Where Is The Money? Where Do We Go From Here?

By Michael J. Gelfand, Esq. / Published February 2022

Pushing back against the tide as one of the eight members of the Condominium Life Safety Advisory Task Force, we made certain that specific recommendations supported by detailed findings were received in a timely fashion by Florida’s decision makers and legislative leaders, as well as the Governor and officers of his administration. In perhaps the most balanced report on condominium administration since the Condominium Act was first adopted, a full spectrum of experts presented their views for evaluation.

     This is not the time to sit back and wait for legislative or regulatory action. Of course, it would be a significant scar upon the reputation of the State and its legislators if the Surfside/Champlain Towers Condominium collapse were to pass into memory without corrective action, but we have seen how decision makers in Tallahassee are not always up to decision making that seems to be a “no brainer” but beyond their comfort level.

     A key to action will be the never-ending related questions of “why here?” and “where is the money?” Listening to countless explanations regarding residential condominiums in Florida, the same question kept popping up: why did tragedy occur to a Florida residential condominium? Why has this not been a reoccurring issue for other types of high-rise structures?

     The answer seems to lie in the financial horizon of owners and of lenders, together with the strength of the stomach of regulators. 

     Quite simply, elsewhere, particularly “up north” and in particular commercial buildings, numerous market forces create checks and balances. Who or what made it happen there? Observe actions of the owner, the lender, the insurer, and the governmental regulator. Reality confronts expectations!

     The commercial owner, whether one person, an entity, or a group, does focus on profitability. That does not mean simply squeezing out short-term profits and failing to maintain. This involves decisions cognizant of the need to enhance long-term value, either resale or leasing, requiring attention to long-term maintenance needs, including structures. A deteriorating building cannot compete for high rents or demand high resale prices.

     The commercial lender frequently has the highest financial risk. Loan documents drafted to protect the lender’s investment may require building inspections and maintenance. Lenders with substantial risk are not merely passive investors but become active participants in the maintenance process.

     The commercial insurer usually does not have the up-front investment of an owner or lender but still holds significant risk when a covered building is not properly maintained. Potential losses extend beyond liability claims resulting from trips and slips to damage from falling materials and collateral losses when a structure is not usable. Then there are the claims from casualty losses that might be avoided from proper construction or maintenance.

     The governmental regulator, one would think, would have the public interest motivating inspections and follow up. In Florida, front line regulators—building and code inspectors—bear little if any legal liability to the public or a building’s owners or inhabitants for failing to undertake proper inspections. As an aside, this is why there is a burgeoning private inspection industry. 

     With this dichotomy, many Florida residential condominium unit owners and their counterparts in cooperative associations have lived in a type of dream that can shift to a nightmare in an instant. 

     Unit purchasers almost always focus on location, surface appearance, and ease of lifestyle amenities. Everything seems shiny and someone else is doing the maintenance work. To paraphrase many advertisements, living is carefree!

     Living carefree frequently foreshadows danger. In the carefree world, a condominium unit purchaser rarely undertakes due diligence or considers the real cost of ownership. Purchasers seeking association financial statements with reserve schedules are few and far between. Asking for engineering or other structural reports, never!

     Contrast that carefree approach with commercial buildings, where the resale process involves inspections and due diligence including evaluating maintenance and structural integrity. Notably, when buying a single-family home, a purchaser will frequently hire an engineer or inspector, but that does not occur in Florida condoland!

Placing this in context, think about how much time a consumer researches before buying a camera, television, computer, or appliance.  Now compare how relatively little time a purchaser takes to research their most significant investment, their new home!

     Who will remind or re-educate purchasers? Brokers seemingly seek to “make the deal” with many disclaimers and releases. Sellers may not want to say anything adversely impacting a sale. Associations face an uphill battle, not having a safe 

harbor to avoid a seller’s lawsuit for killing a sale, and will rely on the natural conclusion that the association does not have an affirmative duty or the resources to educate purchasers. 

