SIRS and Traditional Reserve Studies

By Sundeep Jay, RS / Published January 2024

There still seems to be a lot of confusion related to the new laws for condominiums and co-ops. I hope this article further clarifies any uncertainty that might still exist. As usual, if there are any doubts, please contact your association/cooperative’s attorney.

     Firstly, it still appears that many associations are confusing the milestone inspection with the SIRS inspection. The milestone inspection is a separate report from the SIRS report required by the State of Florida. There are different rules and regulations governing the milestone inspection.

     The SIRS is a separate report all together. I have been explaining to my clients that the SIRS is still a reserve study. It is a budgeting tool required because the State of Florida now wants all residential buildings that are three stories in height or taller to be fully funding their reserves for specific categories. You need both reports, and both reports have their independent requirements. Speak with your engineer and or your city/county building department for specific information on the milestone inspection. A milestone inspection is a more in-depth inspection of your property that includes a level 1 and possible level 2 inspection.

     Secondly, there still seems to be confusion between fully funding reserves versus fully funded reserves. Here is an example of the difference between the two uses of terminology…, keep in mind fund “ing” versus fund “ed.” If you have a roofing system that lasts 20 years with a cost of $100,000, your normal annual contribution amount would be $5,000 a year for 20 years. If your association handled reserves properly, your “annual fully funding” amount would be $5,000. Now, in the same example, in year 10, your association only has $20,000 in the reserve account, you are now $30,000 short on your roofing reserves. The association would be “fully funded” if the association had $50,000 in their reserve account at the 10-year mark. You do not have to be fully funded and special assess the $30,000 today. The State of Florida is not requiring associations to be fully funded, but they are requiring associations to be annually fully funding their reserve account. In that roofing example, you now will have to collect $5,000 annually for the next 10 years as your normal annual contribution and another $3,000 per year for deficit funding. So, your “fully funding” reserve contribution for the roofing system is now $8,000 annually for the next 10 years — this is what the law requires from associations.

     Below are some of the common questions and answers that your community might have regarding the new condominium/co-op laws that are now in effect for the State of Florida.

1. As board members of a condominium association, what are we required to have in our reserve budget?

     It is the fiduciary responsibility of board members to include all items that typically belong in reserves. Leaving out elevators under the assumption that your association will special assess the project is not acceptable. The association can decide to special assess in the year of the elevator project but should not assume this five years prior to the elevator project.

     In most cases board members and property managers are not experienced enough to complete a proper reserve study and should seek the services of a professional reserve company.

     Florida law requires that for ALL condominiums and co-ops, reserve budgets must include, but are not limited to roof replacement, building painting, pavement surfaces, and any other item that has a deferred maintenance expense that exceeds $10,000. Items that typically exceed $10,000 or more are pool(s), pool cabanas, recreation areas, elevators, mechanical items, fire systems, trash chutes, interior common area rooms/clubhouse buildings, carports, fencing, parking area light & poles, guardhouse building(s), etc.

2. Can we still partially fund our reserves?

     The answer is yes for items not required in the SIRS, but it is not a fair way to handle the future budget of your association, whether for existing members and or future buyers who may want to purchase a unit in your association. By keeping reserves low, an illusion is presented to a potential buyer that they can afford to live in the condominium when this might not be the case if proper reserves are collected annually.

     Also, collecting reserves from existing members is for today’s depreciation. Every day the association loses significant value through depreciation, and the people who are living there should be responsible to replenish those reserves.

     The legal requirement regarding reduced funding of reserves is that for ALL condominiums and co-ops, the members may determine, by a majority vote of the total voting interests (no longer quorum) of the association, to provide no reserves or less reserves. This statement does not apply to the SIRS items report if required by your association/co-op.

3. I live in a five-story condominium building, so do I need a structural integrity reserve study?

     A structural integrity reserve study (SIRS) is required for each residential building on the condominium/co-op property that is three stories or higher in height.

     Please pay special attention to the word “height”—this may apply if you have a lower parking garage with two upper residential floors.

4. What is the deadline FOR having a SIRS completed?

     Florida law requires that associations existing on or before July 1, 2022, that are controlled by unit owners other than the developer must have a structural integrity reserve study completed by December 31, 2024, for each building on the condominium/co-op property that is three stories or higher in height.

     Please speak with your attorney if your association cannot complete a SIRS before December 31, 2024. If your association cannot obtain a SIRS before this date, I would highly recommend at least getting an appointment set to show the association’s due diligence in having the SIRS completed. You might be choosing to go with the same reserve company due to your past relationship and cost aspects of the report. Your prior reserve company might also have the experience of dealing with your property’s reserve budget and past concrete restoration projects.

     The focus is on the safety of your building. Another priority might be that your association is fully funding the SIRS report by 2026, which can still be achieved. If your building requires repairs, please hire an engineer to have your building inspected and repaired prior to December 31, 2024. The SIRS requirement came into effect because of the lack of funding by associations to keep their buildings safe, specifically due to the Surfside building collapse.

