Condo-Nation - Who Pays

For so many home/condo owners who have volunteered to sit on the boards of homeowners’ associations, are they really aware of the risks? Aside from issuing rulings that benefit their personal economic interests, perhaps at the expense of others, what are their liabilities for their acts or omissions? Is a contractual provision covering their engagement with the relevant insurance policies and providing indemnification sufficient? Clearly not for self-serving acts representing clear conflicts of interest, but that is not always clear. And what happens if the insurance, assuming there is insurance for their judgmental actions, is insufficient, can they assume they are safe as long as they are inside of a separate legal entity that defines the homeowners’ association board? Who pays the massive legal fees if the association is out of cash? Consult your local real estate/bankruptcy lawyer for the answer, but know that if the loss is big enough, the general rule is that “everybody sues everybody.” Stand back and stand by.

As climate change impacts the very assumptions made when buildings were designed and constructed, there are some very huge questions that will rage through the real estate/legal world with increasing frequency. In Surfside, Florida, the older buildings (built before 1990), the purchase prices and monthly rentals have been relatively modest when compared to the most recently built condos and rental apartment buildings (height limit of 12 stories). Luxury on steroids.

The community is clearly bifurcated between the haves – like Ivanka Trump and Jared Kushner who have a pricey unit in a nearby new-construction condo – and those have-nots living in older buildings, where, particularly after the recent tower collapse, prices are falling like a stone. The cost to update these older buildings can be steep. $80 thousand per unit was one estimated cost for the collapsed building. Who pays? What if they cannot afford the fix? Multiply these costs times the tens of thousands of buildings in the nation that truly require climate change and other retrofits merely for safety reasons.

In Surfside, the homeowners’ association got approval from a Miami-Dade judge (Michael Hanzman) for the appointment of a “receiver,” Michael Goldberg (partner at the local Ackerman law firm), whom the court referred to as “the most preeminent, experienced receiver in this community, if not throughout the country.” Was there a design flaw or a failure to implement necessary engineering recommendations presented to the association board in 2018? Were building inspectors too lax in their review? Was there assessable fault? Sufficient insurance? Debra Cassens Weiss, writing for the July 6th Journal of the American Bar Association, examined the various potential defendants and deep pockets likely to have to pick up a massive tab for this disaster:

“Hanzman said it appears that the building has $48 million in insurance coverage, and two insurers have already agreed to pay their maximum liability, for a total $3 million. The condo property is also an asset that is valued at $30 million to $50 million, the judge said… Hanzman authorized payments of up to $10,000 to condo owners who require housing assistance and allowed payments of $2,000 for families who have to pay for funerals. The money will be an advance on the total recovery…

“The condo association is already a defendant in lawsuits that blamed delayed maintenance on the June 24 building collapse. Also named as a defendant in one lawsuit is the engineering company that conducted inspections in 2018 and 2020, as well as an architectural company, according to Reuters and the Miami Herald… The engineering company, Morabito Consultants, is accused of failing to warn the association of the need to evacuate and failing to warn residents that recommended repairs had not been carried out. The architectural company, SD Architects, was hired as part of a recertification process. The suit was filed by the family of Harold Rosenberg.

“The town of Surfside, Florida, is also a planned defendant, according to the Rosenberg lawsuit… The defendants ‘ignored obvious and shocking warning signs and indications that a catastrophe was imminent,’ the suit says.” There is a deep sadness at the crushing loss of life, the destruction of family homes and the psychological damage to the entire community. These losses can never be corrected by the mere payment of money, but the lessons for building owners, homeowners’ associations and supervising governmental entities are massive. We will be watching the legal aftermath to this tragic debacle for years to come.

I’m Peter Dekom, and the longer our Congress, the relevant state legislative bodies and property/business owners across the country continue their prioritization of not fixing, not upgrading and not funding the obvious proactive climate change changes, we can expect trillions and trillions of higher costs in our reactive responses.