Condominium Woes

The God-awful collapse of a 40-year old condominium tower in the town of Surfside, Florida and the instantaneous deaths of nearly 100 people who were sound asleep in their beds is the stuff of nightmares. It should raise certain concerns we all need to pay attention to.

I am not talking about the chance of a tall building falling down, which is about nil in Takoma Park. Instead, I find one of the most tragic aspects of the Champlain Towers South collapse is the failure of the condominium association to do anything about the known and alleged problems affecting the elemental structure of the building. 

None of Takoma Park’s large, multi-family buildings are less than 50 years old. Some are a good bit older.

Doubtlessly there were a number of factors contributing to the collapse, leading to a retrospective sequence of ‘if-onlys” going as far back in time perhaps to how the construction company poured the concrete underpinnings and laid rebar.

Survivors have have been quoted in the press that condo association members argued and were unable to agree on a plan to make repairs. Some condo board members resigned in protest and frustration, it is said.

This is the part that strikes me as the saddest. It’s not hard to imagine how the discussions might have gone at a condo board meeting:

“Can we trust the engineer’s report? . . It’s been this way for years; this is nothing we don’t already know . . .Things aren’t this bad . . . The costs will be too high . . . Some of us can’t afford higher assessments and we’ll have to move out . . . You’re being too much of a Cassandra . . . Major repairs will scare away buyers . . . Our units will lose value . . . Let’s just do some of the repairs now and the rest later . . . The pool needs repairs first . . . No it doesn’t . . .  The longer we wait, costs will go up.”

Add in possible personality clashes and that some members were either out of their depth or just disinterested. In the board’s defense, it is inevitable to expect resistance to big outlays, especially when they feel unprecedented in scope. Just look at humanity’s resistance to dealing with global warming (in case you have doubts). 

Condo association boards are made up of volunteers. The only qualification to serve is the mere fact you own a unit, and the time and interest to serve. As with most communities, only a few are going to come forward and your neighbors are simply grateful you are willing to show up for meetings.

I raise this issue here because in Takoma Park all the larger multi-family buildings – whether rentals or condos – are old by any definition. None are less than 50 years old, and some may be pushing 70 or 80 years. 

Let me explain where I come from on this issue. As a commercial real estate lender for many years, I handled loan requests from condo associations to finance major improvements to their facilities. In some cases, condo association boards wanted to borrower the money needed to make repairs and replacements rather that hit up unit owners with huge one-time assessments. 

For a bank to lend money to a condo association, it has to know that the loan will be paid back. Since there’s no collateral to secure a loan (every unit has a different owner), the bank must have confidence on a reliable cash flow. It does so by looking at reserves, the capacity to increase assessments if needed, the board’s competency, and facilities in relatively good condition. 

But often, a bank’s investigation reveals serious disqualifying problems. Champlain Towers South may not have qualified for a loan due its evident poor condition. 

It’s safe to say no one buys a condo unit because they want to run a condo association.

This catastrophe is a grim reminder to all condo owners (and those thinking of buying one) of the perils of condo ownership in the face of neglect, mismanagement and procrastination. 

It’s safe to say no one buys a condo unit because they want to run a condo association. Under most states’ laws there’s no requirement for transparency regarding a condo’s finances such as its reserves and financial condition. This information is private, secret and not available to the outside world, including any legal matters and the property’s condition. 

Purchasing a condo unit in not unlike buying a used car. You can walk the property, kick the tires, talk to the property manager (who is a hired gun), speak to any unit owners you may know and then you take the plunge. Actually, this may be unfair to used car dealers. I’ve purchased nothing but used cars for the past 40 years. With a dealership, you at least get guarantees and recourse to a car’s history.

Well managed condominiums undertake a “reserve study” every five years. (Very old buildings should have it done every 3 years.) It requires contracting with an engineering firm to examine every component of the building(s) including the foundation, roof, exterior walls, all openings, and the electrical, plumbing, HVAC, incinerator, elevator, security and life safety systems. Even things like parking surfaces, pools, railings, balconies.

In Maryland before 2020 there was no law requiring condos to do reserve studies. The Maryland Condominium Act pertaining only to Prince George’s and Montgomery Counties (not to the rest of the state) was amended to require performing a reserve study every 5 years for “common property major structural components.” It requires that the funding recommended by the reserve study for repair/replacement be included in an association’s annual budget for that year and the study be made available to all owners. The law gives condo associations the added authority to override any restrictions in the organization’s charter documents that otherwise might limit assessment increases.

The engineer assigns a life expectancy for each component and the estimated replacement or repair cost. The condo board has the authority to budget for these replacements and set aside a portion of assessment income in a reserve fund. It can increase assessments. That way, when the roof has to be replaced, the money is there. There is money to replace common area carpets, paint stairwells and hallways and upgrade security cameras and laundry rooms. 

A more extensive description of the Maryland state law can be found here.

This is an important improvement in Maryland law. However, inherent weaknesses remain, because the law cannot force a condo association to actually increase the assessments or to actually make the repairs. Apparently, the amended law does not require that a condominium’s financial and physical condition be made public. 

Still, the law may go a long way to increasing awareness and higher expectations among existing unit owners. It will help would-be condo unit buyers to be more cognizant of risks.

Of course, apartment buildings are just as subject to the ravages of time and neglect. Our City needs to pay attention to these as well.