5. When must my association or co-op start funding the SIRS report items?

     Florida law now requires that for a budget adopted on or after December 31, 2024, the members of a unit-owner-controlled association that must obtain a structural integrity reserve study may not determine to provide no reserves or less reserves than required by the specific categories listed in the SIRS.

     Since 99.9 percent of reserve budgets will most likely not be adopted “on” December 31, 2024, this will apply to all other reserve budgets adopted in 2025. Budgets that are adopted typically take effect in the association’s next fiscal year. The budget that you will adopt in 2025 for the SIRS will need to be fully funding those reserves. If you have a fiscal year ending March 31, 2025, and the SIRS budget is adopted in 2025, you will then have to be fully funding your reserves on April 1st, 2025. If your budget is adopted in November 2025 for fiscal year 2026, then your association/co-op will have to be fully funding your SIRS reserves in 2026.

     Your association/co-op will still be able to waive reserves or partially fund reserves on non-SIRS related categories such as paving, elevators, interiors, generators, etc.

6. What categories are required by the State of Florida on the SIRS report?

     The specific categories required by the structural integrity reserve study (SIRS) are the following:

• Roof
• Structure, load-bearing walls, other primary structural members/primary structural systems
• Fireproofing and fire protection systems
• Plumbing
• Electrical systems
• Waterproofing and exterior painting
• Windows and exterior doors
• Any other item that has a deferred maintenance expense/replacement cost that exceeds $10,000 and the failure to replace or maintain such items negatively affects the items listed above

     A reserve specialist may decide to include items such as a seawall if it is located within a certain distance from the condominium building. Parking garages connected to the main building and pools/tennis courts located on top of parking garages and connected to the main residential building will be included under the SIRS report.

     Elevators, generators, and cooling towers are typically considered mechanical items and will most likely not be included under the SIRS report. These items can be added to the SIRS but should be requested in advance from your reserve provider.

7. How often do I need to order a SIRS report?

     The State of Florida law requires a structural integrity reserve study to be ordered once every 10 years.

     In my professional opinion, depending upon the size of your association, you should order a SIRS update once every three years. It would be very irresponsible and dangerous to wait 10 years before ordering a SIRS update. In some cases, it might be advisable to order a desktop report earlier than three years depending upon the circumstances of your association.

8. Who can complete a SIRS?

     The visual inspection portion of the SIRS must be performed or verified by an engineer licensed under chapter 471, an architect licensed under chapter 481, or a person certified as a reserve specialist (RS) or professional reserve analyst (PRA).

9. Are there any exceptions to the development and funding of the SIRS report?

     If an association is required to complete a milestone inspection on or before December 31, 2026, an association may complete their SIRS simultaneously with the milestone inspection. In no event may the SIRS be delayed until after December 31, 2026.

10. Can I still use the pooled funds method for my reserve accounts?

    The answer is “Yes,” but SIRS categories and your “traditional (non-SIRS items)” categories must be kept separate on your balance sheet. These reserve funds must be kept separate and cannot be comingled. The SIRS items are the things listed above… roofing, painting, structural, etc. The traditional categories are your interiors, generator, in-ground pools, etc.

     So your SIRS can use the pooled funds method and your traditional reserve accounts can also separately use the pooled  funds method.

     Besides having two separate line items on the balance sheet, I would recommend keeping two separate bank account numbers. This way future board members or property managers do not accidentally use funds from the SIRS account for items that might be in the traditional reserve account.

     It is unlikely, but possible, that our legislature will make further changes in 2024 for condominiums and co-ops related to the SIRS report. In my opinion, it would be helpful to associations if they extended the deadline of ordering a SIRS report into 2025 but prior to adopting their budget in 2025, but still make it necessary to start funding the SIRS as of the 2026 budget year.

     As a final note, there are going to be some tough choices condominium/co-op boards and associations will have to make regarding the funding of their reserves. It is important to keep in mind that properly funding reserves is the responsible thing to do for your association. The board has the fiduciary responsibility to disclose the facts of their budgets, not to manage the personal finances of members and whether they can afford what is required of the association/co-op. In either case, most condominiums, including your neighbors, are all going to face the same challenges regarding their budget over the next year to three years. I believe some of these new laws will help rebuild and restore the association buildings and also promote healthy reserve budgets for the ongoing repairs that take place in our humid Florida climate. 

Sundeep Jay

Senior Reserve Specialist and Professional Reserve Analyst, J.R. Frazer Inc.

      Sundeep Jay is certified as a senior reserve specialist and professional reserve analyst. He has been completing reserve studies and condominium/HOA property & flood valuation reports for a little more than eight years with J. R. Frazer Inc. He graduated with a degree in accounting and computer science from the University of Central Florida. During his career he assisted in building more than 70 to 80 residential homes as a real estate broker while also operating his own mortgage company as well as managing three franchise hotels. For more information, call 561-488-3012, email JRFrazerENT@aol.com, or visit  www.JRfrazer.com.