Lessons From Florida

How California’s legislature could address the systemic problems that surfaced from the Surfside tragedy.

By Mark Guithues, Esq.

Over time, engineers and fact-finders will teach us the specific causes of the failure(s) and find responsible parties for the sudden and unexpected collapse of the 40-year-old Champlain Tower structure. Until then and with admitted self-assured hubris, I offer my thoughts on what occurred, who is responsible, and how California’s legislature could constructively address this horrific tragedy.

The Towers represented so much. At once, they were people’s homes, dreams, their respite, their life savings, their worldly achievement, retirement account, place at the beach, escape from the heat, and as of now, the last breath for 98 souls. As an industry and as humans, we need to slow our blame on individuals and instead focus attention on mitigating some obvious systemic problems – the invisible elephants which march through our industry like unlit rail cars moving through the night.

FIRST, LEAVE THE BOARD ALONE

One failure at the Towers appears to have been an “us vs. them” mentality of owners vs. the volunteer directors trying to raise assessments to make repairs. While nobody saw the sudden and unexpected collapse of a 40-year-old concrete building coming, most members knew there were significant and expensive structural challenges ahead. With no prescient dictator to demand immediate repair, members (logically) assumed there was space to disagree with methods, costs, and processes of repair. In that space and time, the board was nothing more or less than a microcosm of the membership which elected it – a conflicted group of folks doing their best to quantify overwhelming operating and maintenance costs in the face of limited finances.

So as an industry, we need to pause and accept that the most palpably amazingly cool aspect of our community associations – its self-governance – is also a likely culprit here. The very design of allowing owners to elect their representatives, regardless of professional experience and sometimes based on nothing more than a promise “not to raise assessments,” has real and continuing implications.

That doesn’t mean that the legislature should step in and change this design; it means that the legislature needs to acknowledge that such a design has a propensity to underappreciate and underfund the continuing care requirements of the property, perhaps leading to its failure.

Here are some structural elephants (within our industry) that the legislature can help with.

1. LEGISLATE MANAGEMENT CERTIFICATION

The first area the legislature could help would be to require all association managers to be“certified.” This isn’t a guarantee of competence, but it at least signifies the person taking direction from the board has some minimum amount of training.When we legislate its requirement, we validate the need for even more advanced management training, raising respect, professionalism, and esteem for our managers. The legislature got close once with B&P 11504, which defines certifications and requires board disclosure when the manager is not so certified but then fumbled the ball by not requiring the person advising HOAs to actually possess a certificate from their local elementary school, let alone a professional training entity.

To be sure, such a certification will not invite the ear of die-hard directors who threaten to fire any manager daring to suggest a special assessment for building maintenance, but then, a community’s serial replacement of trained and certified managers will serve as a significant red flag to folks looking to purchase therein.

2. LEGISLATE 100% RESERVE FUNDING

Civil Code §5600 requires “the association shall levy regular and special assessments sufficient to perform its obligations under the governing documents and this act.” This needs to include reserves. The legislature should require 90-100% funding of reserves to be accomplished over the next five years.

Here’s the common scenario: the manager identifies common area maintenance failures and proposes repairs which the board agrees with; the manager obtains three bids, and the board stops all forward motion with the question, “Where are we going to get the money to pay for this?” Suddenly,the manager is the pariah for beautifully performing their job for their client, and all momentum and trust is lost for the communities’ members and vendors.

Instead, let’s have that money waiting in the reserve account. Reserve studies occur when a third party is retained to evaluate the condition of the common area, analyze a repair protocol, and develop an assessment schedule that addresses upcoming required maintenance for the community’s next 30 years.

While acknowledging that such reports may be flawed (either high or low) in their predictions, it is both common and unconscionable for a 30-year-oldcondominium association to have two or three thousand dollars of reserves per unit when a single balcony costs ten times that to replace. Such communities grind through professional managers like a millstone through wheat, because there is no money available to address their substantive maintenance needs. We need the legislature to do the unpopular heavy lifting here and give these boards the financial resources they need to fund the maintenance obligations assigned to them.

3. LEGISLATE BUILDING CERTIFICATION

I’ve long been an outspoken critic of the “balcony bill” authored by the condominium defect bar. I was wrong. I felt it unnecessarily robbed fixed-income retirees who should be allowed to vote as a community not to increase assessments as necessary to fully maintain their properties and pointed to how balcony inspections are offered free by construction defect attorneys to communities under 10 years old while 50-year-old communities pay full price while searching for competent inspectors.

I now think, at least for multi-family buildings, we need a law that requires regular inspection to meet minimal structural safety standards. The argument will be made that we are legislating the price of housing out of the reach of median California earners. After watching the Towers collapse, I realize our industry cannot sit by while owners routinely vote to imperil themselves and other residents by underfunding the entity charged with maintaining their housing, tying the hands of the volunteer directors and their managing agents. As leaders,now is the time to act.

4. REQUIRE BOARD TRAINING

There have been quite a few bills, most recently AB 1410, designed at imposing ethics training, fair housing training, and more on those who volunteer their time to serve as directors of their community. The legislature should require directors attend a one or two-hour board boot camp to receive training on the maintenance obligations and corporate requirements of the association.These classes are widely available (and often free) through professional organizations and local law firms. When directors understand the scope of their duties, they generally focus on how best to accomplish them rather than politicking and grandstanding.

In the end, we need to recognize that the design of our self-governance has a predictable failure point which can and should be addressed with simple legislative requirements for manager licensing,adequate reserve funding, minimal safety inspection standards, and board training.

Mark Guithues, Esq.

Mark Guithues, Esq., of Community Legal Advisors Inc., which serves the Orange County and San Diego areas, has more than 20 years of experience in HOA general counsel and assessment collections.