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Four Years into the "Balcony Bill" What’s Next?
By Kelly Zibell and Annie Wyland
SB326 (now Civil Code §5551) was passed into law four years ago, requiring condominium associations with three or more units to conduct structural inspections of elevated structures every nine years.
The first inspections must be completed by January 1, 2025. Given the building collapse in Florida a few years ago, completion of these inspections and needed repairs has become a cost that is easy to justify against the potential injury or loss of life in the event of a collapse. At this point, many associations have finally completed those required Civil Code 5551 inspections and have received the report of needed repairs.
The next step is to send out the list of repairs and get bids, right? WAIT!
There are several steps that an association should take in order to ensure a fair and accurate bidding process and obtain the necessary funding to complete repairs correctly. As Lisa Triplett, CCAM, Executive Vice President at Bay Area Property Services, noted, “There are so many more key people that need to get involved in the process once you get your report back.”
This article explores where you will need expert advice to follow once you have received your report.
Understand your Inspection Report by Hiring a Construction Manager
Reports received should indicate some level of categorization of issues found. These are usually ranked urgent, essential, and non-urgent in some fashion. Scott Swinton of Unlimited Property Services, Inc. says, “The report is like a check engine light. When your car’s check engine light comes on, you still do not know precisely what is wrong, what parts may be involved in the repair, and you’re certainly not in a position to tell a technician to get started fixing the car until someone makes a diagnosis, specifies parts, and outlines costs.” At this point, it is crucial to engage a construction manager who can help review the report and provide an understanding to the board of what items must be repaired now versus what items can be deferred and repaired in the future.
Hiring a construction manager at this stage in a project will allow the board and manager to rely on the advice of an expert when prioritizing needed work and gathering needed information for the future bidding process.
In addition, boards should start informing the community of the inspection results and what future steps the board is taking to address the issues found. This communication lays the foundation for members about what actions the board is taking, as well as informing the members about future potential spending.
Moving Forward with Repair Work with a Contractor
PRIORITIZING WORK
Once you’ve hired a construction manager, they will work with you on prioritizing the issues outlined in the report, including understanding what issues urgently need repair and what items could be combined for a future repair project. A construction manager will also write a scope of work outlining specifications for replacement products, designs for the repairs, and how the work will be completed.
You may assume that the Civil Code §5551 report gives the scope of work, but it was not intended to do so. Civil Code §5551 limits the report’s scope to keep inspection costs reasonable and provide a guidepost for completing repairs. It does not outline how the repairs should be completed, only that they need to be done.
Getting a scope of work drafted by a construction manager will give contractors the scope, or how, for the repairs and allow the board to prioritize them. In addition, having a scope of work written by a construction manager ensures that all general contractors are bidding on an identical scope of work for “apples-to-apples” bids. This practice will eliminate confusion when you receive the proposals back for review.
FINDING QUALIFIED CONTRACTORS
Once the scope of work is developed, you can send it out to contractors to obtain proposals for repair work that must be completed now. If you hire a construction manager to draft the scope of repairs, they can manage this work for you. They will be adept at finding contractors skilled at doing such repairs and can negotiate favorable contract terms for the association.
Suppose the association has chosen to forego using a construction manager. This is not recommended, but sometimes the board refuses. In that case, you want to obtain at least three proposals from contractors with experience and qualifications to work in a condominium association. This often requires additional insurance above and beyond what a standard general contractor may carry. In addition, you will want to call and check references for each contractor bidding, preferably related to previous Civil Code §5551 repair work.
Updating your Reserve Study with your Reserve Analyst
By now, you have completed the inspection and obtained some proposals around the repair work costs. It’s time to update your reserve study.
Provide the reserve analyst with information on what your inspection costs were, as well as proposals for the necessary repairs. The reserve analyst will factor these costs into your reserve study and allow you to view the association’s future reserve repairs as a whole picture, including the ongoing inspections and potential repairs needed as a result.
According to the law firm Adams Stirling, because inspections are tied directly to other items that are replaced via the reserve study, including the costs of future inspections and a repair allowance in your study is appropriate. The association will be better able to anticipate future inspection and repair costs and other planned work and budget accordingly for subsequent years.
Getting Funding for Necessary Repairs
Now the fun part starts – finding the money for these repairs. In many cases, because prior reserve studies relied on a visual inspection only, the repairs now needed were not visible and thus have not been included in prior funding plans.
EXPLORING FUNDING OPTIONS
To bridge the gap between repair costs and available funds, HOAs have several funding options to consider. Each option has advantages and disadvantages, and choosing the right one depends on the HOA’s specific circumstances.
ASSESSING YOUR FINANCIAL RESOURCES
Start by reviewing the HOA’s financial statements, including the operating budget and reserve fund. Consider the following:
• Reserve Fund Balance: Does it have enough funds to cover the anticipated repair costs and future significant repairs?
• Operating Budget: Can any surplus funds be redirected towards repairs?
• Assessment Collections: Assess whether homeowner assessments are collected promptly and in full. Delinquent payments can impact the HOA’s financial health.
Compare the immediate repair needs and cost assessment with the available financial resources. Ask:
• Can Current Funds Cover Urgent Repairs? Prioritize the allocation of available funds to address urgent safety concerns first.
• What is the Shortfall? Calculate the financial shortfall if the available funds do not meet the total number of all necessary repairs.
SPECIAL ASSESSMENTS
ADVANTAGES
Special assessments allow the HOA to collect additional funds from homeowners specifically for repair projects. They are a direct way to raise the necessary capital.
DISADVANTAGES
Special assessments can be unpopular among homeowners, leading to resistance or financial strain for some residents.
LOANS
ADVANTAGES
A loan can provide immediate access to the required funds without overburdening homeowners. Repayment terms can be structured over time.
DISADVANTAGES
Loans accrue interest, which means additional costs over time. The HOA must carefully manage the repayment schedule. Interest rates for borrowing are currently high, and to obtain a loan, the association may also need to pass a special assessment.
GRANTS OR SUBSIDIES
ADVANTAGES
Grants or subsidies may be available for certain types of repairs, especially those related to safety or environmental concerns, or if components can be upgraded or changed for environmental impacts. They do not require repayment.
DISADVANTAGES
Availability of grants is limited and may be subject to specific criteria or conditions.
RESERVE FUND CONTRIBUTIONS
ADVANTAGES
Increasing homeowner contributions to the reserve fund over time can build up reserves for future projects, reducing the need for special assessments.
DISADVANTAGES
This approach takes longer to accumulate funds and may not be suitable for addressing immediate repair needs.
Getting through the inspection phase is only the first step in this journey. Managers should include a construction manager, the community’s reserve analyst, and a general contractor skilled in Civil Code 5551 repairs to help navigate the next steps. In addition, managers may also need to work with a banking professional to obtain necessary funding. Remember that proactive planning and action are vital to maintaining a safe and well-functioning community. Remind HOA members to work together and make informed decisions to address necessary repairs promptly and responsibly, ultimately safeguarding the well-being of their community for years to come.
