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Champlain Towers South Collapse: Frequency, Governance and Liability Issues

Champlain Towers South Collapse: Frequency, Governance and Liability Issues JOURNAL OF SUSTAINABLE REAL ESTATE 2022, VOL. 14, NO. 1, 57–74 ARES https://doi.org/10.1080/19498276.2022.2104346 American Real Estate Society Champlain Towers South Collapse: Frequency, Governance and Liability Issues a b,c d d Robert Simons , Yan Xiao , Aaron Evenchik and Amanda Barreto a b Department of Urban Studies, Levin College of Urban Affairs, Cleveland State University, Cleveland, OH, USA; Real Estate, Chongqing Technology and Business University, Chongqing, China; Visiting Scholar, Cleveland State University, Cleveland, OH, USA; Hahn Loeser & Parks, Cleveland, OH, USA KEYWORDS ABSTRACT Building collapse; The tragedy of the sudden collapse of the 2021 Champlain Towers condominium building condominium governance; in Surfside, Florida raises issues of civil liability and throws into doubt the sustainability of replacement reserve laws the current model of condominium association governance. This case study evaluates the potential causes of the collapse, and reactions of various parties including the consulting engineering company, city regulators, condominium association board, outside property manager, original builder, and unit owners themselves. By conducting a comprehensive lit- erature review, this paper is aimed to find out the reasons, frequency and liability of build- ing collapse, as well as the roles condominium governance, financial modeling, poverty, or statutory language play in the tragedy. Some advice for further improvements to improve board sustainability is given to original developers, contractors, engineers, and insurance carriers. The current model of condominium management has blind spots and appears to be unsustainable. One suggestion to fix the problem is to require that insurance be obtained to insure the liability of condominium associations, including for this type of tra- gedy. That would create a financial risk/incentive for the insurance company to ensure adequate management and upkeep. The insurance company should also set board member expertise qualifications, insurance premiums, need for outside expertise, required inspec- tions/maintenance, and replacement reserves that are required to maintain that coverage. Introduction demolished about a week after the collapse. The rescue mission switched to recovery about two On June 24, 2021, most of the 136-unit 12-story weeks later. The building collapsed pancake style, Champlain Towers South condominium building in with very little room between floors. This eliminated Surfside Florida (north of Miami Beach) suddenly pockets where potential survivors could last for a collapsed in the middle of the night, killing almost few days. The list of potential dead and missing 100 residents. About 25 people were able to escape shrank from 150 to 97 when double counts and during the building’s downfall: a lucky few heard missing persons were sorted out. The rubble pile groaning noises and/or saw large cracks suddenly was finally cleared in late July. Once the dust set- appearing in the walls in the middle of the night, tled, there were a lot of unanswered questions. over a ten-minute period, and were clearheaded Figure 1 shows the physical layout of the Towers, enough to get out in their pajamas. Despite heroic pool deck, parking garage, and nearby projects. efforts by disaster response teams from several We identify pertinent property management countries, no survivors were found after the first issues and use Champlain Towers as a case study to day, and the rubble pile was made more dangerous focus on these intertwined research questions that by slow simmering smoke from crushed vehicle fires in the parking garage under the structure. The address how sustainable condo boards are: are con- remaining standing portion of the building was dominium associations, or homeowner associations CONTACT Robert Simons r.simons@csuohio.edu Department of Urban Studies, Levin College of Urban Affairs, Cleveland State University, Cleveland, OH 44115, USA. 2022 The Author(s). Published with license by Taylor & Francis Group, LLC This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 58 R. SIMONS ET AL. Figure 1. Before & after photos of Champlain towers south (Source: Google). (HOA) ticking time bombs because they are overly wind, even without the acute effects of storms, is democratic with an expertise barrier that is too low, well known. According to popular news articles, the do not have enough competent advisors, and oper- engineering consultant’s report had some ate in a political environment where their regulators “language” about potential issues (AP NEWS, 2021), too easily permit exceptions for alleged financial but was it a clear and present danger? Further, a hardship, often to appease real estate lobbyists? We city official seemed to downplay the severity and seek to draw attention to these connected problems urgency of the report in a public meeting in front to assure that elected residential boards function of the condo association in early 2019 (Tampa Bay better in the future. Because we do not have access Times, 2021a). In May 2021 just a month before the to their meeting minutes, we can’t say if the building collapsed, a pool servicing firm showed Champlain Towers South Condominium Association some clearly serious degradation in concrete integ- (CTSCA) board behavior is really that unusual or rity, but it was not located directly under the part egregious, or if it is just mildly negligent. Pending of the building that collapsed. Meanwhile litigation should help sort that out, and this is Champlain Towers North, a twin building built by beyond the scope of our research. the same developer a block away, seemed to not The tower was governed by the Champlain suffer any symptoms of concrete failure, although it Towers South Condominium Association, Inc. (a was evacuated as a precaution and an engineering Florida non-profit corporation). There were condo- study is underway. Further, a quick, preliminary look minium association board concerns at Champlain at condominium prices in the area does not seem Towers South since at least 2015, and engineering to reflect any price drops consistent with general reports as far back as 2018 that the building had safety concerns. some structural issues that could be serious. The After examining the frequency of building collap- pool deck and parking garage showed concrete ses in general and residential towers, in particular, spalling and an exposed rebar was visible (New to identify and potentially eliminate other poten- York Times, 2021). But concrete deterioration and tially liable parties concerning the collapse of this maintenance are expected in a 40-year-old water- tower, the focus of this paper moves to the govern- front building in south Florida. The state is notori- ance structure of the condominium association. ous for sinkholes, and the potential effects of Elected CTSCA board members in recent years had hurricanes and the general pounding of salt and some strong differences of opinion as to how JOURNAL OF SUSTAINABLE REAL ESTATE 59 urgently the building repairs should be undertaken. wind, structural failure caused by poor workmanship Some board members reportedly resigned over it. and substandard materials of the original build, The scope of recommended repairs included pool, errors in design and construction, elevator failure, fac¸ade, pavers, building entrance, structural repairs” excessive water in the soil beneath the building, soil and “planter landscaping, garage, etc. The price tag erosion and landslides, water penetration and corro- for recommended repairs rose from $8 million in sion of the reinforcing steel, and weak foundations (Beitel & Iwankiw, 2005; Cuoco et al., 1992; 2019 to $15þ million in 2021 (Associated Press, Hadipriono, 1985;Li & Li 2006; Opara, 2007). Some 2021a), an unsustainably small amount. This is a human factors include: a lack of a maintenance cul- large amount that would have to be spread over all unit owners, depending on their percentage of ture (Opara, 2007), insufficient control and monitor- ownership (usually based on square feet of the unit) ing (Ede, 2013), and limitations on engineers in the association. It would cost a typical unit owner (Khandekar, 2013). These articles also present differ- about $100,000, or about 15% of the unit value. ent measures to prevent building failures. Table 1 Whether or not this collapse was a result of and Figure 2 summarize the literature on building collapses around the world. chronic deferred maintenance or was the condomin- ium association balking because of the uncertainty around the urgency of or the need for repairs is con- Evidence of Building Collapses troversial. There is always an obvious potential for The earliest recorded structural failures and collap- conflict of interest between the desire of an elected ses can be traced back to 226 BC, a statue named board to do what may be best for the association Colossus of Rhodes, which was erected in the city without angering its individual unit owners. How do of Rhodes by Chares of Lindos in 280 BC. It col- lay leaders of non-profit organizations address com- lapsed during the earthquake of 226 BC, although plex financial decisions, especially when there is pres- parts of it were preserved. Many more structures sure to defer unnecessary expenses until later? have collapsed since, and we discuss these in two This research sets forth the record of available tranches: we summarize almost 300 collapsed struc- data on building collapses and peer-reviewed litera- tures since 1980 and then hone in on 33 residential ture on the subject, covering the frequency of build- multifamily buildings that fell down. ing collapses and collective residential governance Although building collapses are not uncommon issues. To set up the potential liability part of this throughout the history of human development, paper, we introduce the project collapse timeline, buildings and other fixed human-made structures and then explore who is potentially responsible for that collapsed between 226 BC to 1980 were mainly the collapse, or more likely which entities share structures such as amphitheaters, towers, churches, responsibility. Finally, we provide policy recommen- bridges, dams, schools and other public uses struc- dations for condominium board governance. tures, such as the well-publicized 1981 Hyatt Catwalk Collapse in Kansas City. Frequency of Building Collapses Only after 1980, when high-rise buildings were Literature Review popular, there have been more and more cases of The causes of building collapse include natural and residential and commercial building collapses. There human factors. We collect data from around the were 281 building collapses between 1980 and 2021, world due to the somewhat limited frequency of which were sorted by time and building types, as collapsed buildings (about one every two weeks). shown in Table 1, in both tabular and graph formats. Most of the literature analyzes the causes of build- The last forty years witnessed a dramatic increase ing collapses by studying building failure cases from in building collapses. The number climbed to a the perspective of technology and engineering peak during 2000–2009, with a downward trend (Jones et al., 2016; Lee, 2014;Nemec et al., 2018; after that. Collapses of bridges, followed by towers Peraza, 2017). The reasons for building collapse are (including cell towers) were dominant in the numerous and physical reasons include: earthquake, 2000–2009 period. Trends in the collapse of com- flooding, bombing, explosions, fire, heavy rain or mercial and residential properties (of most interests 60 R. SIMONS ET AL. Table 1. Time and types of building collapsed in year 1980–2021. Type of structures that collapsed Time span Bridges Towers Institutional Commercial Residential Other Dams Religious Stages Total 1980–1989 10 10 5 1 2 4 3 0 0 35 1991–2000 6 9 4 3 4 3 1 1 0 31 2000–2009 36 32 10 8 7 6 7 0 2 108 2010–2021 22 9 17 22 20 8 0 5 4 87 Total 74 60 36 34 33 21 11 6 6 281 Note: Other includes chimney, escalator, crane, bonfire, hangar, scaffold, tunnel, telescope, etc. : Includes 2 extra years. Source: Wikipedia. 30 bridges towers instuonal 20 commercial residenal other 10 dams religious stages 1980-1989 1991-2000 2000-2009 2010-present me and types of building collapsed in year 1980-2021 Figure 2. Graph of time and types of building collapsed in year 1980–2021. to us here) grew to their highest level in the most According to the self-reported investigation of recent period. these accidents on Wikipedia, faulty construction or design was the most common reason for the col- lapse of the building, followed by explosion/fire, Residential Building Collapses negligence, water problems/flood, lax government Among these 281 cases of building and structure oversight, illegal improvements and natural disasters collapses (1980–2021), we found 33 representative such as earthquakes. multistory residential buildings and made a detailed Since the current case of Champlain Towers analysis of their age, location relative to seawater, South is in south Florida near the Atlantic Ocean, governance, stories, construction type, casualties, we are also interested in whether these buildings reasons for the collapse, etc. this amounts to a were near seawater, with its potentially corrosive building collapse about every two weeks, a rare but effects on steel rebar in concrete: 45% of the 33 col- hardly unexpected event. lapsed residential buildings were located in near The average age of the buildings was 21.7 years. potentially corrosive sea water, with another 24% Among them 8 were located in the US, 4 in India, 3 near fresh water. in Nigeria, and 2 in China, Colombia, Russia, and Concerning building management and govern- Taiwan, and a single reported collapse in other ance, where buildings were privately owned by mul- Asian, South American and European Countries. tiple owners, autonomous owner committees were Reinforced concrete was used in 60% of these mod- typical. Single owners (apartments where tenants are ern residential buildings, and 18% were constructed renting) professionally manage their building them- with a combination of reinforced concrete, bricks or/ selves, without a lay board of occupants. While in or wood. some Asian countries, it is common that buildings JOURNAL OF SUSTAINABLE REAL ESTATE 61 cause of collapse soil problems earthquake lax government oversight 3 water problems/flood negligence illegal improvements 4 explosion/fire 6 faulty construcon/design 0 2 4 6 8 10 12 14 16 18 20 Figure 3. Cause of 33 residential building collapses since 1980. Note: some collapses may have more than one reason stated. are managed by developers or construction compa- community associations in the U.S. representing 30 mil- nies (investors), we found that in Russia and Nigeria, lion housing units and 75 million homeowners. properties may be managed by the government. Community associations are also a growing trend in Properties managed by residents are relatively popu- Europe, Australia, and the Middle East (Foundation for lar in western countries, including the US (Dansadau Community Association Research, 2020). Human factors such as laws, costs of construction & Abdullahi, 2012). Other buildings were either vs. market demand/price, negligence of the elected under the administration