New Mandatory Reserve Requirements for Condominiums and Cooperative Associations

More than a year after the tragic collapse of the Champlain Towers South condominium building in Surfside, Florida, condominium and cooperative associations throughout Florida now face a host of new legal requirements and restrictions imposed by SB 4D, which was passed unanimously by the Florida Legislature and signed into law by Governor DeSantis on May 26, 2022. The legislation is aimed at protecting the long-term structural safety and integrity of multi-story buildings in Florida and preventing similar tragedies. In previous columns, SSC has discussed the inspection and transparency requirements of the new law. However, although such legislation may be long overdue and well-intentioned, unit owners in condominium and cooperative associations throughout Florida are likely to find that in the short term the cost of living in such buildings will increase significantly, as a result of the requirement that associations collect mandatory reserves on an ongoing basis.

In addition to requiring “milestone inspections” and imposing new reporting and transparency standards on matters relating to building structural safety and integrity, SB 4D creates strict new requirements for associations three (3) stories or taller regarding the calculation and funding of reserves for long-term maintenance and replacement of certain “structural” components of these buildings.

Specifically, at least once every ten (10) years, associations must now complete a so-called Structural Integrity Reserve Study (“SIRS”) for each building in the condominium or cooperative that is three stories or taller. A SIRS is defined as “a study of reserve funds required for future major repairs and replacement of the common areas based upon a visual inspection of the common areas." Although the reserve study may be performed “by any person qualified to perform such study,” such as an accountant, the visual inspection portion of the SIRS must be performed by a licensed engineer or architect.

At a minimum, the SIRS must identify and state the remaining useful life and replacement cost or deferred maintenance expense of the common areas being visually inspected and, based upon such visual inspection, provide a recommended annual reserve amount that should be included in the association’s annual budget for those common areas. Several specific “structural” components of every building must now be visually inspected and evaluated, including the roof, load-bearing walls, foundation, floor, plumbing, electrical systems, waterproofing and fireproofing, windows, and any other item with a deferred maintenance expense or replacement cost exceeding $10,000.00 that would “negatively affect” any of the foregoing items if not maintained or replaced.

For new condominium and cooperative building construction, the developers must have a SIRS completed before turning over control of an association to the unit owners. For associations existing on or before July 1, 2022, a SIRS must be completed by no later than December 31, 2024. Importantly, for anyone serving as an officer or director of an association, the failure to complete a SIRS is now, by law, deemed a breach of an association officer’s and director’s fiduciary duty to the membership of the association.

Not only are associations now legally required to have reserve studies completed, but they will also soon be prohibited from waiving or reducing funding for many of the reserve items in their annual budgets. For decades, condominium and cooperative associations have been legally required to include reserve accounts in their annual budget. However, associations were permitted, by a majority vote of the unit owners, to waive or only partially fund reserves, irrespective of the particular reserve item. Beginning

December 31, 2024, however, unit owners will no longer be legally permitted to make that decision for the structural reserve items required to be listed in the SIRS.

Similarly, effective December 31, 2024, associations will no longer be permitted to use reserve funds collected for the structural items listed in a SIRS for any other purpose, even if a majority of the owners vote do so. This prohibition does not take into account associations that have historically “pooled” their reserves into single accounts. Will associations now be prohibited from pooling reserves, or will they be required to maintain separate accounts for the reserve items listed in a SIRS? The legislation does not specifically address this question.

Without question, associations whose memberships have traditionally voted to waive or reduce reserves will face an increase in their maintenance fees and assessments as a result of the new requirements. To reduce the financial impact on unit owners resulting from the prohibition on reducing/waiving reserves, some associations may wish to begin to plan for fully funded reserves now, so as to spread the increase out over time, rather than having the expected increase hit unit owners’ pockets all at once, once the prohibition goes into effect December 31, 2024.

Although the major components of new reserve requirements created by SB 4D to not take effect until December 31, 2024, associations are encouraged to start planning compliance with the legislation now. Association board members and officers should consult with qualified legal counsel with any questions or concerns regarding compliance with the legislation, especially in light of the fact that failure to comply is now deemed a breach of fiduciary duty by individual volunteer board members/officers.

Brian T. Meanley is an Associate Attorney at Sachs Sax Caplan practicing within the Community Associations Practice Group.Learn more about Brian and how to work with him here.