The Surfside Condo Collapse: Lessons Learned from a Condo Association Tragedy

The Surfside condominium collapse is one of the most unspeakable tragedies in condominium history.  As investigators continue to search for the cause or causes of the collapse, it is natural to search for solutions on how future building collapses or other disasters can be prevented.  It is unlikely that there will be a “single” identifiable cause of the condominium collapse. Rather, the collapse was likely caused by a multitude of factors.

Understanding the Role of Each Key Player in the Surfside Condo Collapse

This article will examine the various factors that may have contributed to the collapse and offer practical, legal, and legislative suggestions on how other condominium associations may be able to avoid a similar catastrophe.  However, please keep in mind that every condominium is different.   The below suggestions are merely ideas for a condominium association to consider, but they may not be applicable to all condominiums, as high-rise condominiums are typically somewhat different than a townhouse or site condominium.

The Role of the Condominium Board Members

In reviewing the various media reports on the condominium collapse, many people were quick to point the finger at the condominium association’s board of directors.  However, board members are not responsible for everything that goes wrong in a condominium.  Similar to Florida, Michigan law provides various protections for volunteer directors of a nonprofit corporation. In Michigan, MCL 450.2541(1) states that a director must discharge their duties in good faith, with the care of an ordinarily prudent person, and in a manner that they believe is in the best interests of The Surfside of the corporation. In executing the above duties, MCL 450.2541(2) permits a director of a nonprofit corporation to rely on information, opinions, reports, or statements, including financial statements and other financial data that is prepared by attorneys, accountants, engineers or other experts.  Accordingly, it is important to remember that condominium board members are not required to be the experts, but rather that their role is to rely on the advice of the experts.

In the case of the Champlain Towers South Condominium Association, the board obtained engineering reports, made presentations to the co-owners, and was in the process of making repairs prior to the building collapse.  Similarly, various reports have indicated that the building inspector advised the condominium association that the building was in “good shape.”  Given that none of the reports thus far produced demonstrate that experts advised the board that the condominium should be evacuated or that there was any imminent threat of collapse, it does appear that the individual board members were relying on the advice of experts in making repairs.  However, questions will certainly arise about whether the condominium board members acted fast enough on the advice that they received.  With that being said, there are still several important takeaways from a board member perspective:

    1. Budget Accordingly.  Serving on a condominium board is not a popularity contest. Sometimes difficult choices need to be made.  When the board of directors becomes aware that repairs need to be made, it should develop a plan to make repairs . Co-owners typically do not like assessment increases, but increasing assessments is often necessary over time to ensure that the common elements are properly maintained over time.
    2. Educate Yourself. Many people forget that condominium board members are typically well-intentioned volunteer owners that were appointed or elected to a thankless job without any training.  If you are a board member, do not try and wing it.  Rely on advice from professionals.  Similarly it is advisable to review other resources, such as the Community Associations Institute or Hirzel’s Handbook: How to Operate a Michigan Condo or HOA.
    3. Failing to Plan is Planning to Fail.  Long-range planning is the key to any successfully run condominium association.  A well-run condominium association will have regular reserve studies conducted to examine the useful life of the various common elements.  However, not all reserve studies will include an inspection of the structural components of the building.  Accordingly, if a reserve study does not include a structural inspection of the building, a separate engineering firm should be hired to prepare a report.  Based on engineering reports and reserve studies, the board should then project when repairs will need to occur and budget for these repairs over time.
    4. Know Your Liability.  Fairly or unfairly, board members are often the first to be blamed and the last to be given credit.  Accordingly, after the Surfside collapse, many co-owners may be hesitant to serve on the board.  Directors should ensure that their articles of incorporation and condominium bylaws are updated so volunteer directors are appropriately protected from liability.  Similarly, volunteer board members should consult with insurance agents to ensure that appropriate directors and officers insurance is in place.

The Role of the Co-Owners

While individual co-owners do not owe fiduciary duties to the condominium association, they still play a role in the overall success of operating a condominium.  Unfortunately, the infighting at the Champlain Towers South Condominium Association is not unusual for many condominium associations.  Board members are often subject to harassment, threats or recall petitions if they spend significant sums of money, even when the spending is necessary to maintain the common elements.   It is important to remember that condominium boards are composed of the co-owners.  Condominium boards are not faceless entities that govern from a distance.  In the case of Champlain Towers, it appears that pushback on spending ultimately led to various board resignations and infighting, which made it difficult to undertake repairs.