of builders, developers, investors or even the government (such as North board of directors that manage condominium asso- ciations, under-involvement of condominium unit Korea). Figure 3 shows these results. Note that failure owners, engineers’ negligence, unauthorized renova- of maintenance was not cited as a cause in any of tion, irresponsible supervision and control, violations these collapsed structures. To summarize, the factors potentially affecting of building regulations, illegal building extensions and lax government oversight appear to be import- the construction, management and avoiding the ant factors in building collapses. On the margin, collapse of high-rise residential buildings are numer- association governance is supposed to deal with all ous. We have included, in Appendix A, a chart on the facts and make decisions in real-time: thus, we the complexity of factors affecting high-rise building focus on the role condominium associations play in maintenance decisions. the collapses of buildings, where possible. There are always some condominium unit owners Governance of Condo Associations who just don’t take any notice, aren’t interested, and and Management avoid participation in association governance and The condominium ownership structure is a substantial building maintenance. They simply pay the required and growing part of the housing market. assessments and ignore the association unless they Approximately 25 percent of the U.S. housing inventory have a specific complaint impacting them personally. exists in planned or managed residential communities, generally referred to as common interest ownership Florida Statutes on Condominium Management communities with some form of the community associ- ation. The Community Associations Institute likewise Funding is also a key factor in building govern- estimates that there are 350,000 established ance. Some of the buildings constructed during 62 R. SIMONS ET AL. the original condominium boom (between 1980 evidence of regular payment of assessments with and 1990) are now due for major repairs and very few exceptions. replacement projects. As part of the financial According to a report: Reserve Studies & Reserve Management published by the Foundation for crunch, owners now face the fact that Florida (and Community Association Research (FCAR), commu- many other states) require condominium associa- nity associations should conduct regular reserve tions to fully fund a separate reserve account to studies to assist community leaders in determining save for capital expenditures and deferred main- the appropriate reserves needed to fund replace- tenance (§718.112(2)(f), Fla. Stat. (2021)). This ment costs and the most useful funding mechanism requires condominium associations to plan out, for their reserves (Foundation for Community sometimes decades ahead, and know what repairs Association Research, 2020). In Florida, like many may be required (and their anticipated costs). other states, reserve studies are not required by Doing so avoids “shock” assessments and permits law, although they may be required by the associa- ongoing maintenance costs to be factored into the tion’s governing documents. Reserve studies are a market value of a unit. Thus, condominium associa- helpful planning tool, especially for condominium tions must put aside a sum from their annual boards that are not made up of engineers, con- budgets as a reserve fund or plan to get a loan struction experts, or lawyers, that provide an in- or both. depth analysis of the condominium association’s The budgets of most condominium associations common elements that will require maintenance are made up of monthly assessments paid by unit and capital expenditures over the life of the build- owners, which can range from a few hundred to a ing. Reserve studies include a physical inspection few thousand dollars, depending on the level of and analysis of the association’s building and the services provided. When problems arise, condomin- financial planning required to meet all potential ium associations can quickly face financial distress future costs. It is recommended that all condomin- if owners have not been proactively saving for ium associations have their reserve studies updated repairs. Unfortunately, a substantial number of con- on a frequency that allows for the reserve compo- dominium association reserve funds are likely unca- nents and funding plan to be adjusted in the best pitalized. Often the monthly assessments are set interests of the association or in accordance with low by the developer, as a sales tool – the devel- local statutes. Associations should review the oper will be long gone (and likely beyond any reserve study periodically to ensure the information applicable statute of limitation) by the time any presented is accurate and updated. Since associ- major maintenance is required. Later when unit ation boards are not well served to prepare their owners take control of the association, elected own reserve study, one of the most important board members are hesitant to increase regular responsibilities of any board member and manager assessments—or even impose manageable special is the hiring of vendors and business partners for assessments—to ensure that the association is full- the community, including a reserve specialist. In ing funding its reserve requirements. Thus, when both new and established associations, the reserve these buildings/communities encounter unexpected study provides valuable information for the overall or ignored costs, the board scrambles to find the budgeting process. Reserve assessments are to be money to pay for these expenses. They might sud- used for predictable repair and replacement proj- denly increase regular association assessments, or ects. It seems like a good idea for some level of worse, seek inefficient solutions such as imposing government to be involved to require and/or con- huge special assessments or taking on external firm the reserve study is adequate and buildings funding such as a loan. Most Florida condominium properly maintained, like how the Federal EPA association governing documents permit the board requires cities to maintain and upgrade sewer sys- to borrow money to finance capital expenditures tems to prevent environmental damage. or required extraordinary maintenance costs (CNN Florida state law is also a factor. Based on The News, 2020). External funding typically requires Florida Condominium Act, the government needs to some collateral, a healthy financial statement, and tighten laws on condominium financial planning JOURNAL OF SUSTAINABLE REAL ESTATE 63 when it comes to future repairs and maintenance. Literature on Collective Building Current law allows condominium associations to Management Issues waive the requirement to set aside reserves. The There is a close relationship between the level of 1991 Florida State Legislature addressed that a the residents’ participation in condominium associa- developer-controlled association may vote to waive tions and their satisfaction. The mediation effect of the reserves for the first two years of the operation agency costs between the lay members of commu- of the association. Thereafter, waiver or reduction nity organizations and their leadership, as well as requires approval of a majority of non-developer issues between the owners and the professional voting interests present at a duly called meeting of management agents, is significant (Yip, Chang & the association (Pollakoff, 1991). Called the “kick the Hung, 2007). Residential corporate bodies (HOAs) can down the road” provision by one attorney, can be more effectively supported in the govern- Section 718.112 of the Florida Condominium Act ance and management, customer relationships, ser- allows condominium associations to waive the rule vice quality and customer satisfaction (Levy, Perkins that their boards set aside adequate cash reserves & Ge, 2022). In other markets where high-rise resi- to pay for needed building improvements. All it dential buildings are common (i.e. Hong Kong) takes is a simple majority vote of the condominium ‘non-private’ nature of condominium ownership is unit owners who show up at a condominium associ- in conflict with the fundamentally individualistic ation meeting to postpone the need for expensive interpretation of home ownership, management set-asides. One wonders if, going forward, condo- and maintenance (Yip & Forrest, 2002). minium projects with abundant reserves and well- Research on the problem of maintenance and documented maintenance studies will be demanded replacement reserves in Hong Kong suggests that by buyers, thereby increasing property values. In in managing expected major repairs unit owners essence, even though the unit owners are paying should rely on external building professionals to higher monthly assessments (something that gener- control both the cost and quality of the repair ally reduces values), here the opposite is true and work (Yip & Poon, 2018). In terms of payment condominium buyers will seek well-managed units strategies, sinking funds represent the preferred in a fully funded association. approach to financing common property expendi- The deadly collapse of Champlain Towers South tures, and special levies are the least preferred in Surfside has brought this loophole in Florida approach (Arkcoll et al., 2013). A well-functioning law to the attention of lawyers, condominium legal background is important to focus on the management companies, realtors, insurance compa- management and repair of common parts of apart- nies, and consumer advocates. But amid reports ment buildings (Lujanen, 2010; Puustinen & that the Champlain Towers South had just over Lysnar, 2014). Table 2 summarizes the literature on $777,000 in reserves to pay for what was esti- this topic. mated by inspectors as a $16.2 million repair bill In China, HOAs have been under the direct super- (discussed in more detail later), and concerns vision of a residents committee, since 2016. HOAs raised by structural engineers about the upkeep of enjoy less self-administrative autonomy, and munici- the building, questions have emerged about pal governments can craft specific regulations for whether the legal loophole is allowing mainten- the formation and operation of HOAs. For example, ance to be dangerously deferred, especially in the they can set benchmark fees for property manage- state’s most aging high rises (Tampa Bay ment services, and regulate how they use mainten- Times, 2021b). ance funds. With these arrangements in place, the Condominium documents in the US (including autonomy enjoyed by HOA is limited. As unpleas- Florida) are typically complex, lengthy, and non- ant as these restrictions may be to American condo- negotiable, making it difficult for owners to engage minium associations, having qualified municipal properly with the relevant legal framework. Certain states require summaries, but they may not be employee outsiders who keep the associations adequate to enable buyers to understand potential focused on funding replacement reserves may be a long-term costs and risks. policy worth considering. In China, there are also 64 R. SIMONS ET AL. Table 2. Literature summary of condominium associations and regulation of condominium associations. Author Title Where Year & source Findings City Business Guest Insurance for condominium Insurance for HOA 2021, New Orleans HOAs should consider Perspective associations, in Louisiana City Business obtaining coverage for the post-Surfside full replacement value of the insured property and general liability insurance. Lippert, Randy K. Chicago’s “deconversion” Condo as sociations 2021, Condominium Condominium associations waves and the fragility of in Chicago Governance and Law need be regulated by condominium in Global government. There is associations Urban Context escalated involvement of street offices, residents’ committees, and even the local communist party branches in the formation and operations of an HOA. Hyde, Leighton J. Rethinking Roth: Why the Condo associations 2012, Stetson L. Rev. The legislature should expressly Florida Legislature in Florida permit Florida municipalities Should Empower Local to enact further regulations Governments to Regulate and treat the conversion of Condominium buildings to condominiums Conversions as a subdivision. Baum, Christopher The Benefits of Alternative Condo associations in 2010, John’s L. Rev. “ADR” is an important solution Dispute Resolution in the US in common interest Common Interests developments. Development Disputes Pollakoff, Gary A. The Florida Condo associations 1991, Nova L. Rev. Association may vote to waive Condominium Act in Florida the reserves Kennedy, E., & Imbriani, Rights of tenants in HOA in New Jersey 1996, the New HOAs must be aware of M. D. condominium and Jersey Lawyer restrictions that may govern homeowner association the leasing of units and the communities use of the property generally. Sterk, Stewart E. Maintaining Condominiums HOA in the US 2018, Ind. LJ 93 Legislatures should accord lien and Homeowner priority to associations and Associations: How Much lenders should be educated. of a Priority Korngold, Gerald Cutting Municipal Services HOA owners in the US 2012, NYUJ Legis. & HOA service denials are During Fiscal Crisis: Pub. Pol’y impermissible on Lessons from the Denial constitutional and of Services to statutory grounds. Condominium and Homeowner Association Owners Yip, N.M. & Poon, S.Y. Major repair work: Whose Hong Kong, China 2018, Multi-Owned Since major repair works responsibility? Property in the necessitates strata title AsiaPacific Region: owners to rely on building Rights, Restrictions professionals in controlling and Responsibilities both the cost and quality of the works, employing an external professional to monitor the agents’ behaviour can be a solution. Arkcoll, K., Guilding, C., Funding common property Australia 2013, Sinking funds represent the Lamminamki, D., expenditure in multi- Property Management preferred approach to McManus, L., & owned housing schemes financing common property Warnken, J. expenditure in MOH schemes and special levies are the least preferred approach. arrangements for new buildings where owners pay insurance (in addition to property insurance) and a reserve fund capitalization fee upfront. that such insurance is the limit of claims against such board members. Without that assurance, no one would reasonably serve on a Board—as their Governance of Condo Association Boards assets would be at risk. Even claims for intentional It is critical for the survival of vertical residential or willful incorrect decisions, which may not be cov- condominiums that the condominium association ered, should be provided insurance (or statutory board members have directors’ and officers’ liability protection) otherwise the plaintiff’s bar will allege JOURNAL OF SUSTAINABLE REAL ESTATE 65 intentional or willful acts to get at the assets of coverage is critical to maintaining the vertical resi- board members. Florida’s condominiums would be dential condominium concept. Without these pro- very attractive for these claims as board members tections, vertical residential structures may lose are often retired with significant retirement assets. significant value and be forced to sell units to a sin- Therefore, the Florida legislature must pass laws gle owner who will have an adequate economic and regulations to provide immunity from lawsuits incentive to maintain and protect their investment, to board members. likely as residential rental units. Further, the motiv- While above we discussed the need for municipal ation of single unit owners is personal rather than inspections, those inspections are only as good as collective: Single owners can sell their units and get the inspector. And there is the little economic risk out and do not necessarily have a long-term interest when a City performs a poor inspection—the City in the project. Conversely, apartment owners do, may be protected by sovereign immunity. potentially making this single ownership structure Conversely, insurance companies are in the best less likely to defer maintenance. position to review and price risk. Insurance compa- nies, as a condition for providing coverage, can Timeline for Champlain Towers South inspect a property, demand certain repairs and Figure 4 shows the timeline for the life and death upgrades, and take steps necessary to limit poten- of Champlain Towers South from the time it was tial issues and claims. As insurance companies have planned and built in 1979 through its sudden col- the latest risk in the event of a collapse, the insur- ance market may be the best place to regulate and lapse in late June of 2021, with a few more litiga- tion-related items soon thereafter. 