     What can you do to change this perspective? Recall that your community’s health depends upon purchasers understanding the financial commitments necessary for condominium unit ownership. Remember that merely making data available, such as financial information and governing documents, does not mean that purchasers obtain them, not to even mention read and understand. 

     Do you want to have unit purchasers who are not ready, willing, and able to fund long-term and structural maintenance? Do you want as a “partner” in your community someone refusing to fund reserves? A willfully ignorant purchaser, looking for the “cheap way out,” or simply carefree, may be a danger to the community! 

     Warning of community expectations may be a positive selling point. Purchasers may ask themselves, “Why buy in a condominium that has ignored long-term maintenance and has refused to keep reserves?” Should they buy in the building down the block which has been diligent in maintenance and funding reserves and as a result will be more stable, even if the price is a bit higher? In this world should not the well-maintained and financed condominiums result in higher unit prices? This would benefit owners! 

     As with every product, acknowledging up front the real expense of ownership will price out some purchasers. Why should purchase of a condominium unit be different from other real estate or appliances? 

     A buyer of a single-family detached home usually considers not only the purchase price but also the expected remaining life of major components of the house, such of the roof, air conditioner, and other major components. If the maintenance and replacement of those items are too expensive, then the home buyer considers a more affordable house. A real estate sales industry that ignores these real costs of ownership does everyone a disservice in the long run.

     Years ago, well before Florida’s law providing for board certification courses, my lectures to attorneys on condominium law began with green bananas as we discussed budgeting. Occasionally, there would be a chuckle from the audience. A laugh might be evoked when I would ask “Why in South Florida do residents not buy green bananas?”  

     The answer to green bananas is that many in Florida do not desire to invest in the long term when they may not be around for the product to “ripen.” Further explaining, in particular in retirement communities, owners frequently vote down reserves and further seek to delay long-term maintenance because they question whether “they will be around” to enjoy the fruits of this labor. 

     The test for Florida condominium and cooperative owners is whether you are focused on short-term profit, or instead are looking at the long-term stability and health of your communities. 

     The Task Force Report is a clarion call to action. Remind your legislators and the regulators of their duty to see beyond narrow short-term focused interest groups. Educate your members of their role as citizen voters to communicate with their legislators. 

     If you believe that the health, safety, and welfare of residential living in Florida relies on more than short-term profit, but instead on a long-term investment view, then pick up your pen or type on your keyboard and contact your legislators and regulators. You can find their contacts by visiting https://www.myflorida.com. A copy of the Task Force Report is available at https://gelfandarpe.com/resources/rpptl-task-force-report/. 

     Urge your Florida condominium and cooperative associations to not wait for the Legislature or regulators to act. Take to heart the Report’s recommendations and begin implementing changes in your community. This usually starts by assessing properly for maintenance and reserves. Obtain regular inspections just the way it is done in “the real world.” Undertake regular and long-term maintenance and structural repair programs that are required.

     You owe it to yourselves and to your neighbors to work together in the lifeboat of your condominium or cooperative. Together all must work together in a positive manner to avoid another preventable tragedy.

Michael J. Gelfand, Esq.

Senior Partner, Gelfand & Arpe, P.A.

     Michael J. Gelfand, Esq., the Senior Partner of Gelfand & Arpe, P.A., emphasizes a community association law practice, counseling associations and owners how to set legitimate goals and effectively achieve those goals. Gelfand is a dual Florida Bar Board Certified lawyer in Condominium and Planned Development Law and in Real Estate Law, Certified Circuit and County Civil Court Mediator, Homeowners Association Mediator, an Arbitrator, and Parliamentarian. He is a past Chair of the Real Property Division of the Florida Bar’s Real Property, Probate & Trust Law Section, and a Fellow of the American College of Real Estate Lawyers. Contact him at ga@gelfandarpe.com or (561) 655-6224.