At 1:30 am on June 24, 2021, residents of the Champlain Towers in Surfside, Florida, woke to a deafening crash. When they looked outside, residents saw the complex's South Tower had partially collapsed. It appeared as if the building had disappeared into thin air (source 1). Ninety-eight people died in the tower collapse, and hundreds more were temporarily homeless. The investigation into the collapse is entering its third year, and a final report isn’t expected until late in 2024. The cause of the collapse remains unknown (source 1).
The Surfside collapse may still be under investigation, but its impact is reverberating throughout the condo insurance market in Florida. A task force comprised of eight lawyers with extensive condo law experience was established after the collapse. That task force issued a report suggesting multiple changes to the Florida Condominium Act regulating how condo associations operate.
Florida lawmakers subsequently introduced multiple bills to alter the Florida Condominium Act but failed. That is, until a new bill was introduced in a special session in early 2022. Senate Bill 4-D attempts to resolve structural and financial issues faced by condo communities across the Sunshine State. A follow-up bill, SB 154, referred to as a “glitch bill” was passed in June 2023 to clarify several issues within SB 4-D. These bills create new challenges for condo associations, unit owners, and insurers. There are several major changes within the legislation, including:
MILESTONE STRUCTURAL INSPECTIONS
One of the most substantial new requirements is the implementation of milestone structural inspections for buildings three stories or higher. A licensed engineer or architect must conduct a milestone structural inspection to evaluate the building’s structural integrity and make recommendations for any necessary structural improvements.
An initial milestone inspection must be completed by December 31st of the building’s 30th year. Additional inspections are required every ten years after the initial inspection. In reality, many Florida condo buildings are already 30 years old or older. According to the original Bill 4-D, any building that received its certificate of occupancy before July 1, 1992, must complete initial milestone inspections by December 31, 2024.2 However, the follow-up bill, SB 154, pushed that deadline back to December 31, 2025.7
If a structural defect is discovered by the milestone inspection, the condo association must address the issue and conduct a phase two inspection to determine if the building is structurally sound or if the defect requires further work.2 Condo associations also have a duty to keep Milestone Structural Inspection Reports on file for at least 15 years. Tenants and prospective buyers have the right to request and review the reports.2 While the reporting requirement creates additional work for condo association boards, it provides transparency for insurers, unit owners, and prospective buyers.
The second major change to Florida condo law addresses how associations handle their reserve funds. Under previous law, Florida condo associations could vote to waive their reserve contributions. That is no longer the case. As of December 31, 2024, associations may no longer waive their reserve contributions.
In addition, all associations are required to complete a Structural Integrity Reserve Study (SIRS) by December 31, 2024. Any budget adopted on or after January 1, 2025, must use the SIRS to fund structural reserves. In most cases this refers to the budget voted on in 2025 for the 2026 fiscal year. To meet the study’s requirements, an engineer or architect must visually examine the building’s common areas and analyze the association’s reserves and funding requirements. The study must be repeated every ten years.
It’s important to note that the reserve requirement doesn’t mean projects must always be fully funded. However, the condo association must be on track to collect enough reserve funds to pay for replacement by the end of a component’s useful life.2 For example, a roof’s useful life is estimated at approximately 25 years. If the estimated replacement cost for a roof is $2 million, the association must collect $80,000 annually to accumulate the replacement cost by the end of the 25-year period.3 SB 154 clarified that reserve funding must be included in any budget passed on or after December 31, 2024.8
This same formula applies to every commonly used component in the structure, from the foundation to the landscaping, pavement, exterior paint, and more. When conducting a Structural Integrity Reserve Study, inspectors will determine if the association has enough funds allocated for each component and evaluate if the condo association is actively collecting enough to meet the reserve requirements. If not, the association may need to raise fees or issue a special one-time assessment to unit owners.2
QUESTIONS FOR CONDO ASSOCIATIONS & INSURERS
Like any major legislation, Senate Bill 4-D raises new questions. The bill represents a major shift for condo associations and will change how many condo boards do business. Below are a few questions that don’t yet have clear answers.
Are there enough engineers and architects available to complete initial inspections?
A limited number of certified engineers and architects can complete the required inspections.3 With an initial December 31, 2024, deadline for initial inspections and more than 25,000 certified associations in Florida, some were concerned that completing all initial inspections by the deadline would be challenging. Engineers and architects are also in high demand for other construction and renovation projects. It remains unclear what the consequences are for missing the deadline.
