HOA & COA Guide to Multi-Family Re-Roofing Project

  • Video

Jon Lemole, Esq.:

Good morning everybody and thank you for joining us. This is a great panel we've got planned for you today. We're happy that, so far, we've got 176 people joining us today. That's huge. We really appreciate that and we're glad that we see a lot of return faces, so I'll take that as a compliment that we're delivering some value for you all and we hope to continue to do that. So today, we're going to talk about reroofing projects, best practices for reroofing projects and this is going to be directed at multifamily buildings, obviously, so we're not talking about single family units. Obviously, those folks typically have to take care of themselves. But if you're an association that has maintenance and repair responsibility for a building's roofs, this is going to be a really, I think and I hope, a good walkthrough of best practices that you can all take to ensure that your project goes smoothly, little risk to the association or as little risk as possible to the association and that you wind up with a completed project that's defect free and will serve your association and its buildings for a long time to come. This applies to both condos and, typically in the HOA world, town home communities.

Why is this timely? You probably are seeing a lot of activity from your insurance carriers in terms of insurance carriers staring to say it's time to reroof your buildings. We're about 15 years out from the building boom prior to the recession and so you've got a lot of buildings that are approaching or have seen 15 years and so a lot of insurance careers are starting to tell you it's time to take care of your roofs. And given what's happened recently over in south Florida, we can expect that insurance companies are going to be even more vigilant and more adamant about building maintenance. We're expecting that a lot of you are going to be dealing with these reroofing projects in the very near future.

We think that we have a lot to bring in terms of advice and best practices. Let me tell you why that is and this may be a little bit against our self-interest as a firm because we handle typically... we do a lot of work in claims, in defect claims, and so we're uniquely suited to see what goes wrong with roofing projects when they don't go right. We know where the problems can be. We've seen all of the areas where things could have been done differently and a project could have... and that could have made a difference in how a project went. Another portion of our practice is to do major repair project consulting and our call to action here today to you folks is if we do have a major roof repair project or roof replacement project, I think there's a lot of people that tend to believe that that's a run of the mill type of thing and it's just a roofing project, but there's a lot that can go wrong and certainly we would encourage you to reach out to a construction lawyer, whether it's our firm or some other firm, and consult with them on the front end because there's a lot of decisions that could be made that can mean a huge difference in the way that your project goes.

What can you do if you have, besides consulting with us or somebody else, another construction lawyer, what can you do to ensure that your project goes smoothly? You can follow the best practices that we're going to run through today. We could spend hours on this, but we're going to give you a 30,000 foot highlight, a snapshot. We're going to talk about a bunch of things today, but obviously any one of these topics we could into in significantly more detail if needed. At the end of the day, I think I want to leave everybody with is the old saying, what did Ben Franklin say? A penny saved, pound foolish. I can't remember. Something like that.

Again, the inclination for roofing projects is that this is a thing that... a kind of a routine type of maintenance project for an association and it's anything but. It's not a time to cut costs, it's a time when an association should be saying, "How do we do this right, do it right the first time, control our risk and make sure that the project is delivered on time, complete, defect free?" because this is one of the primarily defenses to your buildings from water intrusion and the possibility that you could have a poor product, a poor result, which could create a lot of other problems for your building. And as we've seen recently, those problems can multiply, spiral and create significant problems for an association.

Let's just into the subject. Where we want to start is really quickly, and I'm going to introduce Brian Tannenbaum, who's an associate with our firm. He's the next generation of Tannenbaum to be part of our firm, but what Brian is going to talk about real quick is just to remind everybody of what the source of an association's authority is in terms of mainlining and repairing and replacing roofs on your buildings. With that, we're going to have Brian take it away and just cover that real quickly, give us a primer on that subject. Take it away Brian.

Brian Tannenbaum, Esq.:

Fixing the roofs, dealing with the windows, dealing with anything that comes up. But in the context of a multifamily home or a condo, these things are regularly maintained by the association. Now, for a condo, the law comes from Florida Statute 718 chapter 718, which gives the association the responsibility for maintenance of the common elements. It doesn't give an option and there's no ambiguity. It's not vague. It says that maintenance of the common elements is the responsibility of the association. 718.108 defines the common elements as, in part, the condominium property which is not included within the unit. This can be your roof, the balconies in some cases, any part of the condominium that is outside of the unit.

On the other hand in an HOA situation, there is no statutory basis that requires the association to maintain and repair any part of the property. Where the authority comes from is the declaration, so it's important to know what the declaration says about maintenance and repair of the property. For both an HOA and a condo, the board has a fiduciary duty to the members. Because they have a fiduciary duty to the members, it's important that they undertake repairs in a timely and appropriate way so that there's no liability opened up for the association or for the board members. When looking at your documents, you need to know what kind of things is the association responsible for and when do I as a board member or a manger need to make sure that those things get done.

There's a very heavy burden on the association and the board and it's important that those things get taken care of in a timely manner so that you can avoid that liability and that you can keep your building safe and secure.

Jon Lemole, Esq.:

Okay. Thanks Brian. Just a little segway from something that Brian touched on and I want to explore a little bit further before we move on is, and this is more appropriate to HOAs and town home HOAs than condos because the condo statute is pretty clear about common elements and there's not a similar statute or similar provision in 720, it's important to look at your declarations and understand whether, not just what the declaration requires the association to do, but whether the declarations enable and provide the association with the ability to do that work capably and completely. We've run across a lot of declarations that are typically the original declarations that were drafted by a developer, which are pretty ambiguous about what the associations begin and end in regards to roof replacements or roof repairs is.