16 items are ensure the maintenance of vertical residential con- dominium buildings. Ensuring a competitive and listed, including significant engineering reports robust insurance market exists to provide such about visible defects. Figure 4. Timeline for the life and death of Champlain towers south (Burr, 2021). 66 R. SIMONS ET AL. This timeline and underlying events are analyzed negligent conduct, caused a catastrophic deadly col- to determine what went wrong, and which potential lapse of Champlain Towers South in Surfside,” the causes of building collapse can be eliminated. complaint alleges. On May 12, 2022, a tentative Nothing notable was observed for the first 35 years settlement, valued at $997 million, was reached of the building’s life but starting in 2015 issues with the families of victims of the Surfside condo- related to structural problems and deferred main- minium collapse (CNN News, 2015). Of this amount, tenance were evident. During 2018–2019 the engin- $83 million addressed property claims. eering reports, review by the City of Surfside and condominium association activity was intense and Liability Legal Hurdles to Chasing sometimes confrontational. At a minimum, the con- Responsible Parties dominium association waited 4 years to satisfactorily Florida law like many states has a statute of limita- act on repairs to the structure. Had a reserve study tions and statute of repose to bring claims. In been completed when the developer turned over Florida, claims for breach of contract are governed control to the condominium association—and that by a five (5) year statute of limitations. Even with reserve study was timely updated over the years— the “discovery rule” (which permits the statute of the association could have gradually saved enough limitations to be tolled in certain instances), many money for building maintenance and major capital states, including Florida have a Statute of Repose expenditures. that prohibits claims against the original contractor, Still later: according to the Wall Street Journal architect and developer after ten (10) years (Fla. from shortly after November 11, 2021, surviving resi- Stat. § 95.11(3)(c)). dents and victims’ families of the Champlain Towers That only leaves claims against parties who exer- South condo collapse have sued the developers of a cised discretion or authority over the building dur- nearby luxury condo project (Eighty Seven Park) ing the last five to ten years – the time period to alleging that vibration from the construction desta- bring suit. In Florida contract claims must be bilized the Champlain Towers South building and led to its collapse (Kusisto, 2021). brought within five (5) years, tort claims for negli- Plaintiffs allege the development team behind gence within four (4) years and claims against a undertook excavation and site work dangerously professional for design and/or engineering malprac- close to Champlain Towers South. Pending litigation tice within two (2) years. With the exception of has been filed. Former residents of Surfside, Florida. breach of contract claims, all of the tort and profes- the collapsed condominium has filed a consolidated sional negligence claims are likely covered amended class action complaint against the build- by insurance. ing’s condominium association. Plaintiffs allege that the Champlain Towers South Condominium Modeling CTS Condo Board Decision Behavior Association breached its duty by neglecting to Jumping to the analysis of observed structural maintain, repair, and replace the building’s common issues, Morabito Consultants, who performed the elements and portions of condominium units that structural field survey of Champlain Tower in provided structural support to the building. By fail- October 2018, provided the Champlain Towers ing to keep the building in a safe condition and South Condominium Association with detailed find- warning residents of unreasonable risks of harm, the ings and recommendations (such as "abundant association as a result caused the condominium col- cracking and spalling" in concrete columns and lapse, which killed 98 people and led to the walls, "exposed, deteriorating rebar" and failing destruction of all 136 units. The lawsuit states the waterproofing beneath the pool deck and entrance condominium association had the duty to maintain drive that was causing "major structural damage.") the building in a safe condition and in good work- nearly three years ago regarding the structural ing order. “Despite the obvious duties required by Florida law, and this admitted duty of care by the repairs that were needed on the building to ensure Association’s Declaration and other governing docu- the safety of the residents and the public," a ments, Defendant, through their own reckless and Morabito spokesman said in a statement to CNN JOURNAL OF SUSTAINABLE REAL ESTATE 67 (Associated Press, 2021b). Morabito Consultants said when the building in Surfside collapsed on June 24, that they did their job by "providing the condomin- 2021. If there is that amount of corrosion, this ium association with an estimate of the probable should have been fixed.” Condominium boards costs to make the extensive and necessary repairs. often don’t have to look far to see what could hap- Among other things, our report detailed significant pen if they push off maintenance for too long and cracks and breaks in the concrete, which required most states and municipalities don’t do much to repairs to ensure the safety of the residents and regulate condominium associations. the public." Condominium association elected boards are not The board of the Champlain Towers South con- insurers, but, like insurers, they manage risk for the dominium association commissioned the report to mutual benefit of all whom they represent. They comply with a “40-year-old building” recertification make decisions about how much to spend on land- requirement. Only two Florida counties, including scaping, paint, and pool furniture, but also about Miami-Dade County where the complex is located, inspections, maintenance, repairs, and a host of fac- have these recertification requirements (Jerry, 2021). tors relevant to the safety of the buildings. In In 2008 the state of Florida briefly required regu- Florida and many other states, the decisions of lar structural integrity inspections of condominium these boards are not subject to external review. In buildings over three stories. The statute, however, fact they are essentially unregulated—which is was repealed two years later when some associa- appropriate for picking pool furniture but not for tions complained about the high costs of the decisions affecting the structural integrity of high- inspections. No Florida state law requires condomin- rise buildings. ium associations to establish reserve funds for emer- Bylaws of the Champlain Towers South gency repairs. This spirit of hands-off regulation has Condominium Association permitted a simple left it to condominium association boards to identify majority of the voting power in attendance at a and manage risks and decide whether and how to duly called meeting where a quorum was present respond. This case provides evidence that this was (at least 40% of the voting interests either in person obviously short-sighted. The members of these or by proxy) to waive any reserve requirement in an boards are volunteer residents elected by fellow res- annual budget. An Independent budget review idents. Board members are not required to have warned the CTSCA that financial reserves were crit- financial, management, engineering, or planning ically underfunded (only had 6.9% of the recom- expertise or training. The legislature did create a mended level of money to complete repair and trust fund, underwritten primarily by fees assessed replacement projects) in the face of urgently on associations, to help implement Florida’s condo- needed structural repairs a little over a year before minium laws and regulations. The government div- the building collapsed (National Public Radio, 2021). ision responsible for managing the trust considers Based on the timeline and facts collected above, educating condominium board members as one of we provide a model of HOA decision-making focus- the trust’s purposes. Yet since 2008, the Florida ing on the connection between unfunded reserves state legislature reportedly has diverted approxi- and building conditions, as shown in Figure 5.In mately $65 million, or nearly 40 percent, of the this conceptual schematic, the blue line on the left trust’s funds into the state’s general fund, under- axis represents critical structural building condition, mining its original purpose and diverting funds shown in percent, which focuses on the concrete from the helping support condominium below (including the attached pool deck) and build- associations. ing envelope above that is holding up the building. Regarding the potential negligence of the condo- This conceptual schematic is based in part on rules minium association, Dawn Lehman, a professor of thumb, and partly on the facts of the case of structural engineering at the University of regarding contemporaneous building reserve Washington said: “the corrosion on the bottom of requirements. The red line is outstanding building that column is astronomical. That amount of corro- repair and maintenance reserve needs, in dollars, sion should have been obvious and documented as shown on the right-hand axis, and is based on data part of the 40-year inspection that was ongoing gleaned from articles obtained in the popular press. 68 R. SIMONS ET AL. Figure 5. Conceptual schematic of decision process on deferred maintenance. Table 3. Potential causes of the collapse of champlain towers south. Probable Possibility responsible Potential source cause? Evidence or liable Sink hole/foundation No Possible 1990s, no recent mention Very small Poor construction/engineering No Twin buildings one block north apparently not at risk Very small Architects No Twin buildings one block north apparently not at risk Very small Sea water corrosion Yes Engineering report 2018 Large Builder negligence No Met standards at time (1980) Very small Engineering on-going reports Yes Defects mentioned. Strong enough wording? Small-Moderate Condominium board decisions Yes Delayed repairs, did not retain outside timely financial expertise large Condominium unit owners Yes Inattentive owners; electing unqualified board members Moderate large City of surfside Yes Said at public meeting in 2020 fixing building defects was not urgent Moderate Florida state/governing law Yes Allowed unqualified members to serve and slack in financial repairs Small moderate decisions, allowed loophole in replacement reserve funding Nearby building owner & contractor No Allegedly new construction created vibration and caused final collapse Very small Potentially Responsible Parties-Liability Thus, in the absence of adequately budgeted building reserve funds, the model demonstrates Table 3 Contains a Summary of Potential Causes of the Building Collapse and Likely Responsibility. For that turning back the decision to do nothing (defer addressing the problem) gets harder as time goes the Sake of Brevity, we Cull Available Public Press by as the length of lines between the blue line on the Event and Can Largely Rule out Several Potential Contributing Factors, Such as Sink Holes, (deferred maintenance) and 100% critical building Serious Builder Mistakes, and Poor Original Design. condition at points A, B and C get longer. At point Thus, we Only Discuss Factors Likely to Be Related A the critical building condition is still about (an to Human Error, Especially How the Clear Reported illustrative figure of) 85%, and the budget to return Physical Defects Such as Decaying Concrete Were the building to safe condition is only $1 million at Addressed (or Not), as the Situation Deteriorated to this juncture. At Point B, we are at 80% of the build- the Point of Absolute Failure. The Key is the ing’s critical structural condition, the reserve budget Intertwined Information Stream Set before the deficit has grown exponentially to $5 million. At Condominium Board from 2015 to 2021. point C, close to imminent collapse, the deficit is now huge, estimated at $15 million. Apparently at Conclusions and Policy Recommendations the point of no return. Indeed, in the end, the condo board had funded only 7% of the This exploratory research has looked at how the required money. Champlain Towers South condominium association JOURNAL OF SUSTAINABLE REAL ESTATE 69 board absorbed and processed information about also very important, which can be used for refer- the building’s physical condition leading up to the ence to avoid similar accidents. sudden collapse of the building in June 2021. We Since the current model of condominium man- present a conceptual schematic model of how the agement as evidenced by Champlain Towers South CTS Condo Association decision-makers chose to has blind spots and appears to be unsustainable in address (or ignore) two main factors: the condition this case, what governance alternatives exist? The of the tower’s critical building infrastructure, and key may be insurance: working through financial the number of deferred reserve funds to cure the markets to increase the price of unsuitable behavior problem. The case raises issues of liability and until condominium governance is unsustainable. throws into doubt the sustainability of the current model of condominium association governance in State Law and Replacement Reserve Waivers particular with respect to the financial management Florida’s condominium act is stronger than most of replacement reserves. We argue that the law and states, yet we are unaware of state law of this type governance structure for condominium associations that does not allow a waiver of replacement needs to be made more sustainable and changed to reflect the potential for lay members to make reserves. This should change. Part of the problem is poor decisions (e.g., deferral) about financial and embedded in the voting power of the condominium physical risks associated with deferred maintenance. association: allowing a simple majority to waive pre- Although natural environmental factors such as scribed reserves is