Growing condo association budgets require deft touch by directors, property managers | Opinion

The increased costs and financial pressures that South Florida condominium associations are now facing can become exasperating for some board members and property managers. The prices for everything are going up all at once, and future budgetary projections are starting to look bleak for many communities.

Increases in insurance costs are accounting for a substantial portion of the necessitated rises in associations’ annual budgets.

Property losses from Hurricane Ian are projected to amount to one of the largest catastrophic loss events in U.S. history, likely exceeding $30 billion, according to the Insurance Information Institute. The industry watcher reports that Floridians already paid the highest average annual homeowners insurance premium before Ian at a cost of $4,231, compared with the nationwide average of $1,544, yet six Florida property insurers have declared insolvency in 2022 and another 27 are on a state watchlist. It notes that Ian will further increase premiums, which were already up 33% in Florida this year over 2021, and its analysts would not be surprised if the next round of increases top 50%.

The condo-safety reforms enacted by the Florida legislature in May in response to the horrific tragedy of the Champlain Towers South collapse are also impacting associations’ budgets and projections.

Florida’s law on reserve funds will add to financial pressures

Condominium associations are now required to complete a structural integrity reserve study every 10 years after completion for each building three stories or taller. These studies determine the reserve funds required for future major repairs and replacements based on detailed property inspections. They will reveal the estimated remaining useful life and replacement or deferred maintenance costs of all the inspected common areas and elements, enabling them to calculate a recommended annual reserve amount for all the projected expenses.

Starting in 2025, condominium associations will no longer be allowed to elect to waive funding reserves or maintaining less reserves than required for roofs, load-bearing walls, floors, foundations, fireproofing/fire protection systems, plumbing, electrical, waterproofing/paint, windows, and any other items that exceed $10,000 in maintenance/replacement costs.

The related condo-safety engineering inspection requirements in the new state law, which are also serving as the model for new inspections requirements from local municipalities, are also going to dramatically impact such long-term costs.

In the short-term, increases in the costs of goods, services and labor have already been taking a toll. Staffing costs for associations and the property managers they retain are going up in many cases, as are the costs for such services as landscaping, security, valet parking, cleaning/sanitation, and other ongoing operating expenses.

In response to all of this, many condominium associations are being forced to increase their annual budgets and augment their monthly dues, and/or to implement special assessments to pay for specific unexpected shortfalls.

The need for great communications from board members

Needless to say, anytime costs and collections go up dramatically, questions will arise from concerned owners over how their associations’ funds are being spent. That is why transparency and communications will play a key role for associations that are increasing their budgets and assessments.

The best approach for associations and their directors to adopt will be that of full disclosure and complete transparency, which actually begins by determining where cost-cutting adjustments could possibly be made. This may entail meetings and negotiations with key vendors.

Association directors should also schedule and hold discussions over such budgetary and collections increases at all the necessary board meetings that it takes to address owners’ questions and concerns.

In fact, owners who demonstrate a particular interest in vetting associations’ expenses at these meetings should be encouraged to volunteer to serve their community as a member of its finance/budget committee. Such a committee, which typically reports to the treasurer of the association, can become an excellent path for owners who wish to consider the possibility of serving as a future director. Its members would be charged with developing annual budgets and submitting them to the treasurer and other board members for consideration.

Full disclosure and transparency with the owners should also include concerted communications efforts to alert them of the budgetary increases. This begins with mail/email and posted announcements starting prior to the first discussion at a board meeting and extending through the final approval of the new budget/assessments.

By taking such an open and transparent approach to the inevitable growth in condominium budgets and assessments in communities in South Florida and across the state, directors will be able to effectively make these increases as comprehensible as possible for all the member owners of their associations.

Christyne D. Santisteban is an attorney with the South Florida law firm of Siegfried Rivera who focuses on community association law and is based at the firm’s Coral Gables office. She is a regular contributor to the firm’s association law blog at www.FloridaHOALawyerBlog.com. The firm also maintains offices in Broward and Palm Beach counties, and its attorneys focus on community association, construction, real estate, insurance and bankruptcy law. www.SiegfriedRivera.com, CSantisteban@SiegfriedRivera.com, 305-442-3334.