If you've got a roof project coming up, you've got a situation where you're needing to replace a roof on a town home building for example, it would be a great time to look at your declarations and ensure that you can complete the job and that you don't have some sort of limitation in the declarations which may prevent you from doing a thorough job. Let me explain what that means. We've run across provisions in declarations where the association is responsible for the roof covering, the membrane or the shingles, but what happens if the roof, if over time there's damage to the framing, to the sheathing, to the roof trusses and that's not specified in the declaration as being part of the association's repair maintenance and repair responsibility? That can create some serious problems for an association.

If you've got a project that you're thinking, that you're expecting down the road, it's time to take a look at the declarations and make sure that you can do that work and that you don't have some ambiguity in your declarations. Folks, if you're in an HOA that's coming out of transition, a perfect time to review the developer's declarations and ensure that the association can do the work that it's going to need to do in order to completely, capably and without problems, without ambiguity discharge its repair obligations. What good is it if an association can only replace shingles, but can't correct damaged sheathing? You leave that to the lot owner and that may never happen and then you're just putting shingles over a problem that's just going to continue to further deteriorate the building, so don't always assume that the declarations are going to provide the association with a clear path to do what it needs to do in order to discharge its obligation.

Alan Tannenbaum, Esq.:

It's not only might the declaration impose some limitation on what an HOA can repair, but also arguably you can spend money on investigating the issue if it's not within the association's purview. And for a newer association, obviously the problem is the association can't pursue claims for an HOA for anything it doesn't have maintenance and repair responsibility over, so there's multiple reasons that the documents should be amended beyond just the fact that it constricts the ability of the association to do a full repair.

Jon Lemole, Esq.:

Well said. Thank you, Alan. So with that, let's turn to the subject of investigation. I'm going to ask my partner, Sal Scro, to talk a little bit about what are best practices in determining what you should be doing, what the scope of a roofing project should encompass because I think a lot of times, we just tend to assume that it's just a question of we're just going to put a new roof on the building. This is a time when an association can really take a good look and see what the scope of work should really be and that may involve some need to do some investigation, maybe bring some engineers in, but I'm probably talking too much and I don't want to steal Salvatore's thunder. So Sal, turning it over to you. Talk about investigation and engineering issues.

Sal Scro, Esq.:

Hi. Good morning everyone. The first thing that we're going to talk about is understanding why your roof may need to be replaced. There's a couple reasons. The first would be it's just an old roof, it's time to replace it. That's usually easy to figure out. You have your reserves. You have your reserve studies that usually tell you what your expected useful life is and you know if it's coming to an end. You can tell by the... if you're experiencing problems with an old roof, but then you may have a roof that's not so old and it may just be a bad roof. If that's the case, there's other things you may want to do versus just having to reroof before you just go out and get somebody to do the reroof on an old roof. If you have a bad roof, you may want to do some other things.

If, for example, you're having water intrusion and it may be coming from... you may have bad stucco and I've talked about this several times, you may cracking stucco. You may have water that's coming in through your windows. Water's going to seek its level. It's going to find its way into your building. That could be... One of the sources could from the roof itself. So any time you're having troubles with a roof, the first thing, my suggestion would be is if it's a fairly new roof, if it's something that has been constructed within 10 years, then I would suggest that you contact an attorney that does this construction defect work because they can recommend you to the right person to do the investigation so that if there is a problem with the construction, then you have the right team together to address that with the potentially liable parties.

If you have just an old roof, then maybe a good roofing company, a consultant or an engineer, but also if you have... The more changes you have in a roof as far as what I'm talking about changes, if you have different directions or slopes or different roof to wall intersections, a lot of valleys where roofs come together, chimneys, then you may want to engage the services of an architecture, an engineer to give you a detailed set of specifications so that the person going to do the work knows exactly what to do to apply the materials, to limit any possibility of water intrusion. That's one of the things.

The other thing that you may want an engineer for is, for example, if you plan on changing the type of material. If you have a shingled roof and you want to put a tile roof on it, you want to put a metal roof on, any changes in material, aside from the fact that you need to get approval from associations if you're a condominium, if you're going to change that, you definitely want to engage the services of a structural engineer because the weight. That's the key, the weight is the difference. If you've ever driven by and seen a roofing project and you see all the materials stacked up on the roof, they're all in different locations and it's not to make it easier so that they don't have to walk so far, it's because if they pile them all up in one spot, they're going to collapse the roof because it just can't handle the weight so it's important that you have engaged an engineer if you're ever going to change materials.

Also, if you have a roof that is a flat roof, that's something also you may want to do some pre investigation of before you just let somebody come in and say, "WE're going to just reroof this. And hey, here's your best way to do it. We can put this material in that will cover it. We can add vents to it so it'll let water evaporate out," all these things, my suggestion would be is do some investigation, particularly with an old flat roof because you have different layers of materials under that roof. What is the condition of each of those materials as you dig down? You don't know and you won't know unless you open it up, so I would suggest bringing an engineer in, having them uncover the roof, look down there and give you a detailed set of specifications.

There's a lot of times you can look at a roof and it looks old, but as you open it up and dig down, you find there's a pool under there, there's water, and you're not going to know that, you're not going to see it unless you open up. So if you have an old flat roof, sometimes it's best just to uncover the entire roof.