too lax. A super majority is bet- long-term saltwater corrosion of concrete are likely ter, or perhaps waiving replacement reserves should the main contributing physical factor that led to the not be allowed at all. At Champlain Towers, the and collapse of this building, decisions about the main- stay financially secure, according to a March 2020 tenance of this and related factors run throughout report from Association Reserves, a company that the life of the building. Non-natural environments analyzes housing association finances (CNN News, such as legal, social, economic, and political envi- 2020). This shortfall did not occur overnight: accord- ronments also affect the design, construction, and ing to the timeline, there were already complaints use of full life cycle buildings. about this issue in 2015. Our recommendations fol- However, the human factors behind the building low below. are worth thinking about. These human factors also run through the life of the building, such as the Local Government Role lack of government supervision before construction, Local government representatives often interact potential flaws in construction law, design flaws, poor construction quality and quality defects during with property owners. In this case, a representative construction. These are probably not a factor in the of the City of Surfside attended public meetings collapse of Champlain Towers South, and in any and offered an assessment of the level of risk. case, are past any liability statute of limitations. However, US local governments can always claim However, maintenance management after deliv- sovereign immunity, which can shield them from ery is a key important factor, which includes liability under most circumstances. Still, some level delayed maintenance, lack of inspection, negligence of local government involvement in assuring of condominium association boards, misconduct of replacement reserves is suggested, especially if the unit owners (improper use, unauthorized transform- previous building management has proved to not ation, etc.) as well as negligence of government be up to the task. (license issuing in violation of regulations, lax super- vision, etc.), and in this case, lack of proper budget- Reserve Requirements ing and timely approval of a replacement Eliminate the ability for condominium association reserve fund. Of course, the investigation, liability investigation, members to completely waive an annual reserve compensation, experience summary and improve- requirement or consider requiring a super majority, ment of laws and regulations after the accident are even 75% of the voting interest, to approve such a 70 R. SIMONS ET AL. drastic waiver. This can be done by amending state convert the building ownership structure to an condominium acts to fix the current loophole. apartment or Co-Op, so only the controlling Board For new buildings, have a required set aside for can make assessment decisions, without owner vot- loss reserves of 2–3%, or some other number ing driving financial decisions. Putting resident non- derived from expected repair costs. For ongoing owners on the board may also provide some better buildings, have each new owner contribute formula- perspectives. However, there is no guarantee this ically into a reserve fund when they buy into the structure would be more advantageous because the unit. It would be better to require that every buyer pool of members for the COOP board is the same. be informed about the actual amount of reserves However, it could give a chance for a strong execu- set aside for building repairs for, say, a 5-year tive director of the COOP to achieve more respon- period, and further informed about capital projects sible results if people are not so concerned with that are anticipated, and the basis for this budget- their personal out-of-pocket expenses. ing. Additionally, state condominium acts can con- sider requiring condominium associations to have Insurance regular reserve studies done by qualified Builders get insurance against defects for a specified professionals. period subject to a statute of limitations or repose 7–10 years. Condominium associations, face two Expertise Required to Serve on ongoing challenges: obtaining insurance on the Condominium Boards common assets of the buildings is doable, and is There should be a minimum experience require- usually predicated on adequate maintenance, an ment to serve on a decision-making board, at least appraisal, and other typical real estate factors. for buildings above a minimum number of units. However, there is also board member insurance. This might include legal, construction, or real estate Not wanting uninsured risk, without not for-profit experience, to be set by state law. If local members board member liability insurance, board members would likely refuse to serve. In a newly aware envir- do not meet it, outside members should be sought that meet the experience criteria and paid on an onment, obtaining a policy is possible, but condi- hourly basis at market rates. An added bonus is that tions must be strengthened, to include: outside members would not make decisions based The building must have periodic inspections by on their lack of cash flow to fund timely replace- qualified outside engineering firms; ment reserves. Another option would be to require Assure adequate reserve. Enact supermajority a qualified government representative (with build- voting percentages to reduce the possibility of ing, architectural and/or engineering credentials) to underfunded replacement reserves; have a voting role on board replacement Require outside reserve experts on a continual reserve decisions. basis. Assist with budgeting for reserves among We also advocate having an outside professional owners, or borrowing money from outside; and make reserve fund and operational decisions on Notify individual borrowers and their lenders behalf of the HOA (Lee et al., 1998; Yip, Chang & when loss reserves fall below a tripwire amount. Hung, 2007; Yip & Poon 2018; Puustinen & If there is no individual debt on a unit, notify the Lysnar, 2014). property tax authority and building inspector. Ownership Structure Without insurance, condominium association Risk remains when a vote requires members to board members would be vulnerable personally to increase general assessments or issue a special board decisions: and without those protections and assessment, and members cannot afford such insurance, no rational member would serve on a increased assessment and vote based on their per- condominium association board. This could threaten sonal finances, rather than on what is best for the the sustainability of the current condominium form building. To avoid this, one option would be to of ownership for vertical construction. Thus, the JOURNAL OF SUSTAINABLE REAL ESTATE 71 building reserve problem can be regulated by the Notes insurance process, rather than by the government. 1. You’d expect prices of condos in Surfside Florida to One option would be to provide immunity from drop after the building collapse, but preliminary trends (retrospectively) poor decisions by board members, show just the opposite. Based on admittedly limited probably by state law. This could cover breach of data, according to Zillow, house sales prices have duty and but would exclude claims for bad faith. strengthened, where the general spot market for The possibility of criminal penalties, outside of bad housing in the same zip code (33154) was stable or slightly down since the end of June 2021. Perhaps faith and fraud, would discourage anyone from vol- taking 136 units off the local waterfront condo market unteering to be a director. Our review shows it is had a bigger updraft to prices than fear of another unclear if state laws that give enough immunity to building collapse. There are many factors at play, so all protect board members from lawsuits. However, if we can conclude is that there is no strong price this type of immunity provides a perverse incentive effect evident. for bad behavior, it could be a moral hazard. 2. http://data.perseus.org/citations/urn:cts:greekLit:tlg0099. However, it appears that many condominium associ- tlg001.perseus-grc1:14.2.5 ations already have trouble meeting a quorum of active members necessary to take action at all, so a 3. There is a reason original developers/builders of condos more stringent policy could further reduce the pool and time shares alike, all underfund reserves to the of active participants. These and related policies for minimum required, because higher assessments reduce the pool of interested/viable buyers and the impact of condominium associations have already been intro- lower reserves would only be felt in the future. duced in Louisiana, especially for Insurance for con- Unfortunately, it is common human behavior, to put off dominium associations, post-Surfside (New Orleans today what you can do tomorrow even if it might CityBusiness). kill you. One final note on board and property liability insurance: We contacted a knowledgeable broker 4. Until only a few years ago, homeowner assemblies were denied status as a legal entity. This meant they familiar with the residential condominium market, were, among other restrictions, unable to open a bank and he said that although everyone in that part of account. Such limitations have since been relaxed, for the insurance world was talking about Champlain example, in Beijing, where homeowner assemblies are Towers collapse, there was no substantial change in now allowed to manage their own funds account policy rates or underwriting standards as a result of (Beijing Property Management Regulation 2019, the incident (Kevin Milligan, 2021). Clause 78). In terms of future research, scholars should focus 5. China’s reserve fund practices may be a generalizable on the decision process behind HOA board deci- best practice model. When condos are originally sold, sions, especially related to risk, insurance, and the buyers and the developer sign a maintenance engineering. A database of the collapsed building reserve fund agreement where the buyer sets aside a could be maintained, and reasons for failures illumi- construction maintenance management fund of 2-3% nated. Incidence of building failures could be tied of the purchase price. These accumulated funds belong to all owners and is not included in developer proceeds to government regulations, and best practices of the sale. Before the establishment of the owners’ shared to avoid future reoccurrences of this type committee, the maintenance fund is supervised by the of tragedy. local district property management department on To conclude, the high visibility of the collapse of behalf of the HOA. After the HOA is established, the Chaplain Towers South collapse means time is run- HOA opens a maintenance fund in a local Municipal ning out to come up with solutions to prevent this Commercial Development Bank, and funds dedicated to the overhaul, renewal and technical transformation of type of condominium management lapse from hap- the common parts of the residences and the common pening again. As the next generation of high-rise infrastructure network equipment after the warranty buildings near saltwater ages, condominium associa- period expires (http://www.yjcf360.com/licaijj/775176. tions better get their act together, or the sustain- htm). Under this plan, there should be no ongoing ability of the condominium ownership model is assessment for repairs. Alternatively (as in Shenzhen, in doubt. China) the HOA obtains control of collects special 72 R. SIMONS ET AL. maintenance funds on the day of sale, and owners Associated Press (2021b). Report: evidence of extensive cor- need to pay routine maintenance funds in the monthly rosion in collapsed condo. Retrieved Aug 26, 2021, from property fee, which will be collected by an outside https://www.cbs58.com/news/report-evidence-of-exten- sive-corrosion-in-collapsed-condo property management company (https://www.huxiu. Baum, C. (2010). The benefits of alternative dispute reso- com/article/392509.html). lution in common interests development disputes. John’s Law Rev, 84, 907. 6. On the other hand, board members acting in that Beitel, J., & Iwankiw, N. (2005). Historical survey of multistory capacity are likely protected by the business judgment building collapses due to fire. Fire Protection Engineering, rule. It would be a moral hazard, and against sound 27, 42. public policy to give board members with bad Burr, J. (2021). A timeline of the building’s collapse in Miami judgment or intentions immunity based on the reveals multiple warnings and red flags. Retrieved June argument that they might have high net worth or 29, 2021, from https://truth-daily.com/a-timeline-of-the- because no other unit owners would want to serve. buildings-collapse-in-miami-reveals-multiplewarnings-and- red-flags/. 7. Either way, the subject of government sovereign City Business Guest Perspective. (2021). Insurance for condo- immunity issues is beyond the scope of this paper. minium associations, post-Surfside, New Orleans CityBusiness, August 4, Wednesday. 8. https://www.cnn.com/2021/07/01/us/surfside- CNN News. (2020). A report found Surfside condo lacked engineering-morabito-lawsuit/index.html funds for necessary repairs. One expert called it a ’wake- up call’. Retrieved July 8, 2021, from https://www.cnn. 9. https://www.cbs58.com/news/report-evidence-of- com/2021/07/08/us/surfside-collapse-condo-financesinvs/ extensive-corrosion-in-collapsed-condo, Report: index.html. Evidence of extensive corrosion in collapsed condo, by CNN News. (2015). She sued condo in why her attorney Associated Press, Aug 26, 2021 remained worried. Retrieved June 8, 2021, from https:// kesq.com/news/national-world/cnn-national/2021/06/29/ 10. https://www.theregreview.org/2021/07/19/jerry-collapse- she-sued-condo-in-2015-whyher-attorney-remained- champlain-towers-south-regulatory-failure/ worried/. Cuoco, D. 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(FCAR). Best practices, REPORT#1, Reserve Studies & References Reserve Management, Virginia. Hadipriono, F. C. (1985). Analysis of events in recent struc- AP NEWS. (2021). Report showed ‘major’ damage before tural failures. Journal of Structural Engineering, 111(7), Florida condo collapse. Retrieved June 26, 2021, from 1468–1481. https://doi.org/10.1061/(ASCE)0733- https://apnews.com/article/fl-state-wire-florida- 9445(1985)111:7(1468) 2a241993956ea842262e593812ad3ada. Hyde, L. J. (2012). Rethinking Roth: Why the Florida Arkcoll, K., Guilding, C., Lamminamki, D., McManus, L., & Legislature should empower local governments to regu- Warnken, J. (2013). Funding common property expend- late condominium conversions. Stetson Law Rev, 42, 751. iture in multi-owned housing schemes. Property Jerry, R. H. II. (2021). 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Champlain Towers South Collapse: Frequency, Governance and Liability Issues

Champlain Towers South Collapse: Frequency, Governance and Liability Issues

Abstract

Abstract The tragedy of the sudden collapse of the 2021 Champlain Towers condominium building in Surfside, Florida raises issues of civil liability and throws into doubt the sustainability of the current model of condominium association governance. This case study evaluates the potential causes of the collapse, and reactions of various parties including the consulting engineering company, city regulators, condominium association board, outside property manager, original builder, and unit...
