Reformed Reserve Funding Laws in Florida: Be Prepared

In May 2022, the Florida Legislature passed and signed into law new legislation enacting new requirements to address concerns on the structural integrity of older condominium-type buildings as a result of the Surfside Chaplain Towers condominium collapse in June 2021. The legislation, through Senate Bill 4-D and companion House Bill 5-D, was presented and voted into law very quickly and made significant changes to several sections in Florida Statute 718 related to buildings and reserves. There are many provisions that must be implemented by Florida condominium-type timeshare associations, and those with the most significant impact are discussed below.

Milestone Inspections

Under the provisions of the law, milestone inspections will be required for applicable buildings that are 3 stories or higher and more than 30 years old. That age requirement is lessened to 25 years for properties within 3 miles of a coastline. A milestone inspection under the new provisions of Florida Statues 553.899 is defined as “a structural inspection of a building, including an inspection of load-bearing walls and the primary structural members and primary structural systems…for the purposes of attesting to the life safety and adequacy of the structural components of the building and, to the extent reasonably possible, determining the general structural condition of the building as it affects the safety of such building, including a determination of any necessary maintenance, repair, or replacement of any structural component of the building. The purpose of such inspection is not to determine if the condition of an existing building is in compliance with the Florida Building Code or the fire safety code.”

These inspections have the following requirements:

• Required to be completed by December 31, 2024
• Must be performed by a licensed architect or engineer
• Must be performed every 10 years after the initial inspection
• Completed in 2 phases to address any structural deterioration, with phase 1 being a visual inspection and phase 2 involving testing if any substantial structural deterioration is discovered in phase 1

Structural Integrity Reserve Studies

The legislation defines the Structural Integrity Reserve Study (SIRS) as a “study of the reserves required for future repairs and replacement of common areas based on a visual inspection of the common areas.”

• The SIRS has the following requirements:
• Required for applicable buildings 3 stories or higher
• Visual inspection (milestone inspection) must be performed by a licensed architect or engineer
• Must be completed by December 31, 2024
• Must be prepared at least every 10 years
• Must identify common areas being inspected and for each line item must state the estimated remaining useful life and estimated replacement cost
• Must include components as listed in statues
• Must provide a recommended annual reserve funding amount commensurate to pay for the replacement or repair of included items

Related: Hearty Reserve Fund Critical for Timeshares Industry

One of the most important provisions of the legislation is that the recommended funding requirement in the SIRS must be included in the association’s annual budget and the recommended funding requirements cannot be waived effective December 31, 2024. This would presume that for a calendar year association, the 2025 budget would need to include the funding from the SIRS and that funding cannot be waived. The legislation does not address the issue of pooled reserves vs. component reserves, so unless further clarification is provided, it is presumed at this time that pooled funding is still an available method.

Reserve Components Included in the Statue

For those condominium-type associations to which these new laws apply, Florida Statute 718.111(2)(g)1(A-J) sets forth the following required components:

• Roof
• Load-bearing walls or other primary structural members
• Floor
• Foundation
• Fireproofing and fire protection systems
• Plumbing
• Electrical systems
• Waterproofing and exterior painting
• Window
• Any other item that has a deferred maintenance expense or replacement cost that exceeds $10,000 and the failure to replace or maintain such item negatively affects any items above, as determined by the licensed engineer or architect performing the visual inspection portion of the SIRS

There are many provisions included in the new legislation and although some are enumerated here, association boards and managers of condominium-type timeshare associations should read the new law to ensure they understand all the provisions that apply to them to ensure compliance. As of the writing of this article, but subject to change, it is generally thought that these legislative changes do not apply to timeshare associations that are not organized as condominiums (UDIs, etc.).

Related: A Reserve Fund Success Story

Boards and management should start planning for the implementation of these provisions sooner rather than later. The sentiment of the legislation implied that association board members (and management) will be accountable to the members for the structural integrity of the buildings going forward. Many associations waive reserve funding annually and have been doing so for years. When that is no longer an option, the financial impact could be extreme. It is imperative to maintain a watchful eye on the requirements as this new law is digested and possibly amended as well as to begin assessing what the financial impact will be on the association.

Withum is a forward-thinking, technology-driven advisory and accounting firm, committed to helping clients in the hospitality industry be more profitable, efficient, and productive in the modern business landscape. For further information about Withum and their cybersecurity, digital advisory and hospitality services teams, contact Lena Combs (LCombs@Withum.com) at (407) 849-1569, or visit www.withum.com.