Alan Tannenbaum, Esq.:

Sal, an example of that. We had one recently. It was a built up roof and the contractor came in and said, "We're going to scrap the gravel, the loose gravel off of the built up portion, and then we're going to put a new roof on top of that." Well, it turns out that underneath this built up roof was a lightweight concrete fill that they used a couple of decades ago as roof insulation and the lightweight concrete fill was water saturated. What really then needed to be done on that particular roof was it needed to be taken all the way down to the structural deck and then a new roofing system installed above the original structural deck, but there would have been no way of knowing that unless somebody did a core through the built up roof, determined that it was indeed lightweight fill under that and do some moisture testing to determine what the condition of that is because you can't put a new roof over a bad subsurface. It'll cause a lot of trouble.

Sal Scro, Esq.:

Right. And we just did a testing the other day on a roof. It was metal and then there was a flat TPO roof. It's a Thermoplastic Polyolefin or something like that is the name for it. Anyway, that roof was three or four years old and I tried to get a video to show you, but I couldn't get it to transfer from my phone, but as we did the investigation, I lifted up some of the TPO roof, the flat roof, and I could pick up the sheathing and it would crumble in my hands. This was a roof that was three or four years old, so age isn't always a factor. It's the construction is very important. Why would want detailed specifications? Again, as I stated, the more cuts you have in a roof, the more differentiation in slopes and levels, you're going to want that.

You will also want to look into the... If you're going to have an engineer and they're going to provide year old with a set of specifications, you're going to want to have somebody look at that contract with your engineer as well. Make sure that they don't have a limitation of liability just for the money that you've paid them. The contract for roof, I had a project that we represented clients on, seven multifamily buildings and their contract to do all those seven buildings for hundreds of thousands of dollars, one page. It was a one page contract. It pretty much said, "I'm going to reroof your buildings," and that was it. You want to do an investigation if you have any type of roof that has layers to it, as Alan said, as well, especially those flat roofs.

You're going to want an engineer if you're having trouble because, as I'll talk about later, you want to make sure you look at this information so that you gather your information and your evidence if you need to address it to a potentially liable party, but you also want to engage a confidence defect attorney because you do not want to destroy your evidence if you're going to do that. You want to make sure you gather it appropriately. And also, if you have bids that you're going to receive, it's nice to have a consultant or an architect or an engineer to help you weigh through those bids. They help you get through the minutia of it. And also, they can bring up things that you may not think about, down to the little things like safety requirements, access to the building during construction for your owners, daily cleanup, daily magnetic sweeps so you're not having nails all over the place.

Those are some of the things that you want to keep in mind when you're about to do a roofing project. The main thing is, is it just old and is it a simple roof or is it a flat roof or does it have a lot of cuts or are you having trouble with it? Then you need to do some investigation. We will turn that over to Alan now.

Jon Lemole, Esq.:

Let me just say one thing to followup on what Sal said before we jump into contractors. Look, there are many, many, many fine roofing contractors in Florida. This is not intended to denigrate any of them. But in my experience and I would venture to say Sal and Alan would probably share a similar experience, when we get called in to bring investigative, potentially bring claims relating to a roofing project that has gone not so well, has gone badly, a lot of times those are projects that did not involve... I mean, it's very rare that we would come across a project where an engineer or a roofing consultant was involved in investigating and setting up a scope of work. Sal is absolutely spot on when he's talking about and especially flat roofs. We've seen a lot of projects where roofers come in and basically covered over an existing roof or some existing components of a roof and a lot of times that's a problem, least of which... Most of which. I'm not sure which way that goes, but you're relying on that existing layer of what's there and is being covered over to watertight and wind resistant.

It may not be a water issue, folks, it may be a wind issue. Unless they've done some uplift testing to determine that that substrate that they're attaching their system to is secure, you may have a roof that's not entirely resistant to high winds and hurricane winds. Those are the scenarios that we typically see is an association has either fallen under the spell of a roofing contractor or it was decided that rather than spend the money to have investigation by an engineer and an engineer involved in setting the scope of work, they've gotten that scope from the roofer. The roofer has either come up with a solution that's not a complete solution and those associations have had to deal with problems further on down the road.

Again, it may be more money, but it's money well spent because the flip side of that is if you have a claim, you're going to be paying lawyers to bring claims. It's going to take a long time. You may be having to do a roofing project in the middle of that because you've got water intrusion that can't be fixed with spot emergency fixes. You may be doing two roof projects where you thought you'd only have to do one. With that, I'm going to turn it over to Alan Tannenbaum and he's going to talk about contractor selection and this is really important in determining how to get the best contractors to come and take care of your project. So thank you, Alan. Go ahead.

Alan Tannenbaum, Esq.:

Thank you. All right. The roofing contracting industry in 2021. I'll give some buyer beware tips. Number one, there are companies out there, they're not actually roofing companies, they are roof replacement marketing companies. They have very good sales people. They travel around the state. Their pricing is pretty good and they have a clause in their agreement that once you signed the contract, they can assign it to another roofing contractor and all these groups do is sign contractors up and then they shop that job to other roofing contractors and take a margin on it. Be prepared or be aware that you need to have actually a bonafide roofing contractor.

