Loophole Could Allow Some Florida Condos To Avoid Funding Reserves Until 2026
In this latest issue of the Miami Condo Market Intelligence Report™, we examine a budget maneuver that could offer a one-year reprieve for some cash-strapped unit owners facing reserve requirements.
Volume 2024, Issue 34 (Subscribe here)
This week’s Miami Condo Market Intelligence Report™ newsletter examines a loophole in the revised Florida Condo Law that could exempt some associations from funding hefty reserves for the future upkeep and maintenance of aging buildings until 2026.
This is a year later than many had expected and comes at a time when the outcry from cash-strapped owners of Florida’s nearly 28,250 condo associations with more than 1.2-million units has been intensifying statewide.
Beginning in January, condo associations in Florida will be required to start collecting money from unit owners to place into reserve accounts that will be used exclusively to fix, maintain and improve the structural integrity of residential buildings that are at least three-stories tall.
People are dubbing this moment as the 2025 Florida Condo Association Financial Cliff as it is expected to result in significantly higher costs for unit owners. News reports are already chronicling condo owners selling their units at deep discounts ahead of the 2025 deadline.
Florida State Rep. Vicki Lopez (R - District 113) told host Tom Hudson of the “Florida Roundup” radio program that aired on Sept. 13 on WLRN in Miami that a strict reading of the Florida Condo Law allows for condo associations to avoid collecting these mandatory reserves by passing their respective 2025 budgets on or before Dec. 31, 2024.
Citing widespread market confusion about the revised Florida Condo Law, Lopez said “the only thing that’s due” in 2024 from associations is a completed Structural Integrity Reserve Study (SIRS).
A SIRS is a two-part evaluation conducted by experts - such as engineers, architects and reserve specialists - to determine the physical and financial status of all residential structures in a condo association that are at least three-stories high, according to a recent report.
The SIRS provides a roadmap for condo association board members - who are usually volunteers that own units in a project - to better understand the physical condition of the buildings in a community and what it will cost to maintain them in the future.
“Now, here's the catch,” said Lopez, whose district represents 667 condo associations in Greater Downtown Miami and Key Biscayne. “Most condominium associations don't pass their budgets until the end of the year for the succeeding year. So that would mean that any budget passed in November or December of 2025 for the 2026 year would have to include those reserves.
“So people aren't really going to see the effects of the structural integrity reserves until the beginning of 2026.”
Florida condo associations, however, that operate on a fiscal year that does not line up with a calendar year would have to begin funding reserves as soon as their 2025-26 budgets begin.
Some industry watchers caution associations against using the loophole to defer reserve funding until 2026. The concern is, associations could be hit with sizable one-time special assessments that would have to be paid immediately upon the results of the SIRS in order to remain compliant with the Florida Condo Law.
Lopez’s comments came the same week that Florida Gov. Ron DeSantis (R) held a press conference in Miami Lakes to acknowledge the financial anxiety that condo owners are expressing less than four months before the 2025 deadline for completing the SIRS.
“I think that the Legislature, given that the deadlines are coming by the end of the year, will have opportunities in this calendar year [of 2024] to be able to provide some reforms and relief as appropriate,” DeSantis said in a clip that aired during Lopez’s segment on the “Florida Roundup” program.
DeSantis' comments came in response to requests for him to call a special session of the Legislature to deal with the reserve issue.
South Florida has nearly 13,000 condo associations with about 610,000 units, according to a recent report.
Lopez said she thinks more information is needed before any additional changes can be made to the Florida Condo Law. She estimates that “50 percent” of Florida’s condo associations have “completed” their SIRS to date.
“We don't really have all the information we need to identify what is the extent of the problem,” Lopez said. “How much are these assessments versus increases in condo fees are going to be? I think that we have time to collect all that data in January and successfully come up with options that not only keep our buildings safe but are also sensitive to the financial impact that may be a condo owners will be facing.”
In the aftermath of the June 24, 2021 collapse of the Champlain Towers South in the town of Surfside on the barrier island of Miami-Dade County, everyone from residents to building inspectors, politicians to bankers understand better than ever the importance of ensuring that no Florida condo building ever unintentionally collapses again.
Nearly 100 people died and a $1 billion settlement was reached with the families of the victims.
A federal investigation is currently underway but the preliminary reports suggest a flawed design coupled with a lack of upkeep by the condominium’s association contributed to the disaster.
The Florida Legislature has taken a number of steps - prompted by insurance companies threatening to withdraw coverage in the state - to ensure that nothing like this ever happens again.
Up until now, the state’s measures were being implemented slowly but that all changes in 2025 when many of the measures take effect.
It is worth noting, the newly released “2024 High-Rise Edition” of the “Benchmark: The Guide To Residential Association Operating Costs And Budgets” report provided valuable insight in condo maintenance fees in Miami-Dade County compared to 14 other markets in North America.
In reviewing the FirstService Residential report, we found that Miami-Dade County highrise condo towers are paying monthly maintenance fees of far more than $1 per square foot on average.
As expensive as that sounds, the report spells out that only a small percentage of the monthly maintenance fees today are earmarked for the soon-to-be mandatory reserves.
This data point is leading some industry watchers to predict that maintenance fees will likely surge for condo associations in 2025 and beyond.
Financial institutions such as U.S. Century Bank in Miami are willing to finance the necessary repairs over a period of time that can range from a few years to as long as 12 years in certain circumstances, according to a recent report.
The interest rates on special assessment loans are typically on par with the rates being charged for mortgages on residential properties.
For special assessment loans, banks usually enter into agreements with the respective condo associations, not individual unit owners.
The loans are secured by an association’s right to lien units in the future, if necessary, in order for the banks to be repaid.
It is a lot of information but we are confident our reports will assist you to better understand current market conditions in South Florida.
It is worth noting that we are sharing a portion of our research for free with subscribers to our newsletter and readers of CondoVultures.com.
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