In the absence of legislative changes, condominium associations may want to consider changes to their condominium bylaws to address some of these issues.  The co-owners have control over amending condominium documents, as MCL 559.190 requires 2/3 co-owner approval for changes to the condominium bylaws.  Examples of amendments to condominium documents to consider are as follows:

    1. Voting Requirements.  In some cases, the board is hamstrung as it cannot impose assessments or obtain a loan to make repairs without a co-owner vote.  Condominium associations should review their condominium bylaws to ensure that the board of directors has autonomy to raise funds for repairs with limited co-owner approval or no co-owner approval.  Alternatively, the condominium bylaws could be amended to include a provision that permits the co-owners to veto an assessment by a majority vote, as opposed to requiring their affirmative vote prior to imposing an assessment.
    2. Inspections.  Some condominium documents require the condominium association to perform an annual inspection of the major common elements.  While hiring professionals to perform inspections costs money, amending your condominium bylaws to require mandatory inspections may not be a bad idea.  Similarly, while reserve studies are a best practice in Michigan, there is nothing preventing a condominium association from amending their condominium bylaws to require that reserve studies or structural engineering inspections be performed on a regular basis.
    3. Increase Reserve Funding.  While MCL 559.205 and Mich. Admin. R. 559.511 require a condominium association to maintain a minimum reserve fund that shall be equal to 10% of the association’s current annual budget on a noncumulative basis, there is no reason that a condominium association could not require a higher percentage be retained in the reserve fund or require funding above the 10% minimum be tied to a reserve study.
    4. Minimum Insurance Requirements.  The Michigan Condominium Act does not require a condominium association to carry a minimum dollar amount of insurance.  Mich. Admin R. 559.508 only requires that a condominium association have a general liability policy.  After the filing of the initial lawsuits, a Florida judge commented that the condominium association likely did not have sufficient insurance coverage.  Accordingly, amending document amendments to impose minimum insurance coverage amounts is worth considering.

The Role of the Developer

Preliminary reports indicate that one of the potential causes of the collapse was due to the result of construction defects caused by the original developer.  Accordingly, there will likely be changes to the building code and additional inspections that occur when new condominiums are developed.  However, in addition to changing the law, condominium associations should be proactive in attempting to deal with construction defects caused by developers or other contractors.  We have prepared a guide on how to uncover and resolve construction defects for Michigan condominiums, and doing so at the time of turnover is critical for any newly constructed condominium association.

Unfortunately, it is oftentimes difficult to hold the developer of a condominium responsible for construction defects due to language that is contained in the condominium documents. In many cases, a developer will include anti-lawsuit provisions in the articles of incorporation or condominium bylaws that are intended to make it extremely difficult for the association to file a lawsuit against a developer.  Accordingly, we recommend that condominium associations amend their governing documents to remove anti-lawsuit provisions so that they are able to hold a developer accountable for construction defects.

The Role of the Engineer

While the preliminary engineering reports for Champlain Towers did not paint a pretty picture, as it did identify structural damage, the engineer did not advise the condominium association that the building should be evacuated or provide a timeline to complete the repairs.  While updates to engineering standards are likely forthcoming, it is still important for condominium associations to have solid contracts in place that protect their best interests. Accordingly, when a condominium association retains an engineer, it is advisable to have an attorney review the contract to ensure that the scope of work is properly set forth, the contract does not contain liability disclaimers, and that the engineer is properly insured.

The Role of the Municipality

In Michigan, it is rare for municipalities to require routine structural inspections for buildings.  Accordingly, there is very little municipal oversight of condominiums after the original construction is completed.  It is anticipated that more municipalities will mandate structural inspections of buildings and require them to occur on a more frequent basis than forty (40) years as a result of the collapse though.

However, inspections are only worthwhile if the building inspector does an adequate job.  One of the most concerning facts that has thus far come to light in the Surfside collapse is that the building inspector advised the co-owners that the condominium was in “very good shape” at a condominium association meeting.  Unfortunately, it is very difficult to hold a building inspector responsible for a poor inspection due to governmental immunity.  Similar to Florida, Michigan law generally protects a building inspector for liability even if they were negligent.  Specifically, the Michigan Court of Appeals has held as follows with respect to building inspector liability:

Plaintiffs alleged that building inspector Weber was grossly negligent in failing to investigate the real source of the water problem on plaintiffs’ property, blindly accepting Tri–Mount’s explanations and not requiring proper remediative measures before signing off on construction.

Here, Tri–Mount’s building code violations and inadequate remedial measures are the most immediate, efficient, and direct causes of the damage to plaintiffs’ property. Even if Weber’s negligence allowed Tri–Mount’s poor workmanship to go uncorrected, Weber’s conduct is not the one most immediate and direct cause of any damage. Accordingly, plaintiffs cannot establish liability in avoidance of governmental immunity.

Welgosh v City of Novi, unpublished opinion of the Court of Appeals, issued March 19, 2015 (Docket No. 318516), 2015 WL 1261470, p *2-3.

Accordingly, repealing extremely broad governmental immunity protections for liability inspectors should be an option that the legislature reviews in determining who may be held responsible for the safety of a condominium.

The Role of the Property Manager

Professional property management is also a useful tool in helping identify safety and maintenance concerns in condominiums.  In the case of the Champlain Towers, it was reported that the property manager was pushing the municipality to approve construction days before the collapse.  Similarly, a property manager can assist in performing visual inspections of the condominium and requesting bids for repairs.  Accordingly, given that many volunteer condominium board members have full-time jobs, professional property management is often helpful in ensuring that a condominium is being appropriately maintained and ensuring that repairs are completed.