Secondly, if you have a particular manufactured system, you want to be sure that the roofing contractor you're considering is a qualified installer for that roofing manufacturer so that you in fact get a bonafide warranty on that roofing system at the end of the day. The third for a HIRA, especially where you have mechanical equipment, drains, air conditioning equipment sitting on the roof, you're not just hiring that roofing contractor, you're hiring the roofing contractor and the air conditioning subcontractor that it decides to bring in to lift up that air conditioning equipment so that the roof replacement can occur. There may be a need for a plumbing contractor to be involved to determine drain size. You may have ancillary repairs like stucco repair and so forth on mansard walls, so you need to qualify under those conditions not only the roofing contractor, but who the heck they're going to bring in under them.

Do not let your roofing contractor do plumbing and air conditioning work that's not within the purview of a roofing contractor. There's a limitation on it. There's an interesting part with permitting. The air conditioning work and plumbing work associated with a roofing replacement, it doesn't necessarily need a separate permit for the air conditioning work and the plumbing work, but what's required is that that appropriated licensed air conditioning people and plumbers actually be the ones performing that work, so qualify your contractors as to their ability to do the totality of the work. The best recommendations for roofing contractors come either from other association and managers, certainly the engineers and contractors will do it, will give recommendations also.

You need to qualify also the superintendent, the subcontractors who might be working on the job. For 40 years, I've been telling associations that you're not actually hiring a roofing company, you're hiring a superintendent and laborers that they assign to your job so you need to know who they're sending. You can get their resumes and qualify them and make sure you get one of their top superintendents coming out. There's a lot of good contractors who take an extra job that they don't have the manpower for and something usually goes wrong on the job where they've either hired a journeyman superintendent and now they're assigned to your job, so you need to qualify.

The most important thing besides third party supervision I think that contractors will always perform better when they know somebody with knowledge is watching what they're doing and you're likely to get better performance. But we go back to the fact that without clear plans and specifications, it's impossible to determine and compare bids. Like Sal said, if you got a one page agreement and it says roof replacement and you have a bid for $60,000 and another one for $80,000 and another one for $100,000, they're not even comparable because you don't know what they're going to do. You also don't know how well insured they are and you don't know if they've even paid their workers comp. There's a lot about qualifying a contractor beyond looking for the lowest number.

There are good ones out there. There are bad ones out there, but I had third category, which is contractors with a really good reputation who happen to do a bad job on your roof because of who they send out or they're too busy or they're subbing things out that they shouldn't. Keep all those considerations in mind. That's my nutshell there, Jon.

As you mentioned, one thing that's important is that the manufacturer may do inspection, but what they're looking for is just whether their particular product was installed the way it should have. They're not looking necessarily at the way the air conditioning systems were remounted. They may not be looking at the flashing. Their warranty is qualified to saying that our system was installed per our manufacturer specifications, but they don't give a totality specification generally for the entire reroofing project so you just can't count on that.

Jon Lemole, Esq.:

Yeah. To amplify something that Alan said, if you're getting multiple bids or proposals or estimates, it's so important to have on the front end a defined scope of work that was set by somebody like an engineer or a highly qualified roofing consultant, and there are some very good ones out there, because then you know that you're getting estimates that are apples to apples and that is key to making a quality choice. You know that if you're taking the least or lowest estimate out of three, they're all competing on the same playing field and they're all estimating the same scope of work. Certainly, the engineer or the consultant can be vital in helping you evaluate those estimates. 

Okay. Let's talk about contract drafting because that's kind of where the rubber hits the road in terms of as association being able to take some steps to really control its risk in this project being completed on time, being completed properly and without problems. We're going to a little bit of time here and walk through some key things that should be in any reroofing contract. We have a whole course, folks, that covers this. We could spend at least an hour, so I apologize in advance if we're going to run through it a little bit quicker. But if you want, you can, the next time we deliver the course, the in-depth course on repair contracts, key provisions in repair contracts, please join us. But I'm going to run through some of the key areas for contract drafting.

Sal brought up an interesting point. He said he's seen projects, and we all have. We've all seen projects where you got a pretty sophisticated reroofing project that's covered by a one page contract and I would venture to say a lot of you folks and managers have faced that situation too. On the other hand, we've seen the full AIA contract that's 15 pages long with its attending general conditions document. I'm not saying one is necessarily any better than the other, probably a one page contract is not going to cover all the bases, but do you need the full AIA long form contract? Probably not, depending upon the nature of your project and the size of it. The takeaway is not how many pages the contract is, the document is, whether it's an AIA document or not, as long as the document covers some very key elements, it can be the AIA form, it can be in a different format or template, but it's important to have a couple of very specific things, some key things that should be in there.

Let's talk first about careful specification of what constitutes contract documents. Okay. I've seen contracts that haven't clearly spelled out what constitutes the terms of the agreement between the association and the roofer. By that, I mean what is the scope of work, whether there are drawings that need to be followed, whether there are engineering specifications that need to be followed. The very first, and especially if you've spent the money to have an engineer involved or a roofing consultant involved, it's important that your contract document specify the engineer's specifications, the engineer's drawings if they've done some. If the roofing consultant has done specifications and drawing, that should be specified. If there's going to be a warranty involved, let's see the form of the warranty that the roofer is going to issue.

