in order to build new construction.
Additionally, since many condos at issue are decades old, there are many unit owners that may be on fixed incomes and unable to provide their pro rata share of reserves needed to make necessary repairs. As a result, there will be increased condo units on the market, causing sale prices to lower. Further, there may be more people seeking to rent as opposed to purchasing another property.
What does this all mean?
Once passed, the new Florida legislation will provide transparency as to the fiscal as well as structural condition of condos throughout our state. Condo owners will not be able to necessarily waive their reserves and the condo associations will be required to make the necessary repairs in order to prevent another Surfside tragedy. Should the condo association and the unit owners not be able to absorb the amounts necessary for such repairs, there will be an increase in the number of condos on the market and potentially a shift from unit owners to renters.
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