Changes to Florida's Condo Laws

The Real Estate Espresso Podcast

Changes to Florida’s Condo Laws

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Changes to Florida’s Condo Laws

I’m your host, Victor Menasce.

The scenes of the Surfside condo collapse a few years ago, in Florida, were just horrific. In the wake of that event, new Florida condo legislation introduced in 2022, and then subsequent amendments in 2023 and 2024, had a profound and multifaceted negative impact on individual unit owners, leading to significant market shifts across the entire state of Florida.

A fundamental change is a shift from optional, underfunded maintenance to mandatory full funding for building safety and repair. This has resulted in a massive immediate transfer of deferred costs onto current unit owners.

We’ve seen price declines in many areas of Florida, particularly South Florida, where some of the older high-rise condo buildings are common. We’ve seen steep declines in condo values in some cases. These are the largest year-over-year drops since the housing crisis that started in 2008.

Units in buildings that are known to be underfunded or maybe have received a poor initial milestone inspection are much harder to sell. Buyers are conducting heavy due diligence on the financial health of the association. Banks and lenders like Fannie Mae and Freddie Mac are becoming increasingly wary of financing units in non-compliant buildings, especially those with severely underfunded reserves or that are facing necessary repairs.

That forces sellers to accept cash-only offers, and often at a significantly discounted price. These buyers are using the prospect of future assessments to negotiate major price reductions. In some documented cases, buyers have successfully negotiated price drops commensurate with the unit share of anticipated future special assessments.

We’ve seen skyrocketing cost of ownership – that’s both with one-time fees as well as ongoing fees. This is the most direct and painful impact on current owners, particularly those on fixed income.

Homeowner associations with decades of deferred maintenance are now legally required to act, resulting in massive one-time, multi-year special assessments to fund repairs like concrete restoration, roof replacement, waterproofing, and so on. Reports of assessments in the six-figure range, more than $100,000 per unit, are common in some of these older coastal buildings.

Higher monthly fees are also now part of the norm. The new law eliminates the ability to severely underfund the reserves for structural components as of January 1, 2026. That means monthly association fees are increasing substantially to meet the mandatory, full-reserve funding requirement based on the new structural integrity reserve study.

This is something that’s done by engineers, though the engineers have no incentive to cut any corners on these reserve studies. After all, their malpractice insurance is going to be footing the bill if they underestimate something.

The condo association master insurance premiums have already been skyrocketing in Florida due to things like hurricane risks. A new inspection and reserve requirement is adding additional pressure, and insurance may even drop coverage on buildings altogether that are found to have structural issues.

So imagine if you’ve owned a unit for 25, 30 years. You’ve paid off all of it, you just have your monthly fee to worry about, and then all of a sudden you’re hit with these massive special assessments, leaving you with a difficult decision to either sell at a loss or face foreclosure.

Owners who bought either shortly before or after the Surfside collapse are now liable for decades of deferred maintenance that were hidden from them at the time of purchase. So in essence, the new legislation is a forcing function that’s correcting what has really been a long-term systemic issue.

Now there is a new bill in the state senate called Senate Bill 154 and House Bill 913 that offer some clarifications. They actually do ease the financial burden somewhat. So it’s a little bit of a brighter picture than there was at this time last year.

The first is they extended the deadline for the structural reserve study. That’s been now extended to the end of this year.

They’ve added higher thresholds. The threshold for non-specified items that must be included in the reserve study has been raised from $10,000 to $25,000. It helps homeowner associations focus their mandatory structural reserves on those most costly, high-impact items.

There’s now new funding options, and this is the most important piece. You can now take advantage of loans, lines of credit, and special assessments as approved sources of reserve funding, provided that the majority of unit owners authorize it. So that gives boards a little bit more flexibility than relying entirely on annual assessments in order to bring the full funding mandate.

There’s also a temporary pause for those reserve studies that are not structural. It’s allowing associations to temporarily pause contributions to non-structural reserves for up to two years. That’s going to spread around the cost a little bit.

In an effort to reduce some of the costs associated with compliance, the law was also amended to permit reserve specialists and other certified reserve professionals, in addition to licensed architects and engineers, to perform the visual inspection of components in the structural integrity reserve study. That expands the pool of available experts and that can make it easier to schedule the work and potentially lower the costs.

There is now an exclusion for owner-maintained items, so the homeowner association is under no obligation to fund something that is part of the unit owner’s responsibility. For example, maybe windows or things that are not part of the common elements of the building.

There is a more pragmatic approach being applied to remove the floor and foundation from the initial list of items that require mandatory reserve funding as part of the structural integrity reserve studies. It focuses more on the requirement for components that are directly related to structural collapse.

So while these easements do provide a little bit of relief, there is still a requirement for full funding of the mandatory elements. That can no longer be waived or underfunded as of January 1, 2026, when these condominium buildings that have three or more habitable stories have to complete a reserve study like this every ten years if the building is more than 30 years old. And that represents, by the way, about 70% of the housing stock in the state of Florida. So the impact of the legislative changes is significant.

Opening up the option of borrowing money to fund the reserves is a game changer when it comes to reducing the burden on individual unit owners, as well as restoring financial health to a lot of these homeowner associations.

As you think about that, have an awesome rest of your day. Go make some great things happen. We’ll talk to you again tomorrow.

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