The legislature addressed this issue with SB 154, by clarifying the language to say that the inspections can be conducted by a team of professionals that is “supervised” by an engineer or architect. This gives engineers and architects the ability to hire inspectors and increase the pool of available professionals.8 Finally, SB 154 grants local officials the ability to extend a community’s deadline if the community is under contract for an inspection but the inspection hasn’t been performed. This creates some flexibility in the case an inspection is delayed for reasons beyond a community’s control.8
Are there remedial options for associations that are found to be severely underfunded?
For years, condo associations in Florida have had the ability to vote to waive their reserve fee requirements, meaning they could collect only what was needed for the upcoming year’s repairs rather than also contributing toward reserves for upcoming projects. Many associations have taken advantage of this rule to keep their fees as low as possible. If an association has voted for years not to meet reserve requirements, there’s a good chance their funds will fall far short of needed reserves by the time the reserve study is conducted.
Consider the earlier roof example. If a condo building’s roof is 20 years old, it likely only has five years of useful life remaining. Under the new rule, the association should reserve the full replacement cost by the end of the roof’s useful life. If nothing has been saved yet, that means collecting $400,000 every year for the five remaining years of the roof’s lifespan rather than the $80,0000 that would have been needed annually if funds had been collected across its full lifespan.
If the same association needs reserves for a roof and the foundation, paint, asphalt, and other updates, the reserve funding need can be staggering. To bridge the gap, the condo associations may have to consider significant assessments or fee increases. Those increases may not be feasible for residents, especially those who are older or living on a fixed income. To date, it’s unclear what happens if an association cannot meet the reserve requirements due to severe underfunding.
What is the responsibility of board members?
Senate Bill 4-D also makes condo board members personally liable for a failure to complete inspections or meet reserve requirements. Being a condo association board member is already a difficult role. It’s often challenging for boards to find volunteers. This added level of liability could deter residents from volunteering and make it more difficult for condo associations to function.
POTENTIAL INSURANCE MARKET IMPLICATIONS
The homeowners insurance market in Florida has been volatile for years. Hurricane damage may be the original cause of difficulties in the Florida market, but they’re not the only culprit. Legislative choices made to protect homeowners spurred rampant litigation against insurance companies. From 2016 to 2019, lawsuits against insurers increased by more than 700%.2 In 2021, there were nearly 100,000 lawsuits filed in Florida against insurance companies. During the same period, there were only 20,000 lawsuits filed in the other 49 U.S. states combined.4
As a result, many carriers have left the Florida market altogether. Those that remain have raised rates. As of March 2023, Florida regulators reviewed rate hikes from some of the few remaining carriers in the state. One carrier raised rates by 45% after a 50% rate increase in 2021. The same carrier also non-renewed many policies.5 Another insurer sought to raise homeowners' rates by 61.5% and condo policy premiums by 103.2%. Even Citizens Property Insurance, a state-backed company designed to support the insurance market, sought a 12% rate increase. The company must comply with a state-imposed cap on rate increases. Without that cap, Citizens would need to apply increases of 58% for personal lines and 69% for commercial lines.5
All these factors have created a perilous environment for condo associations. A large, 900-unit complex in Miami is an example of how a condo association’s fortunes can quickly turn in this insurance environment. The complex was non-renewed by its carrier in August 2022. The board struggled to find a new carrier. Even Citizens Property Insurance declined coverage due to an unresolved roofing issue. The board eventually had to layer coverage among 11 different carriers.6 The premium for the layered coverage in 2023 is $3.9 million, a 300% increase over the previous year. The association’s insurance broker indicated the complex is once again facing non-renewal or another 200% increase if the roof is not repaired.6
The condo complex in Miami is grappling with many of the same challenges that condo associations all over Florida are facing. The association doesn’t have reserves to complete the necessary repairs, which means they need to obtain a loan. Of course, most lenders won’t approve a loan application without proof of insurance. And in Florida’s insurance market, most insurers won’t approve coverage if the complex has substantial outstanding repairs. Associations without sufficient reserves could find themselves in a maddening loop of attempting to obtain funding from lenders while seeking insurance coverage.
What Can Associations Do to Protect Unit Owners & Meet Insurance Coverage Needs?
