By Lilliana M. Farinas-Sabogal / Published November 2023
Skyrocketing insurance costs, looming new building inspection and report requirements, and daunting reserves are complicating the budget season for many condominiums.
If you are a condominium unit owner in Florida, chances are your building has gone through or will soon be going through some financial readjustments. Many associations found themselves having to deal with increases midyear, months before even discussing next year’s budget. The most frequently cited reason for revisiting the financials earlier than anticipated with my clients was insurance premium increases. Most of the condominiums I work with faced stark increases in their insurance renewals this year. Premium increases of 100 percent were not out of the ordinary, with some buildings facing up to 300 percent increases.
Further, the new laws requiring milestone inspections and structural integrity reserve studies (SIRS) are causing additional, unanticipated, and sizeable expenses to engage engineers, architects, and reserve study experts. Of course, if these experts find deficiencies in the building that must be addressed, then monies will be needed for the repairs as well. There are also the new laws that increased the required vote for owners to approve funding less than full statutory reserves and new laws that require full funding of structural integrity reserve items.
These have all converged to form a perfect storm in time for condominium budget season. As many associations began their budget seasons this fall, they may have begun to see that increasing the budget—even substantially—might not be enough to pay for all the increases. Or they may find that they need large chunks of money sooner than the monthly increased assessment payments can deliver. Some may conclude that their community’s population simply cannot afford the increases that would be necessary to meet these expenses through budget increases. This could trigger delinquencies, which would then worsen the burden on the other units. It is a difficult situation for many condominiums.
In some cases the board of directors may find it necessary to levy a special assessment. However, before entertaining that idea too long, board members should review the association’s governing documents. Many associations’ governing documents impose requirements for unit owner approval prior to granting the board of directors the authority to levy special assessments. This would require organizing a unit owner meeting, sending out the notices and voting documents in a timely manner, and educating the unit owners as to why their support is needed.
Regardless of whether unit owner approval is necessary, levying a special assessment involves following a very particular process. Notices of board meetings at which special assessments will be considered require specific language and description as to the proposed special assessment. The notices must be sent a minimum of 14 days before the meeting and after the meeting is held, additional notices are required. Failure to take these particular steps could subject the special assessment to challenge and hamper the association’s collection efforts.
Another option is to borrow money to address a particular need. This requires working with a bank and meeting any requirements the bank may have. Also, it is important for boards to understand that their association’s governing documents may also require prior approval from some percentage of the unit owners in order for the association to properly borrow money. To further complicate things, many banks will require the association to levy a special assessment with the specific purpose of repaying the loan. So, if the association needs unit owner approval for levying a special assessment and for borrowing money, a board of directors cannot make either decision until it receives the required unit owner approval.
The moral of the story is that the association’s financial needs should be carefully considered, leaving time enough to research the association’s governing documents and their requirements and to discuss options for the association with the association’s attorney and accountants and plan accordingly. All the while, boards should be educating and preparing their memberships for what may be on the horizon.
Lilliana Farinas-Sabogal is a shareholder in Becker’s Community Association and Business Litigation practice groups. In addition to her experience in assisting community associations in their day-to-day business, management, and operational aspects of governing their communities, she assists boards of directors, unit owners, and community association managers in analyzing and resolving their often complex contractual and transactional disputes and issues. Ms. Farinas-Sabogal is also one of a select number of attorneys statewide who are board-certified specialists in condominium and planned development law. For more information, email LFarinas@beckerlawyers.com or call 305-262-4433.