Wednesday, March 6, 2024

When Time Runs Out

Part IV

What Happens to Owner Equity?

         In past installments, we discussed why condominium projects are especially prone to a shortened service life. We analyzed why the condominium “business model” allows inadequate maintenance, leading to early deterioration. Finally, we listed the signs of failure—some obvious, some hidden—that will lead to a project’s obsolescence. In this installment, we will review what can be done with a failed or destroyed condominium project and what moves by the owners could go a long way to protecting their remaining equity.

            There are two “end-of-life” scenarios for condominium projects. The first is obvious—destruction due to natural or man-made disasters—fires, hurricanes, or earthquakes. The second is more insidious but can be just as fatal—long-term deterioration of structural components, unaddressed or undiscovered for many years—that eventually renders the buildings uninhabitable. 

            We’ll take the less obvious condition first. While AOAOs are generally responsible for maintaining and repairing all the structural parts of a condominium building, that doesn’t always happen as it should. Conditions that cause long-term damage can be hidden, even during investigations to determine the reserve budget. Even if symptoms are noticed, they may not be thoroughly analyzed, so repairs can be funded and addressed before the damage does serious harm.         

Conditions like these may not completely destroy a building, but they can be harmful enough to make it unsafe and uninhabitable for its occupants. Further, the economic cost to address hidden conditions can reach the point where necessary funding is unavailable from owners or lenders. Safety is always a consideration, and if it is discovered that the means of access to the building—stairways, landings, elevated walkways—are compromised by rot or where some have collapsed, injuries to occupants or not, building departments will not hesitate to condemn the affected parts of the building. And, if, upon further examination, similar conditions are discovered elsewhere, the entire project could be shut down. If repair funding is unavailable, the building may have reached the end of its service life.