Finally, property managers may also be helpful in working with the board and condominium association’s attorney in preparing an emergency response plan.  Items that should be considered are compiling the resident’s contact information, preparing evacuation routes, testing safety equipment, providing co-owner contact information to first responders, communication with co-owners, preparing an inventory of property, and reviewing insurance coverage.

Takeaways from the Surfside Condo Collapse

The investigation into the cause or the causes of the Champlain Towers condominium collapse will likely take months, if not years.  Irrespective of the outcome of these investigations, there are important lessons that can be learned from what we know thus far about the condominium collapse.  Ideas for stakeholders to consider right now to prevent another horrible tragedy in the future, are as follows:

    1. Education. Condominium board members should educate themselves on their responsibilities as board members.  Education is key to a successfully run condominium association. Similarly, long-range repairs plans, and emergency plans are useful tools for condominium associations to develop.
    2. Rely on Experts. A condominium board should create a team of subject matter experts, such as accountants, attorneys, contractors, engineers, insurance agents, property managers, and reserve study specialists that can help with long-range planning.  A condominium board that relies on experts improves its chances of success and avoiding liability.
    3. Reserve Funding. Performing regular reserve studies and adopting budgets that are based off of reserve studies is a good practice to implement. Condominium associations should have sufficient reserves in case of an emergency.  In most cases, reserve funds should be in excess of the statutory minimums.  An inevitable part of condominium living is an increase in assessments to pay for repairs over time and all co-owners must be cognizant of this fact.
    4. Loans.  If the condominium association does not have a large reserve fund in place, it should explore a community association loan.  Community associations loans are a good option for condominium associations that have not yet developed a long-range plan.
    5. Amending Condominium Documents.  Best practices that are not legal requirements can often be included in updates to the condominium bylaws.  Examples of amendments to the condominium documents that should be considered are as follows:
      • Removing overly burdensome voting requirements that prevent board members from imposing assessments or obtaining a loan to make necessary repairs.
      • Requiring a condominium association to perform regular inspections of the common elements or mandating regular reserve studies.
      • Requiring a condominium association to have a reserve fund that is tied to a reserve study or that is in excess of the statutory minimum of 10% of the association’s current annual budget.
      • Requiring a condominium association to maintain a minimum amount of liability insurance.
      • Removing anti-lawsuit provisions from condominium documents so developer’s may be held accountable for construction defects.
    1. Developer Accountability. As a result of the condo collapse, it is likely that more stringent safety standards need to be implemented for new construction condominiums.  Similarly, condominium boards need to be mindful that the transitional control period is a critical time period to catch construction defects and for the developer to remedy defects.  Unfortunately, even if developer construction defects are determined to be a primary cause of the collapse, a condominium association will have a hard time holding a developer accountable 40 years after construction has been completed.
    2. Municipal Accountability.  Members of the public rely on building inspectors to ensure that buildings are safe.  Building inspectors need to be properly trained.  Similarly, if they were subject to potential liability for doing a bad job, they may have a greater incentive to uncover construction defects and provide accurate information to the public.
    3. Legislative Incentives.  Legislative incentives for condominium boards and co-owners to increase assessments and engage in long-range planning would also be advisable.  Examples of incentives that could be enacted on a state or federal level are as follows:
      • Requiring a higher reserve fund amount be set aside for condominium associations that do not perform reserve studies every three to five years.
      • Offering a tax credit to condominium associations for performing reserve studies or obtaining structural engineering reports.
      • Making all or a portion of condominium association assessments tax deductible for the owners as an incentive for owners not to fight assessments increases that are necessary for major repairs and replacements.
      • Creating a federally backed loan program that offers zero or low interest rates to community association loans for the purposes of making repairs or replacements to the common elements.

Finally, while there are important lessons to be learned from this tragedy, many of the residents and their families still need help.  Please consider making a donation to help those that have been impacted by this tragedy. You can donate by clicking this link.

Kevin Hirzel is the Managing Member of Hirzel Law, PLC and concentrates his practice on commercial litigation, community association law, condominium law, Fair Housing Act compliance, homeowners association and real estate law. Mr. Hirzel is a fellow in the College of Community Association Lawyers, a prestigious designation given to less than 175 attorneys in the country. He was named a “Go To Lawyer” in Condominium and Real Estate Law by Michigan Lawyer’s Weekly. Mr. Hirzel has been a Michigan Super Lawyer’s Rising Star in Real Estate Law from 2013-2021, an award given to only 2.5% of the attorneys in Michigan each year. Mr. Hirzel has been named a Leading Lawyer in Condominium & HOA law by Leading Lawyers Magazine from 2018-2021, an award given to less than 5% of the attorneys in Michigan each year. He represents community associations, condominium associations, cooperatives, homeowners associations, property owners and property managers throughout Michigan. He may be reached at (248) 397-6596 or kevin@hirzellaw.com.

 

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