I'm not talking about the manufacturer's warranties, a lot of roofers though will provide a warranty on their workmanship. Well, let's see that warranty up front, that form. Let's make that form part of the contract so that you know going into it exactly what kind of warranty you're going to be getting when this project is completed. I've seen many a project where you're arguing over the terms of the warranty after it's too late. So if you have an engineer involved and the engineer has done a project manual, obviously you'll probably have a form contract that's going to specify everything that needs to be in there, but if you haven't gone that route, it's very, very important to make sure that the contract specifies what documents constitute the work that is to be done. That may rely on some others that need to be part of that.

The second main area that you'll want any good reroofing contract to address is the draw schedule. How is the roofer going to be paid? Let's think about a typical roofing company. Every morning, that owner or that general manager, whoever's in charge of running the day-to-day operations of that roofer, he or she wakes up in the morning and has to determine how they're going to staff the seven, eight, 10, 20 different project that they've got going at any one time. Okay. They're going to send their best folks to the project that is either giving them the most grief or has the highest amount of risk to the roofer. The best way that an association can control risk and ensure that that roofer has some continuing day-to-day risk on the project is through the draw schedule or through any of the provisions in the contract about how that roofer gets paid, progress payments.

You want to make sure that the way the roofer is paid during the progression of the job is in a way that that roofer is not... they haven't gotten their profit paid to them yet. There's a lot of different ways you can do that. I can't tell you a specific way, but typically you want to make sure that you're minimizing any deposits that you pay upfront because a lot of times the deposit is the profit. The more of the profit you pay upfront, the less that that roofer is incentivized to come and complete your project on time or in a diligent fashion.

If you can't get away from having to pay some sort of deposit, then you want to negotiate for the lowest amount of deposit or you want to redress that, if you will, that's probably not the right word, but you can maybe build in some retainage on progress payments and pull some of that back to ensure that the roofer completes on time and free of defects. The draw schedule is the best way to, one of the best ways, to ensure that every morning what that roofer is determining who he's going to send and where he's going to send them to, he's going to be looking at your association's reroofing project and saying, "I got to get this thing done because if I don't get it done, I'm in the hole. I'm negative here. I don't have my profit on this job. I'll earn my full profit on this job until I complete it." Don't ever give them a reason to get paid what they're going to ultimately make early on.

Alan Tannenbaum, Esq.:

Jon, the bottom line from my perspective is that you don't want the contractor that having paid 80% of the purchase price when only 60% of the work has been completed because it's awfully difficult to get them out at that juncture.

Jon Lemole, Esq.:

Right. Project supervision is another key area. Who for the owner is going to be responsible for day-to-day supervision of the project? I've seen many a situation where it's they've designated somebody on the board because they've had some sort of experience or because they've dealt with a roof replacement before. There may be some people on the board that are very qualified to do these things, I'm not saying that. But even if you haven't hired an engineer or a consultant to design your project, it's always worth considering having somebody come in, a third party come in and oversee and supervise the completion of the project and take a look at what the roofer is doing, inspect their work as the project progresses, somebody who's got experience in that area because that's usually one of the first... If a qualified person is doing that, they can nip problems in the butt obviously.

If the roof is not going on the right way, it's better to learn that early rather than later because later may mean a complete tear off and redo; whereas earlier may be, "Okay, we've got to take a section and redo it," and it's not a huge problem, so think about and have some provisions in your contract regarding project supervision. Subcontractors. Alan touched on this and especially in the area where you've got other things like air conditioning work that needs to be done, plumbing work that needs to be done, you want to have the ability to know who those subs are going to be that the roofer is bringing to do that work and you want to have some ability to maybe make some objections to that. So at the very least, you should negotiate or try to negotiate a provision which requires the roofer to tell you who else he's going to bring to the job and to allow you to have some opportunity to object or reject those subcontractors. Now, a lot of times you may not get away with being able to reject them, but you should know who they are.

Who determines completion? Does the roofer get to say the project is complete? And completion is a key element in a contract because that may determine final payment. You've got warranties that flow from that. It's evidence that maybe come back to haunt you if you ever have to bring a claim or the statute to repose, so substantial completion or completion of the project is a very important date to fix and should be fixed cavalierly. So are you going to let the roofer determine that or are you going to have an engineer involved who gets to make that decision or a roofing consultant who gets to make that decision? Obviously, I think you know what we would recommend.

How are in-project disputes handled? If you are unhappy with something that the roofer is doing, how are you going to handle that? Is there a mechanism for dealing with that? Are you going to have weekly progress meetings with the roofer? Are they going to do weekly inspections where you get to look at the work and have a meeting to review what's been done? All of that is key. Here's a biggie. Alan touched on this. Nonassignability. I can't tell you how many times we've seen roofing projects where you've signed a contract with somebody and you've got a completely different entity that shows up to do the work. If you picked a roofer for a reason, then make sure that that roofer isn't going to assign the contract or sub the work out to some other roofer. Those clauses are very rarely in contracts and so it's important that you take a look and make sure that you negotiate that into your contract.

The next thing is near and dear to our arts as lawyers, as litigators, because we usually end up dealing with the aftermath of a project gone bad and that's alternative dispute resolution. We'll often see contracts which require arbitration. We don't like those. Arbitration is not all it's cracked up to be in our experience. You'll hear that it's cheaper, it's faster, but, A, it's not necessarily cheaper because the cost to file a lawsuit at Circuit Court is, I don't know, I think like $405. On a couple hundred thousand or a few hundred thousand dollar roofing project, the filing fees at the American Arbitration Association may be thousands of dollars, plus you pay the arbitrator's fees hourly, so it's not necessarily cheaper.