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© 2022 The Author(s). Published with license by Taylor & Francis Group, LLC
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1949-8284
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10.1080/19498276.2022.2104346
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Abstract

JOURNAL OF SUSTAINABLE REAL ESTATE 2022, VOL. 14, NO. 1, 57–74 ARES https://doi.org/10.1080/19498276.2022.2104346 American Real Estate Society Champlain Towers South Collapse: Frequency, Governance and Liability Issues a b,c d d Robert Simons , Yan Xiao , Aaron Evenchik and Amanda Barreto a b Department of Urban Studies, Levin College of Urban Affairs, Cleveland State University, Cleveland, OH, USA; Real Estate, Chongqing Technology and Business University, Chongqing, China; Visiting Scholar, Cleveland State University, Cleveland, OH, USA; Hahn Loeser & Parks, Cleveland, OH, USA KEYWORDS ABSTRACT Building collapse; The tragedy of the sudden collapse of the 2021 Champlain Towers condominium building condominium governance; in Surfside, Florida raises issues of civil liability and throws into doubt the sustainability of replacement reserve laws the current model of condominium association governance. This case study evaluates the potential causes of the collapse, and reactions of various parties including the consulting engineering company, city regulators, condominium association board, outside property manager, original builder, and unit owners themselves. By conducting a comprehensive lit- erature review, this paper is aimed to find out the reasons, frequency and liability of build- ing collapse, as well as the roles condominium governance, financial modeling, poverty, or statutory language play in the tragedy. Some advice for further improvements to improve board sustainability is given to original developers, contractors, engineers, and insurance carriers. The current model of condominium management has blind spots and appears to be unsustainable. One suggestion to fix the problem is to require that insurance be obtained to insure the liability of condominium associations, including for this type of tra- gedy. That would create a financial risk/incentive for the insurance company to ensure adequate management and upkeep. The insurance company should also set board member expertise qualifications, insurance premiums, need for outside expertise, required inspec- tions/maintenance, and replacement reserves that are required to maintain that coverage. Introduction demolished about a week after the collapse. The rescue mission switched to recovery about two On June 24, 2021, most of the 136-unit 12-story weeks later. The building collapsed pancake style, Champlain Towers South condominium building in with very little room between floors. This eliminated Surfside Florida (north of Miami Beach) suddenly pockets where potential survivors could last for a collapsed in the middle of the night, killing almost few days. The list of potential dead and missing 100 residents. About 25 people were able to escape shrank from 150 to 97 when double counts and during the building’s downfall: a lucky few heard missing persons were sorted out. The rubble pile groaning noises and/or saw large cracks suddenly was finally cleared in late July. Once the dust set- appearing in the walls in the middle of the night, tled, there were a lot of unanswered questions. over a ten-minute period, and were clearheaded Figure 1 shows the physical layout of the Towers, enough to get out in their pajamas. Despite heroic pool deck, parking garage, and nearby projects. efforts by disaster response teams from several We identify pertinent property management countries, no survivors were found after the first issues and use Champlain Towers as a case study to day, and the rubble pile was made more dangerous focus on these intertwined research questions that by slow simmering smoke from crushed vehicle fires in the parking garage under the structure. The address how sustainable condo boards are: are con- remaining standing portion of the building was dominium associations, or homeowner associations CONTACT Robert Simons r.simons@csuohio.edu Department of Urban Studies, Levin College of Urban Affairs, Cleveland State University, Cleveland, OH 44115, USA. 2022 The Author(s). Published with license by Taylor & Francis Group, LLC This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 58 R. SIMONS ET AL. Figure 1. Before & after photos of Champlain towers south (Source: Google). (HOA) ticking time bombs because they are overly wind, even without the acute effects of storms, is democratic with an expertise barrier that is too low, well known. According to popular news articles, the do not have enough competent advisors, and oper- engineering consultant’s report had some ate in a political environment where their regulators “language” about potential issues (AP NEWS, 2021), too easily permit exceptions for alleged financial but was it a clear and present danger? Further, a hardship, often to appease real estate lobbyists? We city official seemed to downplay the severity and seek to draw attention to these connected problems urgency of the report in a public meeting in front to assure that elected residential boards function of the condo association in early 2019 (Tampa Bay better in the future. Because we do not have access Times, 2021a). In May 2021 just a month before the to their meeting minutes, we can’t say if the building collapsed, a pool servicing firm showed Champlain Towers South Condominium Association some clearly serious degradation in concrete integ- (CTSCA) board behavior is really that unusual or rity, but it was not located directly under the part egregious, or if it is just mildly negligent. Pending of the building that collapsed. Meanwhile litigation should help sort that out, and this is Champlain Towers North, a twin building built by beyond the scope of our research. the same developer a block away, seemed to not The tower was governed by the Champlain suffer any symptoms of concrete failure, although it Towers South Condominium Association, Inc. (a was evacuated as a precaution and an engineering Florida non-profit corporation). There were condo- study is underway. Further, a quick, preliminary look minium association board concerns at Champlain at condominium prices in the area does not seem Towers South since at least 2015, and engineering to reflect any price drops consistent with general reports as far back as 2018 that the building had safety concerns. some structural issues that could be serious. The After examining the frequency of building collap- pool deck and parking garage showed concrete ses in general and residential towers, in particular, spalling and an exposed rebar was visible (New to identify and potentially eliminate other poten- York Times, 2021). But concrete deterioration and tially liable parties concerning the collapse of this maintenance are expected in a 40-year-old water- tower, the focus of this paper moves to the govern- front building in south Florida. The state is notori- ance structure of the condominium association. ous for sinkholes, and the potential effects of Elected CTSCA board members in recent years had hurricanes and the general pounding of salt and some strong differences of opinion as to how JOURNAL OF SUSTAINABLE REAL ESTATE 59 urgently the building repairs should be undertaken. wind, structural failure caused by poor workmanship Some board members reportedly resigned over it. and substandard materials of the original build, The scope of recommended repairs included pool, errors in design and construction, elevator failure, fac¸ade, pavers, building entrance, structural repairs” excessive water in the soil beneath the building, soil and “planter landscaping, garage, etc. The price tag erosion and landslides, water penetration and corro- for recommended repairs rose from $8 million in sion of the reinforcing steel, and weak foundations (Beitel & Iwankiw, 2005; Cuoco et al., 1992; 2019 to $15þ million in 2021 (Associated Press, Hadipriono, 1985;Li & Li 2006; Opara, 2007). Some 2021a), an unsustainably small amount. This is a human factors include: a lack of a maintenance cul- large amount that would have to be spread over all unit owners, depending on their percentage of ture (Opara, 2007), insufficient control and monitor- ownership (usually based on square feet of the unit) ing (Ede, 2013), and limitations on engineers in the association. It would cost a typical unit owner (Khandekar, 2013). These articles also present differ- about $100,000, or about 15% of the unit value. ent measures to prevent building failures. Table 1 Whether or not this collapse was a result of and Figure 2 summarize the literature on building collapses around the world. chronic deferred maintenance or was the condomin- ium association balking because of the uncertainty around the urgency of or the need for repairs is con- Evidence of Building Collapses troversial. There is always an obvious potential for The earliest recorded structural failures and collap- conflict of interest between the desire of an elected ses can be traced back to 226 BC, a statue named board to do what may be best for the association Colossus of Rhodes, which was erected in the city without angering its individual unit owners. How do of Rhodes by Chares of Lindos in 280 BC. It col- lay leaders of non-profit organizations address com- lapsed during the earthquake of 226 BC, although plex financial decisions, especially when there is pres- parts of it were preserved. Many more structures sure to defer unnecessary expenses until later? have collapsed since, and we discuss these in two This research sets forth the record of available tranches: we summarize almost 300 collapsed struc- data on building collapses and peer-reviewed litera- tures since 1980 and then hone in on 33 residential ture on the subject, covering the frequency of build- multifamily buildings that fell down. ing collapses and collective residential governance Although building collapses are not uncommon issues. To set up the potential liability part of this throughout the history of human development, paper, we introduce the project collapse timeline, buildings and other fixed human-made structures and then explore who is potentially responsible for that collapsed between 226 BC to 1980 were mainly the collapse, or more likely which entities share structures such as amphitheaters, towers, churches, responsibility. Finally, we provide policy recommen- bridges, dams, schools and other public uses struc- dations for condominium board governance. tures, such as the well-publicized 1981 Hyatt Catwalk Collapse in Kansas City. Frequency of Building Collapses Only after 1980, when high-rise buildings were Literature Review popular, there have been more and more cases of The causes of building collapse include natural and residential and commercial building collapses. There human factors. We collect data from around the were 281 building collapses between 1980 and 2021, world due to the somewhat limited frequency of which were sorted by time and building types, as collapsed buildings (about one every two weeks). shown in Table 1, in both tabular and graph formats. Most of the literature analyzes the causes of build- The last forty years witnessed a dramatic increase ing collapses by studying building failure cases from in building collapses. The number climbed to a the perspective of technology and engineering peak during 2000–2009, with a downward trend (Jones et al., 2016; Lee, 2014;Nemec et al., 2018; after that. Collapses of bridges, followed by towers Peraza, 2017). The reasons for building collapse are (including cell towers) were dominant in the numerous and physical reasons include: earthquake, 2000–2009 period. Trends in the collapse of com- flooding, bombing, explosions, fire, heavy rain or mercial and residential properties (of most interests 60 R. SIMONS ET AL. Table 1. Time and types of building collapsed in year 1980–2021. Type of structures that collapsed Time span Bridges Towers Institutional Commercial Residential Other Dams Religious Stages Total 1980–1989 10 10 5 1 2 4 3 0 0 35 1991–2000 6 9 4 3 4 3 1 1 0 31 2000–2009 36 32 10 8 7 6 7 0 2 108 2010–2021 22 9 17 22 20 8 0 5 4 87 Total 74 60 36 34 33 21 11 6 6 281 Note: Other includes chimney, escalator, crane, bonfire, hangar, scaffold, tunnel, telescope, etc. : Includes 2 extra years. Source: Wikipedia. 30 bridges towers instuonal 20 commercial residenal other 10 dams religious stages 1980-1989 1991-2000 2000-2009 2010-present me and types of building collapsed in year 1980-2021 Figure 2. Graph of time and types of building collapsed in year 1980–2021. to us here) grew to their highest level in the most According to the self-reported investigation of recent period. these accidents on Wikipedia, faulty construction or design was the most common reason for the col- lapse of the building, followed by explosion/fire, Residential Building Collapses negligence, water problems/flood, lax government Among these 281 cases of building and structure oversight, illegal improvements and natural disasters collapses (1980–2021), we found 33 representative such as earthquakes. multistory residential buildings and made a detailed Since the current case of Champlain Towers analysis of their age, location relative to seawater, South is in south Florida near the Atlantic Ocean, governance, stories, construction type, casualties, we are also interested in whether these buildings reasons for the collapse, etc. this amounts to a were near seawater, with its potentially corrosive building collapse about every two weeks, a rare but effects on steel rebar in concrete: 45% of the 33 col- hardly unexpected event. lapsed residential buildings were located in near The average age of the buildings was 21.7 years. potentially corrosive sea water, with another 24% Among them 8 were located in the US, 4 in India, 3 near fresh water. in Nigeria, and 2 in China, Colombia, Russia, and Concerning building management and govern- Taiwan, and a single reported collapse in other ance, where buildings were privately owned by mul- Asian, South American and European Countries. tiple owners, autonomous owner committees were Reinforced concrete was used in 60% of these mod- typical. Single owners (apartments where tenants are ern residential buildings, and 18% were constructed renting) professionally manage their building them- with a combination of reinforced concrete, bricks or/ selves, without a lay board of occupants. While in or wood. some Asian countries, it is common that buildings JOURNAL OF SUSTAINABLE REAL ESTATE 61 cause of collapse soil problems earthquake lax government oversight 