Dust, Debris, and Dollars

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Dust, Debris, and Dollars

Tips for Associations Planning Large Repair and Construction Projects

By David T. Podein / Published December 2019

Photo by iStockphoto.com/Rawpixel

Maintaining the association’s common elements is one of the primary responsibilities—and headaches—for an association and its board of directors. The duty is so important, in fact, that it comes up multiple times in the Condominium Act (Florida Statute Section 718.111(4) to maintain, repair, lease, and replace the common elements; Section 718.111(3) to maintain, manage and operate the condominium property).

     But just because you were elected to the board of directors does not mean you signed up for, let alone are qualified to plan and manage, a multimillion-dollar repair project at the building. The issue may have started with unit owner complaints of peeling paint on the balcony railings, cracked stucco on the exterior of the building, maybe even structural cracks in the parking garage, or any number of other issues that are easily observable with no prior experience. The board and property manager should act swiftly and responsibly by hiring a licensed engin-eering firm to investigate the

reported issues and prepare a report. Let’s say, for example, the report conclusively states that extensive exterior stucco repairs and repainting of the building are needed. Now what?

Assemble a Talented Team

     The importance of the project team cannot be overemphasized. This goes beyond hiring a reputable general contractor. This starts by having a quarterback. Complex and expensive repair projects should start with hiring a construction manager or design professional (architect or engineer) who can manage the process from  start to finish, serve as the board’s eyes and ears at the project, and cover the day-to-day and week-to-week tasks and problems that arise so the building’s community association manager can focus on managing the building and the residents, not the intricacies of a construction project and the endless paperwork and issues.

     I may be biased, but another part of the team-assembling process is hiring a talented lawyer with experience in both community association law and construction contracts. Lawyers can be expensive, and associations will look for items to cut costs, especially “soft costs” such as legal work. This is often a mistake. Getting your lawyer involved early in the project planning, bidding, and contracting phase will very often end up reducing the overall legal fees spent and help fast-track the project’s start date. Why? The legal issues involved in a complex or expensive repair project involve both a macro and micro view. The association should not merely engage legal counsel to “review” the proposed final contract. Other than identifying the common elements of the issues that need to be repaired, perhaps the other most important issue is, how will the association pay for the project?

How Do We Pay for This?

     There is only one pot of honey—the assessments paid by the unit owners and collected by the association. Within this, there are the regular assessments paying the common expenses of the current budget, there are special assessments that can be adopted from time to time, and there are the statutory reserve funds for making repairs. Source of funds might seem like a simple issue; the project involves repairs to the common elements, so the association should just use its reserve funds. Maybe. If the association has not voted and adopted “pooled reserves,” then the association is only allowed to expend the specifically designated funds for the “line item” it matches up with. For example, reserve funds for roof repairs cannot be used for painting the building. Or maybe the association has voted to waive the funding of the reserves the last few years when adopting the annual budgets, so they come up with an alternative idea—pay for the repair project with a loan and then let the association (via the unit owners) repay the loan over a longer period of time. Sounds reasonable on paper, but many associations are not allowed to obtain a loan without first getting the approval (vote) of the unit owners. It is rare for the board of directors, without the unit owners, to have the power to approve a loan transaction.

     Going the loan route often should be a dual track and involve following the required procedures for a special meeting and vote on the loan, and the same for the adoption of a special assessment to repay the loan. Most lenders in this specific market will not fund and close the loan until the association has either (1) adopted a special assessment to repay the loan; or (2)  adopted a budget with specifically designated funds sufficient to cover the debt service for the applicable year and then commits to eventually passing a special assessment or a new budget with regular assessment increases the following year to cover the debt service. If this was not already getting complicated enough, keep in mind that some associations want to use a mix of funding sources—some funds from reserves and some partially paid by special assessment or via loan. This mixed bag requires legal counsel and accounting/management to confirm the items that can legally be paid with the reserve funds and to carve out the non-reserve items (that are still part of the project) that must be paid with special assessment or loan funds.

What Comes Next?

     The association has obtained the engineer’s report and even a proposed scope of work and repair specifications for our hypothetical stucco repair and painting project. At this point in the process, the board should consider allowing the construction manager and lawyer to coordinate and prepare a request for bids/proposals (RFP). The RFP will be sent to prospective contractors to bid on the scope of work.

     The RFP should include a “uniform bid response form” that each contractor must fill out. The association should be able to compare the bids on an “apples to apples” basis. Contractors should not be allowed to bid and submit their own form proposal with different categories, different pricing groups, sub-totals, etc. This will make it much more difficult for the construction manager to create a “bid comparison summary” for the board to review and select the proposed repair contractor.

     Of equal importance, the RFP should include the lawyer’s required contract terms or even proposed contract. The mediocre RFPs may generally reference the AIA [American Institute of Architects] contract form that will be required for the repair contract and association. These forms do not address issues that are critical to occupied associations undergoing repair projects (i.e., protection of units, limited common elements, staging and logistics plan, repair duties for damaged property, sub-contractor issues, extreme weather and hurricane mobilization and building protection issues, and much more). So, the association and construction manager should make sure legal counsel has a chance to review and supplement the RFP so bidders are aware of the contract requirements upfront and can provide any objections or proposed compromise terms during the bidding stage. The timing of this is important because the association has less leverage to negotiate a repair contract and require more owner-favorable terms when the project has already been bid, the board has already selected a repair contractor, and the permits to start the project are being held up because the basis unmodified contract (or worse yet, the contractor’s own one-sided contract form) is presented to the association’s lawyer at the last minute to “review and approve.” The key terms and requirements of the repair contract and project overall should be negotiated by legal counsel (with assistance from the construction manager) when there are at least two bidders still on the table.

Other Considerations

     Additional items for which legal consultation is important include material alteration approval requirements, conflict of interest issues, project-related accounting issues, loan compliance, time delays, and weather-related delays and issues. Hav-ing an informed and experienced attorney on your side will help make a complicated process run more smoothly and efficiently. The next time your association undertakes a construction or repair project, be sure to reference the tips included in this article as a starting point for beginning the process.

David Podein

Partner, Haber Law

     David Podein is a Partner with Haber Law and has been with the firm since 2009. He concentrates his practice in the areas of construction law, real estate, and community association representation. Mr. Podein represents and counsels community associations, commercial property owners, general contractors, and design professionals in the financing/loans, approvals, bidding, and contract negotiation for multimillion-dollar construction, capital improvement, and repair projects. His experience in construction arbitrations, litigations, and transactional matters enables him to offer a practical perspective to his clients. He is recognized as a Florida Super Lawyers’ Rising Star and a Florida Legal Elite Up and Comer. Mr. Podein can be reached at (305) 379-2400 or dpodein@haber.law.