I don't know, maybe faster, but you don't get discovery, you don't get full discovery, you don't get to take depositions under the American Arbitration Association rules, so that's a potential problem. Folks, at the end of the day, we don't recommend arbitration. Certainly in most cases, we would want to be in Circuit Court in front of a jury and so it's important to make sure that your contract doesn't require you to waive your right to a jury trial. We've seen plenty of contracts that we were not involved in negotiating and where we're now bringing a claim that have not had a prevailing party attorney's fee clause and that may be a problem. We would want a method for recovering our client's attorney's fees for bringing a claim for a roof project that was defective and so you need to take a look and see whether there are provisions in the contract for prevailing party attorney's fees.

Alan Tannenbaum, Esq.:

Very quickly, we want to answer these questions.

Jon Lemole, Esq.:

Final payment. How long do you have to do your final payment and release any retainage and under what conditions? That's essential as well.

Alan Tannenbaum, Esq.:

I want to get to some questions. Richard asked how to find a top notch engineer. We do know of some good ones. Do they perform the same in every job? Just like a contractor, sometimes you run into a glitch. If you hire an engineering firm, make sure the person they assign to you is actually one of their roofing specialists. Sometimes they have that capability sometimes not, but we can make some recommendations on that. I think, again, some other management companies and associations might know who they've had a good experience with. Barry asked a question about work that was done by an owner above the roof line. I bet that's an HOA, I hope it is. Who's responsible? Depending on how it was entered into and what your documents say, usually if an owner adds an improvement, it's on them to either remove it so that you can do a proper reroofing job or not, but the devil is always in the detail with documents.

Somebody asked a question about allowances and it's a very good question because, for instance, you may enter into a roofing job, you have a wood deck and there's an allowance per square foot or for board foot of the sheathing removal and replacement. Number one, you want to make sure that the price that the contractor's putting on replacing sheathing is a market price and they don't have an extortionate number for it. Secondly, you need to quantify how much, when it's opened up, how much wood actually needs to be pulled off the roof and how much is being pulled is being pulled off the roof because all of a sudden you get an overage of $30,000 or $50,000 at the end of the job and the wood that was removed has already gone into the dumpster and been taken away and how would you ever verify how much the contractor did, so that's a very good question and it ends up being a real problem.

Somebody, I think Mark [Spursion 00:53:49], mentioned that you also have to be careful of what type of products are going to be installed. There are different types of roofing systems. They carry different types of warranties. Definitely, your choice of roofers should also include vetting the roofing system that they're proposing to install because they are all different types of quality warranty limitations and so forth that come with the roofing project. There's one question about fiduciary responsibility. What is an HOA property management and board's responsibility to ensure proper funding of reserves under Florida statutes and case law? Well, the board has a fiduciary obligation to follow Florida statute and HOAs, there's no statutory requirement for the funding reserves. If it's in the documents, it is required.

If an HOA doesn't properly fund reserves, I doubt that that creates a case fiduciary for a fiduciary violation. It may be a poor business practice, but I don't think that it's going to create liability. So sorry, Jon, I thought we needed to get some of those questions answered.

Jon Lemole, Esq.:

Okay. That's fine. I want to make sure we answer the questions as well. That's good.

Alan Tannenbaum, Esq.:

Right. And we covered project supervision and completion, so Sal if you have something to say about construction defect claims that you can say in three minutes, the floor is yours.

Sal Scro, Esq.:

Yes, thanks for letting me have all this time. There was one question out there that was what about material failure on a fairly new roof? That kind of hits what I'm going to talk about. If you have a roof project, a new one that was done or one that went wrong or an existing roof that is wrong, what do you do? Well, you have four years statute of limitations to act on it, not to exceed 10 years and that 10 years is based upon when it's discovered. For example, if it's a latent defect, so the four years runs from either actual possession by the owner of the certificate of occupancy date, the date of completion of the project. If there's an abandonment of the project, which a lot of times leads to legal action, that would be the date that commences your statute of limitations. The date of the completion of a contract between the contractor, the architect, the engineer and their employer, so if you happen to employ the architect separately, then the time they've provided you with those details, that's your statute of limitations on that part of it. But typically, they're involved in larger projects so it's whichever is latest.

The statute of limitations runs four years. We're talking to community association managers here, so what do you do? You guys get complaints. You get complaints of problems with roofs, leaks, windows, anything like that, you document them because they usually come to you in writing. You talk about them in meetings, so you have meeting minutes. That documentation, what does that equal? That equals evidence. That equals evidence of your knowledge of a defective condition, which if you wait too long can hurt you, so it's good to document things, but you want to make sure you act upon them. For example, if you're having complaints of stucco cracks and you keep patching the stucco and patching the stucco. Later you find out that, well, it's not really the stucco, it's coming from the roof installation and the flashing, don't think that your discovery of that roof problem happened when you discovered it, it may have happened when you found the cracks in the stucco so it's going to be important that you investigate these issues by somebody competent to let you know, not just any contractor that goes out there.

If you see stucco cracks, you call a stucco contractor. He's going to tell you, "Okay, I'll fix your stucco." He's not going to talk about roofs necessarily and he's not going to uncover it, so it's important that you look for a competent investigator, an engineer, somebody to look into it. Usually, you go to the construction defect attorney first. That's what we do. We would recommend the right person for you to do that. One of you I know here today, we talked just recently about owner surveys and I use the word owner in quotes here. Should we send out written document... an email or a letter to all the owners and say, "Are you having any problems?" We recommended, again, if you want to talk to them, great, but if you're going to do these owner surveys, most of the time you're creating evidence, you're creating evidence that is going to probably not get you a lot of feedback and it's going to be more of a problem than it's worth.

