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.

            Damage, when discovered, will trigger a reaction from boards of directors and owners. The board and its professional managers will look to a developer claim, insurance, and owner resources to rebuild or restore. Insurance is inadequate in many cases of catastrophic loss of entire buildings. Insurance will also rarely cover the cost of reconstructing parts of the building that failed gradually, not suddenly. Reserve accounts, intended for known and predictable repairs such as re-roofing or painting, are inadequate to deal with most hidden damage or catastrophic failure. A developer claim for hidden damage is only viable if asserted within the applicable statutes of limitation or repose. Shorter periods may also apply depending on the claim. Discuss this with the association’s general counsel right away if a problem appears.

            A shortfall in repair funding will lead to proposed assessments that owners can accept or reject—a circumstance that can hamstring a manager when new funding sources are needed quickly. Owners, if given the opportunity, and for various reasons, will often push back on or reject large new assessments, leaving the project unable to perform adequate repairs. Failing to repair the damage, as the project’s experts recommend, must be reflected in disclosures passed on to prospective buyers. The impact on the service life, and hence, the property’s value, becomes apparent. We’ll discuss what more can be done in the next installment.


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