The good news is that the Florida insurance market is expected to become more stable over the long-term. The recent flurry of legislation should help resolve many of the challenges that are keeping insurers out of the market. However, that will take time. In the meantime, there are steps condo associations can take to prepare. Retail agents can help by reaching out to condo associations to ensure they’re taking appropriate action including:
Schedule mandatory inspections. Most associations will need an inspection by December 31, 2025, to stay compliant with the new law. As mentioned, there will be many associations trying to schedule inspections and a limited number of engineers and architects available to complete them. It is likely that insurers will start asking for the inspection reports for new coverage and for renewals. If associations wait until the last minute, they may not have what they need to obtain a renewal or optimal coverage. This can result in significant fee increases and assessments to fund reserves and meet higher insurance premium costs.
Create a repair schedule. Some associations may have delayed repairs for years. Now is the time to create a schedule and start checking necessary repairs off as they’re completed. Associations should prioritize those that are most important and work. If an association requires a loan to complete the work, it’s wise to establish the loan before the next insurance renewal date.
Be transparent with unit owners. As associations seek to fund repairs or updates and obtain necessary insurance, often at a higher price, it’s important to be transparent with unit owners. It may be difficult news to share, but it’s important that owners understand the challenges the association may be facing. It’s also helpful to share the rationale behind decision-making. Taking owners by surprise will only make the process more complicated.
Work proactively with an experienced wholesale insurance broker. Florida is still a challenging insurance environment, and it pays for an association to work proactively with a wholesale insurance broker experienced with Florida’s market landscape. Partnering with those who have strong relationships with multiple carriers will be key as the need to layer coverage grows. While the market should improve in the long term, agents can add significant value to the process by guiding associations through the short-term volatility.
Senate Bill 4-D seeks to provide solutions and substantial changes to prevent another condo collapse disaster. However, it also creates new challenges for condo associations. Associations must review their reserves and fee structure to ensure they meet the law’s requirements. They may also wish to review their insurance policies to ensure all appropriate coverage is in place. Agents should reach out to their condo association clients to ensure they understand the new law’s implications. CRC Group is home to wholesale brokers with the product knowledge and marketplace relationships retail agents can rely on to ensure their condo association clients leverage the right insurance as part of a thorough risk management plan. Reach out today to learn more.
- Surfside condominium collapse: Still searching for answers in the rubble, CBS News, November 12, 2022. https://www.cbsnews.com/news/surfside-condominium-collapse-60-minutes-2022-11-13/
- SB 4-3: Building Safety, The Florida Senate, May 26, 2022. https://www.flsenate.gov/Session/Bill/2022D/4-D
- How Many Florida Condo Associations are Financially Sound?, The Florida Real Estate Blog, June 16, 2022. https://thefloridarealestateblog. com/f/how-many-florida-condo-associations-are-financially-sound
- Florida homeowners pay nearly 3x national average for homeowners’ insurance, ABC Action News, June 23, 2022. https://www. abcactionnews.com/news/price-of-paradise/florida-homeowners-pay-nearly-3x-national-average-for-homeowners-insurance
- Florida regulators now reviewing rate hikes of 14%, 62%, and 103%, Insurance Journal, March 31, 2023. https://www.insurancejournal.com/ news/southeast/2023/03/31/714518.htm
- Condo insurance crisis in South Florida could push owners to sell, The Real Deal, March 2, 2023. https://therealdeal.com/magazine/nationalmarch-2023/condo-insurance-crisis-in-south-florida-could-push-owners-to-sell/
- Florida Senate approves bill making changes to a condominium-safety law approved last year, Yahoo, April 12, 2023. https://news.yahoo.com/florida-senate-approves-bill-making-011235342.html
- 2023 Legislature Responds with Condominium “Glitch Bill,” Bilzin Sumberg, June 12, 2023. https://www.bilzin.com/we-think-big/insights/ publications/2023/06/legislature-responds-with-condominium-glitch-bill
- Condo Insurance Crisis in South Florida Could Push Owners to Sell, The Real Deal, March 2, 2023. https://therealdeal.com/magazine/national-march-2023/condo-insurance-crisis-in-south-florida-could-push-owners-to-sell/
- A Year After the Surfside Collapse, Florida’s Condo Safety Act Impacts Housing Affordability, New America, March 16, 2023. https://www.newamerica.org/future-land-housing/blog/a-year-after-the-surfside-collapse/