3 water problems/flood negligence illegal improvements 4 explosion/fire 6 faulty construcon/design 0 2 4 6 8 10 12 14 16 18 20 Figure 3. Cause of 33 residential building collapses since 1980. Note: some collapses may have more than one reason stated. are managed by developers or construction compa- community associations in the U.S. representing 30 mil- nies (investors), we found that in Russia and Nigeria, lion housing units and 75 million homeowners. properties may be managed by the government. Community associations are also a growing trend in Properties managed by residents are relatively popu- Europe, Australia, and the Middle East (Foundation for lar in western countries, including the US (Dansadau Community Association Research, 2020). Human factors such as laws, costs of construction & Abdullahi, 2012). Other buildings were either vs. market demand/price, negligence of the elected under the administration of builders, developers, investors or even the government (such as North board of directors that manage condominium asso- ciations, under-involvement of condominium unit Korea). Figure 3 shows these results. Note that failure owners, engineers’ negligence, unauthorized renova- of maintenance was not cited as a cause in any of tion, irresponsible supervision and control, violations these collapsed structures. To summarize, the factors potentially affecting of building regulations, illegal building extensions and lax government oversight appear to be import- the construction, management and avoiding the ant factors in building collapses. On the margin, collapse of high-rise residential buildings are numer- association governance is supposed to deal with all ous. We have included, in Appendix A, a chart on the facts and make decisions in real-time: thus, we the complexity of factors affecting high-rise building focus on the role condominium associations play in maintenance decisions. the collapses of buildings, where possible. There are always some condominium unit owners Governance of Condo Associations who just don’t take any notice, aren’t interested, and and Management avoid participation in association governance and The condominium ownership structure is a substantial building maintenance. They simply pay the required and growing part of the housing market. assessments and ignore the association unless they Approximately 25 percent of the U.S. housing inventory have a specific complaint impacting them personally. exists in planned or managed residential communities, generally referred to as common interest ownership Florida Statutes on Condominium Management communities with some form of the community associ- ation. The Community Associations Institute likewise Funding is also a key factor in building govern- estimates that there are 350,000 established ance. Some of the buildings constructed during 62 R. SIMONS ET AL. the original condominium boom (between 1980 evidence of regular payment of assessments with and 1990) are now due for major repairs and very few exceptions. replacement projects. As part of the financial According to a report: Reserve Studies & Reserve Management published by the Foundation for crunch, owners now face the fact that Florida (and Community Association Research (FCAR), commu- many other states) require condominium associa- nity associations should conduct regular reserve tions to fully fund a separate reserve account to studies to assist community leaders in determining save for capital expenditures and deferred main- the appropriate reserves needed to fund replace- tenance (§718.112(2)(f), Fla. Stat. (2021)). This ment costs and the most useful funding mechanism requires condominium associations to plan out, for their reserves (Foundation for Community sometimes decades ahead, and know what repairs Association Research, 2020). In Florida, like many may be required (and their anticipated costs). other states, reserve studies are not required by Doing so avoids “shock” assessments and permits law, although they may be required by the associa- ongoing maintenance costs to be factored into the tion’s governing documents. Reserve studies are a market value of a unit. Thus, condominium associa- helpful planning tool, especially for condominium tions must put aside a sum from their annual boards that are not made up of engineers, con- budgets as a reserve fund or plan to get a loan struction experts, or lawyers, that provide an in- or both. depth analysis of the condominium association’s The budgets of most condominium associations common elements that will require maintenance are made up of monthly assessments paid by unit and capital expenditures over the life of the build- owners, which can range from a few hundred to a ing. Reserve studies include a physical inspection few thousand dollars, depending on the level of and analysis of the association’s building and the services provided. When problems arise, condomin- financial planning required to meet all potential ium associations can quickly face financial distress future costs. It is recommended that all condomin- if owners have not been proactively saving for ium associations have their reserve studies updated repairs. Unfortunately, a substantial number of con- on a frequency that allows for the reserve compo- dominium association reserve funds are likely unca- nents and funding plan to be adjusted in the best pitalized. Often the monthly assessments are set interests of the association or in accordance with low by the developer, as a sales tool – the devel- local statutes. Associations should review the oper will be long gone (and likely beyond any reserve study periodically to ensure the information applicable statute of limitation) by the time any presented is accurate and updated. Since associ- major maintenance is required. Later when unit ation boards are not well served to prepare their owners take control of the association, elected own reserve study, one of the most important board members are hesitant to increase regular responsibilities of any board member and manager assessments—or even impose manageable special is the hiring of vendors and business partners for assessments—to ensure that the association is full- the community, including a reserve specialist. In ing funding its reserve requirements. Thus, when both new and established associations, the reserve these buildings/communities encounter unexpected study provides valuable information for the overall or ignored costs, the board scrambles to find the budgeting process. Reserve assessments are to be money to pay for these expenses. They might sud- used for predictable repair and replacement proj- denly increase regular association assessments, or ects. It seems like a good idea for some level of worse, seek inefficient solutions such as imposing government to be involved to require and/or con- huge special assessments or taking on external firm the reserve study is adequate and buildings funding such as a loan. Most Florida condominium properly maintained, like how the Federal EPA association governing documents permit the board requires cities to maintain and upgrade sewer sys- to borrow money to finance capital expenditures tems to prevent environmental damage. or required extraordinary maintenance costs (CNN Florida state law is also a factor. Based on The News, 2020). External funding typically requires Florida Condominium Act, the government needs to some collateral, a healthy financial statement, and tighten laws on condominium financial planning JOURNAL OF SUSTAINABLE REAL ESTATE 63 when it comes to future repairs and maintenance. Literature on Collective Building Current law allows condominium associations to Management Issues waive the requirement to set aside reserves. The There is a close relationship between the level of 1991 Florida State Legislature addressed that a the residents’ participation in condominium associa- developer-controlled association may vote to waive tions and their satisfaction. The mediation effect of the reserves for the first two years of the operation agency costs between the lay members of commu- of the association. Thereafter, waiver or reduction nity organizations and their leadership, as well as requires approval of a majority of non-developer issues between the owners and the professional voting interests present at a duly called meeting of management agents, is significant (Yip, Chang & the association (Pollakoff, 1991). Called the “kick the Hung, 2007). Residential corporate bodies (HOAs) can down the road” provision by one attorney, can be more effectively supported in the govern- Section 718.112 of the Florida Condominium Act ance and management, customer relationships, ser- allows condominium associations to waive the rule vice quality and customer satisfaction (Levy, Perkins that their boards set aside adequate cash reserves & Ge, 2022). In other markets where high-rise resi- to pay for needed building improvements. All it dential buildings are common (i.e. Hong Kong) takes is a simple majority vote of the condominium ‘non-private’ nature of condominium ownership is unit owners who show up at a condominium associ- in conflict with the fundamentally individualistic ation meeting to postpone the need for expensive interpretation of home ownership, management set-asides. One wonders if, going forward, condo- and maintenance (Yip & Forrest, 2002). minium projects with abundant reserves and well- Research on the problem of maintenance and documented maintenance studies will be demanded replacement reserves in Hong Kong suggests that by buyers, thereby increasing property values. In in managing expected major repairs unit owners essence, even though the unit owners are paying should rely on external building professionals to higher monthly assessments (something that gener- control both the cost and quality of the repair ally reduces values), here the opposite is true and work (Yip & Poon, 2018). In terms of payment condominium buyers will seek well-managed units strategies, sinking funds represent the preferred in a fully funded association. approach to financing common property expendi- The deadly collapse of Champlain Towers South tures, and special levies are the least preferred in Surfside has brought this loophole in Florida approach (Arkcoll et al., 2013). A well-functioning law to the attention of lawyers, condominium legal background is important to focus on the management companies, realtors, insurance compa- management and repair of common parts of apart- nies, and consumer advocates. But amid reports ment buildings (Lujanen, 2010; Puustinen & that the Champlain Towers South had just over Lysnar, 2014). Table 2 summarizes the literature on $777,000 in reserves to pay for what was esti- this topic. mated by inspectors as a $16.2 million repair bill In China, HOAs have been under the direct super- (discussed in more detail later), and concerns vision of a residents committee, since 2016. HOAs raised by structural engineers about the upkeep of enjoy less self-administrative autonomy, and munici- the building, questions have emerged about pal governments can craft specific regulations for whether the legal loophole is allowing mainten- the formation and operation of HOAs. For example, ance to be dangerously deferred, especially in the they can set benchmark fees for property manage- state’s most aging high rises (Tampa Bay ment services, and regulate how they use mainten- Times, 2021b). ance funds. With these arrangements in place, the Condominium documents in the US (including autonomy enjoyed by HOA is limited. As unpleas- Florida) are typically complex, lengthy, and non- ant as these restrictions may be to American condo- negotiable, making it difficult for owners to engage minium associations, having qualified municipal properly with the relevant legal framework. Certain states require summaries, but they may not be employee outsiders who keep the associations adequate to enable buyers to understand potential focused on funding replacement reserves may be a long-term costs and risks. policy worth considering. In China, there are also 64 R. SIMONS ET AL. Table 2. Literature summary of condominium associations and regulation of condominium associations. Author Title Where Year & source Findings City Business Guest Insurance for condominium Insurance for HOA 2021, New Orleans HOAs should consider Perspective associations, in Louisiana City Business obtaining coverage for the post-Surfside full replacement value of the insured property and general liability insurance. Lippert, Randy K. Chicago’s “deconversion” Condo as sociations 2021, Condominium Condominium associations waves and the fragility of in Chicago Governance and Law need be regulated by condominium in Global government. There is associations Urban Context escalated involvement of street offices, residents’ committees, and even the local communist party branches in the formation and operations of an HOA. Hyde, Leighton J. Rethinking Roth: Why the Condo associations 2012, Stetson L. Rev. The legislature should expressly Florida Legislature in Florida permit Florida municipalities Should Empower Local to enact further regulations Governments to Regulate and treat the conversion of Condominium buildings to condominiums Conversions as a subdivision. Baum, Christopher The Benefits of Alternative Condo associations in 2010, John’s L. Rev. “ADR” is an important solution Dispute Resolution in the US in common interest Common Interests developments. Development Disputes Pollakoff, Gary A. The Florida Condo associations 1991, Nova L. Rev. Association may vote to waive Condominium Act in Florida the reserves Kennedy, E., & Imbriani, Rights of tenants in HOA in New Jersey 1996, the New HOAs must be aware of M. D. condominium and Jersey Lawyer restrictions that may govern homeowner association the leasing of units and the communities use of the property generally. Sterk, Stewart E. Maintaining Condominiums HOA in the US 2018, Ind. LJ 93 Legislatures should accord lien and Homeowner priority to associations and Associations: How Much lenders should be educated. of a Priority Korngold, Gerald Cutting Municipal Services HOA owners in the US 2012, NYUJ Legis. & HOA service denials are During Fiscal Crisis: Pub. Pol’y impermissible on Lessons from the Denial constitutional and of Services to statutory grounds. Condominium and Homeowner Association Owners Yip, N.M. & Poon, S.Y. Major repair work: Whose Hong Kong, China 2018, Multi-Owned Since major repair works responsibility? Property in the necessitates strata title AsiaPacific Region: owners to rely on building Rights, Restrictions professionals in controlling and Responsibilities both the cost and quality of the works, employing an external professional to