I could talk about it for a while, but we don't have a lot of time so I want to touch on the 558 process. Before you commence any action to address construction defects, you have to give notice under Florida Statute 558 and it's specifically 558.004. If you're 20 units or less, you have to give that notice 60 days in advance. Tell them the potentially liable parties, what the defects are, what the damages are, give them a general idea of where the defect is located and they have 45 days to respond. It's 120 day pre suit notice for if you have 21 or more units and that is a 558 process for dummies statement there. There's a lot to it and it's important to use an attorney that knows how to handle these things appropriately to give the proper 558 out there.

Evidence preservation, exfoliation of evidence, destruction of evidence, that's very important. So when you're doing these investigations, it's always nice to have somebody martial it through. I know if we handle a destructive investigation, I make sure I notice the potentially liable parties. I tell them what's going to happen, when we're going to do this investigation. They can come out and look. They can't talk, they can't talk to the owners, they can't direct any of the investigation, it's our investigation. They can go out there and watch it and they can see what's there so they can't say we destroyed any of the evidence and the people you have out there doing it, it's documented. Sometimes this comes into question if you have emergency repairs, water coming in. Well, managers, direct somebody to take pictures before, during, after. Videos are good, but we don't want closeups. You got to start far out so we know what you're talking about.

I can't tell you how many times I get a picture of a round wet spot in ceiling that doesn't tell me anything. I need to have something back to look at to say, "This is the building. This is the street, the building, the unit number, the interior," and then you can zoom in on it. There's a lot to talk about on that, but the main thing is you have four years from discovery, not to exceed 10 years. So any of you with buildings or improvements that were done, any renovation projects that were done that are 10 years or less and you're not sure about their condition, my recommendation would be get a competent person to go out there, do a walk around, do an inspection. We know people that will go out there a lot of times and just do a free walk around if it's something that you think you're having a concern with.

If you're not having concern, obviously these engineers aren't readily available to run out there, but if that's the situation, it's always good to do. Thanks.

Jon Lemole, Esq.:

Okay. So roofs are your first line of defense to water intrusion. One of the most important components of your buildings. You've got reroof your building, the takeaway today is to follow best practices. We've laid them out for you. If you have any questions about a project that you may be contemplating undertaking, reach out to us or reach out to a construction lawyer to help walk you through what would be some of the key things to do in order to make sure that the project goes well. We thank you all for joining us today, you managers. I think Michelle will take care of getting you all of your credit reported to the DBPR. Hopefully we'll see you on our next panel, so thank you very much for joining us.

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Lessons Learned from the Tragic Surfside Collapse

Video Transcript:

Alan Tannenbaum:

I'm here with my partners, Salvatore Scro and Jon Lemole. Our presentation today is on Surfside Incident, Lessons Learned. So, I've been a construction defect lawyer for, going on 43 years. I've also assisted associations around the state in major repair projects, which is the basic substance of our practice. I've been fearing the type of thing that happened in Surfside, a couple of months ago.

It's a product of several factors. Let's start with the fact that it's a common ownership of property, which is problematic in itself. Remember that there weren't condominiums in Florida until the early '60s. And the idea of having many people operating one piece of property that they own, especially a building, is problematic to begin with because, they have to make joint decisions about potentially its maintenance and repair.

You have volunteer boards, many of whom are not experienced in management or building construction, who are responsible for maintaining millions of dollars worth of property, and protecting the people who've occupied the buildings. So, there's an expertise gap.

And then, you have all sorts of pressures on board of directors, you have the owners who show up at the meetings with the primary thought of, they want to keep their assessments down to a minimum, who exert substantial pressure on the board. You have people with different economic pressures in the community, who pull on the board's heartstrings about spending money on major repair projects. You have people that could even be on the board who are looking to sell their unit, and all they're concerned about is setting up a scenario that puts them in the best position to sell their unit this year or next year.

And you have investors and renters who maybe thinking short-term, maybe look at their property more as a real estate investment than as some place that they live. So, you have all these disparate interests all putting pressures on the board, to make decisions that may be contrary to the longterm interest of the building. So, this is something that I certainly have been aware of and our firm has been aware of, as a potential.

There have been buildings in Florida that over the course of the last couple of decades were near collapse, and fortunately didn't. There surely have been instances of portions of buildings that have collapsed, but Surfside was really the most dramatic example of what happens when deferred maintenance and repairs are put off to such an extent that you have the potential for tragedy.

So, I'm going to lay the ground rules again. Stay on mute. Any questions that you have, send them through chat. This is not a CEU course, so the managers are not going to get CEU credit for today. We have an outline. I'm going to turn the program now over to my partner Salvatore Scro, who's going to... Remember, this is lessons learned, so let's go back to original construction. What did Surfside, Sal, tell us about original construction defects and building vulnerability?

Salvatore Scro:

Good morning everyone. Thanks for joining us. Let me start with, I'm going to share some photos with you here to start out. Let's see if I can get this going right. Let's see here. Okay, I'm assuming everybody can see this.

Alan Tannenbaum:

Yes.

