The tragic collapse of the Champlain Tower South in Surfside, Florida, in June 2021 has condo owners and boards of directors across the U.S. questioning the safety of their own communities. Ninety-eight people died as a result of the collapse, bringing scrutiny to the legal requirements and standards related to the ongoing maintenance and structural integrity of buildings.
Making maintenance a priority benefits everyone by ensuring a safe place to live, as well as protecting property values and mitigating risk for condo and homeowner association boards.
How can independent agents help their board of director clients manage this risk?
Condo and homeowner association boards should review and amend their policies to include provisions to ensure maintenance takes precedence. This includes periodic assessments of the structural integrity of buildings, as well as the ongoing maintenance and general upkeep. Detecting a problem early can save significant amounts of work and costs down the road and can prevent avoidable tragedies.
Here are three preventative measures agents can encourage their condo and homeowners association board clients to take to develop a proactive, responsible approach to long-term maintenance:
1) Conduct a reserve study. Association boards are charged with maintaining reserve funds to pay for salaries, general upkeep and plan for major repair and replacement projects. A reserve study is an association’s financial plan for future capital improvements.
Reserve studies look at how well the reserve fund is keeping pace with common area deterioration, as well as its ability to cover emergencies. It also provides funding plan recommendations to avoid the need to take out costly loans or levy special assessments in the future.
2) Assess structural integrity. Some states, counties and municipalities require periodic structural integrity assessments. In areas without such requirements, it’s recommended that associations make these periodic assessments a priority.
Professional engineers can evaluate the building’s structural integrity and other critical areas, including balconies, parking facilities, stairwells, pools and fitness centers.
It’s important to note these are not one-time tasks. Association boards should conduct regular assessments to properly plan for the future needs of the building and association. Structural engineers can provide guidance on how frequently building integrity inspections should be conducted in areas where regulatory requirements are not in place.
It may be prudent to amend the association’s bylaws to add provisions that require reserve studies and building inspections to make sure these critical steps are not bypassed in the future.
3) Review liability coverage. Agents should help association boards ensure they have adequate coverage.
Here are six crucial coverages for boards:
- Property. Covers physical damage to condo association buildings, common areas and other specified property.
- General liability. Protects the association against injuries that take place on the property covered under the policy, and allegations of property damage caused by the association.
- Crime and fidelity. Protects the money the condo association has in its operating and reserve accounts against embezzlement, check fraud, misappropriation of funds, computer and wire fraud, and social engineering.
- Excess liability or umbrella. Provides coverage beyond the limits of the general liability policy to protect against unforeseen losses.
- Directors & officers. Provides liability protection for members of the board of directors for the decisions that are made in running the nonprofit corporation association.
- Workers compensation. Provides coverage for injuries incurred by employees. A policy should also be in place if an association uses volunteers for clean-up days, painting, spreading mulch or other volunteers activities.
In addition, associations should consider sewage backup, flood and earthquake insurance, as well as coverage for wind damage caused by hurricanes, if applicable.
Lastly, association boards should frequently update unit owners about these important issues. In addition to regularly scheduled, open association meetings, association boards should send updates on the status of the reserve study and integrity inspection, including results.
It’s essential for condo associations to be transparent and keep unit owners informed of short- and long-term building needs and any potential costs. They should always make sure the associations insurance requirements are crystal clear. If they are not written concisely in the governing documents, encourage them to have an attorney write an opinion letter stating the insurance requirements.
One challenge is that laws and regulations related to condo and homeowner association boards differ from state to state. Association boards should work closely with an experienced, knowledgeable insurance agent or broker to review coverage, along with an attorney that specializes in working with associations, and of course an engineer that is a reserve study specialist.