Wednesday, February 28, 2024

When Time Runs Out

Part III

When has a Condominium Building 

Reached the End of its Service Life?

         If you read the earlier installments of this series, you know that the service lives of condominium buildings are shortened by inspection, maintenance, and funding failures. Recognizing when a building may begin to reach the end of its service life may be easy or hard, depending on the type of failure. A catastrophic failure by fire, hurricane, or earthquake is instantaneous and needs little to recognize that its life is over. In these instances, we look to insurance, if available, significant owner funding, rarely available, and the value of any remaining assets, principally the land. 

            However, many building failures that result in an early death are not necessarily visible. The collapse of the Champlain Towers condo complex in Surfside, Florida, that killed 98 residents was not due to apparent conditions. Investigations are continuing, but it was probably due to a failure of the waterproofing that promoted corrosion of the reinforcing bar embedded in the concrete structure, over many decades. Less spectacular failures arise when moisture lives in the interior of wood-framed walls or roof sheathing and slowly rots its host until costly repairs are necessary. The problem is often discovered when work is undertaken to re-paint or re-side the exterior, exposing the underlying rot. When failing components are not intended to carry an occupant load, deterioration may continue for decades until discovered. But in parts such as balconies, elevated walkways, and staircases, a rotted structural part can fail and cause injuries, such as the collapse of a balcony in 2015 in Berkeley, California, which killed six students.

            This suggests that more intrusive inspections should be considered even when, visually, the building does not show signs of failure. Inspections that go along with reserve studies are rarely the type that would discover hidden structural damage, for example. California now requires that every exterior load-bearing structural component in new condominium buildings be inspected within its first six years and that defects that impact the safety of those parts be reported to the local building inspector. Other states are considering similar statutes. If defects are discovered in the first ten years of a building’s life, a claim can be made for the cost of repairing the defect. After that, the association, or AOAO, is on its own.

Saturday, February 3, 2024

When Time Runs Out

Part II

The Typical Condominium “Business Model” will Not

 Sustain the Buildings

         Condominium buildings are like rental apartments in their aesthetics and construction, with one significant difference—condominiums are mapped and built to be sold to individual unit owners. The ownership of rental apartments remains with one owner. Apartments are rented for a fixed period. Title to a condominium project, including individual units, is held by the unit owners, who each own an undivided percentage of the entire project in addition to their title to a specific unit.

An apartment building owner is solely responsible for the condition of the building and can set rents accordingly. The multi-party ownership of a condominium building requires a governance system that can act on behalf of all the owners—an association or AOAO—managed by an elected board of directors. The cost of maintenance is spread among all owners. A condominium association must assess the owners for the cost of necessary maintenance, but that cannot happen arbitrarily. It requires adherence to the CCRs, state law, and sometimes, owner approval.

Among the many responsibilities of a condominium association, and probably the most critical, is maintaining the project correctly. This requires hiring professionals to investigate and recommend necessary maintenance. Obtaining that information and associated costs enables the board of directors to set the association’s annual budget. That includes various operating expenses, insurance, reserves, and professional management. The principal source of revenue necessary to fund the budget comes from the assessments levied on the individual owners. This is where the problems, both political and financial, come into play.