monitor the agents’ behaviour can be a solution. Arkcoll, K., Guilding, C., Funding common property Australia 2013, Sinking funds represent the Lamminamki, D., expenditure in multi- Property Management preferred approach to McManus, L., & owned housing schemes financing common property Warnken, J. expenditure in MOH schemes and special levies are the least preferred approach. arrangements for new buildings where owners pay insurance (in addition to property insurance) and a reserve fund capitalization fee upfront. that such insurance is the limit of claims against such board members. Without that assurance, no one would reasonably serve on a Board—as their Governance of Condo Association Boards assets would be at risk. Even claims for intentional It is critical for the survival of vertical residential or willful incorrect decisions, which may not be cov- condominiums that the condominium association ered, should be provided insurance (or statutory board members have directors’ and officers’ liability protection) otherwise the plaintiff’s bar will allege JOURNAL OF SUSTAINABLE REAL ESTATE 65 intentional or willful acts to get at the assets of coverage is critical to maintaining the vertical resi- board members. Florida’s condominiums would be dential condominium concept. Without these pro- very attractive for these claims as board members tections, vertical residential structures may lose are often retired with significant retirement assets. significant value and be forced to sell units to a sin- Therefore, the Florida legislature must pass laws gle owner who will have an adequate economic and regulations to provide immunity from lawsuits incentive to maintain and protect their investment, to board members. likely as residential rental units. Further, the motiv- While above we discussed the need for municipal ation of single unit owners is personal rather than inspections, those inspections are only as good as collective: Single owners can sell their units and get the inspector. And there is the little economic risk out and do not necessarily have a long-term interest when a City performs a poor inspection—the City in the project. Conversely, apartment owners do, may be protected by sovereign immunity. potentially making this single ownership structure Conversely, insurance companies are in the best less likely to defer maintenance. position to review and price risk. Insurance compa- nies, as a condition for providing coverage, can Timeline for Champlain Towers South inspect a property, demand certain repairs and Figure 4 shows the timeline for the life and death upgrades, and take steps necessary to limit poten- of Champlain Towers South from the time it was tial issues and claims. As insurance companies have planned and built in 1979 through its sudden col- the latest risk in the event of a collapse, the insur- ance market may be the best place to regulate and lapse in late June of 2021, with a few more litiga- tion-related items soon thereafter. 16 items are ensure the maintenance of vertical residential con- dominium buildings. Ensuring a competitive and listed, including significant engineering reports robust insurance market exists to provide such about visible defects. Figure 4. Timeline for the life and death of Champlain towers south (Burr, 2021). 66 R. SIMONS ET AL. This timeline and underlying events are analyzed negligent conduct, caused a catastrophic deadly col- to determine what went wrong, and which potential lapse of Champlain Towers South in Surfside,” the causes of building collapse can be eliminated. complaint alleges. On May 12, 2022, a tentative Nothing notable was observed for the first 35 years settlement, valued at $997 million, was reached of the building’s life but starting in 2015 issues with the families of victims of the Surfside condo- related to structural problems and deferred main- minium collapse (CNN News, 2015). Of this amount, tenance were evident. During 2018–2019 the engin- $83 million addressed property claims. eering reports, review by the City of Surfside and condominium association activity was intense and Liability Legal Hurdles to Chasing sometimes confrontational. At a minimum, the con- Responsible Parties dominium association waited 4 years to satisfactorily Florida law like many states has a statute of limita- act on repairs to the structure. Had a reserve study tions and statute of repose to bring claims. In been completed when the developer turned over Florida, claims for breach of contract are governed control to the condominium association—and that by a five (5) year statute of limitations. Even with reserve study was timely updated over the years— the “discovery rule” (which permits the statute of the association could have gradually saved enough limitations to be tolled in certain instances), many money for building maintenance and major capital states, including Florida have a Statute of Repose expenditures. that prohibits claims against the original contractor, Still later: according to the Wall Street Journal architect and developer after ten (10) years (Fla. from shortly after November 11, 2021, surviving resi- Stat. § 95.11(3)(c)). dents and victims’ families of the Champlain Towers That only leaves claims against parties who exer- South condo collapse have sued the developers of a cised discretion or authority over the building dur- nearby luxury condo project (Eighty Seven Park) ing the last five to ten years – the time period to alleging that vibration from the construction desta- bring suit. In Florida contract claims must be bilized the Champlain Towers South building and led to its collapse (Kusisto, 2021). brought within five (5) years, tort claims for negli- Plaintiffs allege the development team behind gence within four (4) years and claims against a undertook excavation and site work dangerously professional for design and/or engineering malprac- close to Champlain Towers South. Pending litigation tice within two (2) years. With the exception of has been filed. Former residents of Surfside, Florida. breach of contract claims, all of the tort and profes- the collapsed condominium has filed a consolidated sional negligence claims are likely covered amended class action complaint against the build- by insurance. ing’s condominium association. Plaintiffs allege that the Champlain Towers South Condominium Modeling CTS Condo Board Decision Behavior Association breached its duty by neglecting to Jumping to the analysis of observed structural maintain, repair, and replace the building’s common issues, Morabito Consultants, who performed the elements and portions of condominium units that structural field survey of Champlain Tower in provided structural support to the building. By fail- October 2018, provided the Champlain Towers ing to keep the building in a safe condition and South Condominium Association with detailed find- warning residents of unreasonable risks of harm, the ings and recommendations (such as "abundant association as a result caused the condominium col- cracking and spalling" in concrete columns and lapse, which killed 98 people and led to the walls, "exposed, deteriorating rebar" and failing destruction of all 136 units. The lawsuit states the waterproofing beneath the pool deck and entrance condominium association had the duty to maintain drive that was causing "major structural damage.") the building in a safe condition and in good work- nearly three years ago regarding the structural ing order. “Despite the obvious duties required by Florida law, and this admitted duty of care by the repairs that were needed on the building to ensure Association’s Declaration and other governing docu- the safety of the residents and the public," a ments, Defendant, through their own reckless and Morabito spokesman said in a statement to CNN JOURNAL OF SUSTAINABLE REAL ESTATE 67 (Associated Press, 2021b). Morabito Consultants said when the building in Surfside collapsed on June 24, that they did their job by "providing the condomin- 2021. If there is that amount of corrosion, this ium association with an estimate of the probable should have been fixed.” Condominium boards costs to make the extensive and necessary repairs. often don’t have to look far to see what could hap- Among other things, our report detailed significant pen if they push off maintenance for too long and cracks and breaks in the concrete, which required most states and municipalities don’t do much to repairs to ensure the safety of the residents and regulate condominium associations. the public." Condominium association elected boards are not The board of the Champlain Towers South con- insurers, but, like insurers, they manage risk for the dominium association commissioned the report to mutual benefit of all whom they represent. They comply with a “40-year-old building” recertification make decisions about how much to spend on land- requirement. Only two Florida counties, including scaping, paint, and pool furniture, but also about Miami-Dade County where the complex is located, inspections, maintenance, repairs, and a host of fac- have these recertification requirements (Jerry, 2021). tors relevant to the safety of the buildings. In In 2008 the state of Florida briefly required regu- Florida and many other states, the decisions of lar structural integrity inspections of condominium these boards are not subject to external review. In buildings over three stories. The statute, however, fact they are essentially unregulated—which is was repealed two years later when some associa- appropriate for picking pool furniture but not for tions complained about the high costs of the decisions affecting the structural integrity of high- inspections. No Florida state law requires condomin- rise buildings. ium associations to establish reserve funds for emer- Bylaws of the Champlain Towers South gency repairs. This spirit of hands-off regulation has Condominium Association permitted a simple left it to condominium association boards to identify majority of the voting power in attendance at a and manage risks and decide whether and how to duly called meeting where a quorum was present respond. This case provides evidence that this was (at least 40% of the voting interests either in person obviously short-sighted. The members of these or by proxy) to waive any reserve requirement in an boards are volunteer residents elected by fellow res- annual budget. An Independent budget review idents. Board members are not required to have warned the CTSCA that financial reserves were crit- financial, management, engineering, or planning ically underfunded (only had 6.9% of the recom- expertise or training. The legislature did create a mended level of money to complete repair and trust fund, underwritten primarily by fees assessed replacement projects) in the face of urgently on associations, to help implement Florida’s condo- needed structural repairs a little over a year before minium laws and regulations. The government div- the building collapsed (National Public Radio, 2021). ision responsible for managing the trust considers Based on the timeline and facts collected above, educating condominium board members as one of we provide a model of HOA decision-making focus- the trust’s purposes. Yet since 2008, the Florida ing on the connection between unfunded reserves state legislature reportedly has diverted approxi- and building conditions, as shown in Figure 5.In mately $65 million, or nearly 40 percent, of the this conceptual schematic, the blue line on the left trust’s funds into the state’s general fund, under- axis represents critical structural building condition, mining its original purpose and diverting funds shown in percent, which focuses on the concrete from the helping support condominium below (including the attached pool deck) and build- associations. ing envelope above that is holding up the building. Regarding the potential negligence of the condo- This conceptual schematic is based in part on rules minium association, Dawn Lehman, a professor of thumb, and partly on the facts of the case of structural engineering at the University of regarding contemporaneous building reserve Washington said: “the corrosion on the bottom of requirements. The red line is outstanding building that column is astronomical. That amount of corro- repair and maintenance reserve needs, in dollars, sion should have been obvious and documented as shown on the right-hand axis, and is based on data part of the 40-year inspection that was ongoing gleaned from articles obtained in the popular press. 68 R. SIMONS ET AL. Figure 5. Conceptual schematic of decision process on deferred maintenance. Table 3. Potential causes of the collapse of champlain towers south. Probable Possibility responsible Potential source cause? Evidence or liable Sink hole/foundation No Possible 1990s, no recent mention Very small Poor construction/engineering No Twin buildings one block north apparently not at risk Very small Architects No Twin buildings one block north apparently not at risk Very small Sea water corrosion Yes Engineering report 2018 Large Builder negligence No Met standards at time (1980) Very small Engineering on-going reports Yes Defects mentioned. Strong enough wording? Small-Moderate Condominium board decisions Yes Delayed repairs, did not retain outside timely financial expertise large Condominium unit owners Yes Inattentive owners; electing unqualified board members Moderate large City of surfside Yes Said at public meeting in 2020 fixing building defects was not urgent Moderate Florida state/governing law Yes Allowed unqualified members to serve and slack in financial repairs Small moderate decisions, allowed loophole in replacement reserve funding Nearby building owner & contractor No Allegedly new construction created vibration and caused final collapse Very small Potentially Responsible Parties-Liability Thus, in the absence of adequately budgeted building reserve funds, the model demonstrates Table 3 Contains a Summary of Potential Causes of the Building Collapse and Likely Responsibility. For that turning back the decision to do nothing (defer addressing the problem) gets harder as time goes the Sake of Brevity, we Cull Available Public Press by as the length of lines between the blue line on the Event and Can Largely Rule out Several Potential Contributing Factors, Such as Sink Holes, (deferred maintenance) and 100% critical building Serious Builder Mistakes, and Poor Original Design. condition at points A, B and C get longer. At point Thus, we Only Discuss Factors Likely to Be Related A the critical building condition is still about (an to Human Error, Especially How the Clear Reported illustrative figure of) 85%, and the budget to return Physical Defects Such as Decaying Concrete Were the building to safe condition is only $1 million at Addressed (or Not), as the Situation Deteriorated to this juncture. At Point B, we are at 80% of the build- the Point of Absolute Failure. The Key is the ing’s critical structural condition, the reserve budget Intertwined Information Stream Set before the deficit has grown exponentially to $5 million. At Condominium Board from 2015 to 2021. point C, close to imminent collapse, the deficit is now huge, estimated at $15 million. Apparently at Conclusions and Policy Recommendations the point of no return. Indeed, in the end, the condo board had funded only 7% of the This exploratory research has looked at how the required money. Champlain Towers South condominium association JOURNAL OF SUSTAINABLE REAL ESTATE 69 board absorbed and processed information about also very important, which can be used for refer- the building’s physical condition leading up to the ence to avoid similar accidents. sudden collapse of the building in June 2021. We Since the current model of condominium man- present a conceptual schematic model of how the agement as evidenced by Champlain Towers South CTS Condo Association decision-makers chose to has blind spots and appears to be unsustainable in address (or ignore) two main factors: the condition this case, what governance alternatives exist? The of the tower’s critical building infrastructure, and key may be insurance: working through financial the number of deferred reserve funds to cure the markets to increase the price of unsuitable behavior problem. The case raises issues of liability and until condominium governance is unsustainable. throws into doubt the sustainability of the current model of condominium association governance in State Law and Replacement Reserve Waivers particular with respect to the financial management Florida’s condominium act is stronger than most of replacement reserves. We argue that the law and states, yet we are unaware of state law of this type governance structure for condominium associations that does not allow a waiver of replacement needs to be made more sustainable and changed to reflect the potential for lay members to make reserves. This should change. Part of the problem is poor decisions (e.g., deferral) about financial and embedded in the voting power of the condominium physical risks associated with deferred maintenance. association: allowing a simple majority to waive pre- Although natural environmental factors such as scribed reserves is too lax. A super majority is bet- long-term saltwater corrosion of concrete are likely ter, or perhaps waiving replacement reserves should the main contributing physical factor that led to the not be allowed at all. At Champlain Towers, the and collapse of this building, decisions about the main- stay financially secure, according to a March 2020 tenance of this and related factors run throughout report from Association Reserves, a company that the life of the building. Non-natural environments analyzes housing association finances (CNN News, such as legal, social, economic, and political envi- 2020). This shortfall did not occur overnight: accord- ronments also affect the design, construction, and ing to the timeline, there were already complaints use of full life cycle buildings. about this issue in 2015. Our recommendations fol- However, the human factors behind the building low below. are worth thinking about. These human factors also run through the life of the building, such as the Local Government Role lack of government supervision before construction, Local government representatives often interact potential flaws in construction law, design flaws, poor construction quality and quality defects during with property owners. In this case, a representative construction. These are probably not a factor in the of the City of Surfside attended public meetings collapse of Champlain Towers South, and in any and offered an assessment of the level of risk. case, are past any liability statute of limitations. However, US local governments can always claim However, maintenance management after deliv- sovereign immunity, which can shield them from ery is a key important factor, which includes liability under most circumstances. Still, some level delayed maintenance, lack of inspection, negligence of local government involvement in assuring of condominium association boards, misconduct of replacement reserves is suggested, especially if the unit owners (improper use, unauthorized transform- previous building management has proved to not ation, etc.) as well as negligence of government be up to the task. (license issuing in violation of regulations, lax super- vision, etc.), and in this case, lack of proper budget- Reserve Requirements ing and timely approval of a replacement Eliminate the ability for condominium association reserve fund. Of course, the investigation, liability investigation, members to completely waive an annual reserve compensation, experience summary and improve- requirement or consider requiring a super majority, ment of laws and regulations after the accident are even 75% of the voting interest, to approve such a 70 R. SIMONS ET AL. drastic waiver. This can be done by amending state convert the building ownership structure to an condominium acts to fix the current loophole. apartment or Co-Op, so only the controlling Board For new buildings, have a required set aside for can make assessment decisions, without owner vot- loss reserves of 2–3%, or some other number ing driving financial decisions. Putting resident non- derived from expected repair costs. For ongoing owners on the board may also provide some better buildings, have each new owner contribute formula- perspectives. However, there is no guarantee this ically into a reserve fund when they buy into the structure would be more advantageous because the unit. It would be better to require that every buyer pool of members for the COOP board is the same. be informed about the actual amount of reserves However, it could give a chance for a strong execu- set aside for building repairs for, say, a 5-year tive director of the COOP to achieve more respon- period, and further informed about capital projects sible results if people are not so concerned with that are anticipated, and the basis for this budget- their personal out-of-pocket expenses. ing. Additionally, state condominium acts can con- sider requiring condominium associations to have Insurance regular reserve studies done by qualified Builders get insurance against defects for a specified professionals. period subject to a statute of limitations or repose 7–10 years. Condominium associations, face two Expertise Required to Serve on ongoing challenges: obtaining insurance on the Condominium Boards common assets of the buildings is doable, and is There should be a minimum experience require- usually predicated on adequate maintenance, an ment to serve on a decision-making board, at least appraisal, and other typical real estate factors. for buildings above a minimum number of units. However, there is also board member insurance. This might include legal, construction, or real estate Not wanting uninsured risk, without not for-profit experience, to be set by state law. If local members board member liability insurance, board members would likely refuse to serve. In a newly aware envir- do not meet it, outside members should be sought that meet the experience criteria and paid on an onment, obtaining a policy is possible, but condi- hourly basis at market rates. An added bonus is that tions must be strengthened, to include: outside members would not make decisions based The building must have periodic inspections by on their lack of cash flow to fund timely replace- qualified outside engineering firms; ment reserves. Another option would be to require Assure adequate reserve. Enact supermajority a qualified government representative (with build- voting percentages to reduce the possibility of ing, architectural and/or engineering credentials) to underfunded replacement reserves; have a voting role on board replacement Require outside reserve experts on a continual reserve decisions. basis. Assist with budgeting for reserves among We also advocate having an outside professional owners, or borrowing money from outside; and make reserve fund and operational decisions on Notify individual borrowers and their lenders behalf of the HOA (Lee et al., 1998; Yip, Chang & when loss reserves fall below a tripwire amount. Hung, 2007; Yip & Poon 2018; Puustinen & If there is no individual debt on a unit, notify the Lysnar, 2014). property tax authority and building inspector. Ownership Structure Without insurance, condominium association Risk remains when a vote requires members to board members would be vulnerable personally to increase general assessments or issue a special board decisions: and without those protections and assessment, and members cannot afford such insurance, no rational member would serve on a increased assessment and vote based on their per- condominium association board. This could threaten sonal finances, rather than on what is best for the the sustainability of the current condominium form building. To avoid this, one option would be to of ownership for vertical construction. Thus, the JOURNAL OF SUSTAINABLE REAL ESTATE 71 building reserve problem can be regulated by the Notes insurance process, rather than by the government. 1. You’d expect prices of condos in Surfside Florida to One option would be to provide immunity from drop after the building collapse, but preliminary trends (retrospectively) poor decisions by board members, show just the opposite. Based on admittedly limited probably by state law. This could cover breach of data, according to Zillow, house sales prices have duty and but would exclude claims for bad faith. strengthened, where the general spot market for The possibility of criminal penalties, outside of bad housing in the same zip code (33154) was stable or slightly down since the end of June 2021. Perhaps faith and fraud, would discourage anyone from vol- taking 136 units off the local waterfront condo market unteering to be a director. Our review shows it is had a bigger updraft to prices than fear of another unclear if state laws that give enough immunity to building collapse. There are many factors at play, so all protect board members from lawsuits. However, if we can conclude is that there is no strong price this type of immunity provides a perverse incentive effect evident. for bad behavior, it could be a moral hazard. 2. http://data.perseus.org/citations/urn:cts:greekLit:tlg0099. However, it appears that many condominium associ- tlg001.perseus-grc1:14.2.5 ations already have trouble meeting a quorum of active members necessary to take action at all, so a 3. There is a reason original developers/builders of condos more stringent policy could further reduce the pool and time shares alike, all underfund reserves to the of active participants. These and related policies for minimum required, because higher assessments reduce the pool of interested/viable buyers and the impact of condominium associations have already been intro- lower reserves would only be felt in the future. duced in Louisiana, especially for Insurance for con- Unfortunately, it is common human behavior, to put off dominium associations, post-Surfside (New Orleans today what you can do tomorrow even if it might CityBusiness). kill you. One final note on board and property liability insurance: We contacted a knowledgeable broker 4. Until only a few years ago, homeowner assemblies were denied status as a legal entity. This meant they familiar with the residential condominium market, were, among other restrictions, unable to open a bank and he said that although everyone in that part of account. Such limitations have since been relaxed, for the insurance world was talking about Champlain example, in Beijing, where homeowner assemblies are Towers collapse, there was no substantial change in now allowed to manage their own funds account policy rates or underwriting standards as a result of (Beijing Property Management Regulation 2019, the incident (Kevin Milligan, 2021). Clause 78). In terms of future research, scholars should focus 5. China’s reserve fund practices may be a generalizable on the decision process behind HOA board deci- best practice model. When condos are originally sold, sions, especially related to risk, insurance, and the buyers and the developer sign a maintenance engineering. A database of the collapsed building reserve fund agreement where the buyer sets aside a could be maintained, and reasons for failures illumi- construction maintenance management fund of 2-3% nated. Incidence of building failures could be tied of the purchase price. These accumulated funds belong to all owners and is not included in developer proceeds to government regulations, and best practices of the sale. Before the establishment of the owners’ shared to avoid future reoccurrences of this type committee, the maintenance fund is supervised by the of tragedy. local district property management department on To conclude, the high visibility of the collapse of behalf of the HOA. After the HOA is established, the Chaplain Towers South collapse means time is run- HOA opens a maintenance fund in a local Municipal ning out to come up with solutions to prevent this Commercial Development Bank, and funds dedicated to the overhaul, renewal and technical transformation of type of condominium management lapse from hap- the common parts of the residences and the common pening again. As the next generation of high-rise infrastructure network equipment after the warranty buildings near saltwater ages, condominium associa- period expires (http://www.yjcf360.com/licaijj/775176. tions better get their act together, or the sustain- htm). Under this plan, there should be no ongoing ability of the condominium ownership model is assessment for repairs. Alternatively (as in Shenzhen, in doubt. China) the HOA obtains control of collects special 72 R. SIMONS ET AL. maintenance funds on the day of sale, and owners Associated Press (2021b). Report: evidence of extensive cor- need to pay routine maintenance funds in the monthly rosion in collapsed condo. Retrieved Aug 26, 2021, from property fee, which will be collected by an outside https://www.cbs58.com/news/report-evidence-of-exten- sive-corrosion-in-collapsed-condo property management company (https://www.huxiu. Baum, C. (2010). 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Journal

Journal of Sustainable Real EstateTaylor & Francis

Published: Dec 31, 2022

Keywords: Building collapse; condominium governance; replacement reserve laws

References