Salvatore Scro:

So, here's a condominium with a balcony. Some of you may have seen this before. I apologize, but I have some others here. But here's the balcony, it looks fine. From the street, everything's fine. Now, this building at the time in this photo was probably 45-50 years old. Let's see. So, we're going to look at this area right here, which is the top of the balcony. I just want to show you, there was a little hole here, but the other balconies had no hole. But this is what brought their attention to it.

Under that hole is the cantilevered steel that holds the balconies up, one above the other. That steel goes all the way into the building, and that's what holds up the steel. Now, that can't be seen. This is what it looks like throughout. That's what was holding up the balconies.

Here's another condominium. This is a wood frame condominium. It looks like it's in good condition. I want to show you a few things here. This was built in 1988 I believe. So, we're going to look at areas around the balconies, and we're going to look at areas around these support beams here. This is what you're going to see was behind in the walls. This is what's holding the building up. And you can see, that's the structure. So, it looks beautiful on the outside. And then, here's part of more support around this is what's holding that building up.

Now, these are the support beams we talked about. These beams aren't even touching the ground. So basically, this building was held together by glue of the stucco. That was that particular building. Here, a lot of the newer buildings they have, this is a pool room area, and you will see that here you have all water seeping through the concrete. They tried to seal it up, but you have water seeping through the concrete, and you do have this water intrusion. It's not necessarily a big deal right now, but it will be later.

Some of you may have seen these photos as well. This was a condominium building also. This is all wood frame. We did some investigation of the building and started to take apart areas. And beneath, that is what you found. Now, this was a fairly new condominium, so it did not take long for this to happen. These are the photos of what can happen if you don't address these issues, to start out.

Here's another area around the windows. Again, now, if you look and do your investigation the wrong way, this is what you're going to find. Nothing. But just inches below is where all the problem is. Why? Because you have flashing issues here. So, anytime there's a change in materials, change in direction, you're going to find issues that should be addressed.

Here's another project. You can see they started to mask over some of the cracks in the stucco. This area here is this area right here in the buildings. They're little, they call them pot shelves sometimes, because you lay a pot on them. So, it looks fine. As you open it up, this is what you're finding beneath. So, these are things... And again, here's another area. This is your framing issues that you cannot see, whether or not things are properly strapped. So, those are just a few photos.

Now, the commonality of all the damages in these photos... I'm going to ask a question, what all these photos have in common. Anyone know what it is? I know you're probably not going to answer this in this format, but I'm going to ask it anyway. The commonality is that, no one could see it happening. The other commonality about all these photos is that, they all had an opportunity to discover the defects and prevent this from happening. So the lesson to be learned here is, what you don't see can ultimately hurt you.

So what's the importance of a thorough turnover engineering study? You look at these buildings, the way they sell them, they sell nice clubhouses, they make everything look like it's new and fresh. But especially in new units, you need to take a look at these things. So you need a trained eye to identify the potential areas of the defective conditions. They may be small problems now, but they can result in bigger problems over time. So, it's like brushing your teeth. Today, it may not be a problem if you leave it alone, but over time, you're going to have problems. You're going to have cavities. So you need to address the things that you can't see.

So, what do these trained professionals look for? They will walk the site, they will look at areas where there is a change in direction, a change in materials, to make sure that the construction is performed properly so that they can identify if they need to do a further investigation. And all these investigative works that we've done, that we looked into, these engineers walked out there, they saw the same thing you saw in those photos. They saw a nice building, something that appeared nice. But, their trained eye can see something that we can't. And when you open it up, you find these things.

One of the other things to keep in mind is that, whether or not you want to pursue claims to create a fund to rectify the problems. So, the cost to correct these problems sometimes can be substantial, and it typically won't increase over time if it's not addressed. So it's better to address these things earlier than later. So obtaining a proper study of the building components by a qualified expert, typically we recommend an engineer together with a good team of construction defect attorneys, so that they can direct what should be looked for, is a way to develop an avenue to recover from the liable parties enough funds to use towards correcting the defective conditions.

If you wait too long, not only will you need the funds to correct the defective conditions, but also the funds to correct the consequential damages from the defective conditions, and you may lose your opportunity to recover from those parties as well. You also have the issue that, if you're doing repairs over a period of time, you may be destroying evidence. So it's best to have your properties looked at now at any point. So regardless of the study of the building, regardless, a study of the building components is a good idea. And here's why. If it's not to take advantage of inspecting as work was done, so if you weren't there to inspect the work as it was performed, or if you didn't have somebody competent to inspect the work as it was performed, then you may want to consider investigating the work now.

Another reason is, if it's just old, you may need to inspect the condition periodically. And then the other is identifying the longterm maintenance needs, which leads us to the next area, which my partner, Jon Lemole will be addressing.

Alan Tannenbaum:

All right. Thank you, Sal. So Jon, again, the lessons of Surfside, let's talk about budgeting and reserve funding. What lessons did we learn?

Jon Lemole:

Okay. Well, I think we learned probably what will be the most obvious area for the Florida legislature to address, some change in how condominium and HOA budgets are handled. Because right now in the statutes, as you probably all know, there's a presumption in favor of full funding .

There's a statutory presumption of a full funding of reserves, and especially for condominiums. And yet, you have this opportunity for the membership to determine, at least in condos and in HOAs, it depends on what the documents say, but you have the opportunity for reserves to be waived or reserves to be used for purposes other than for what they're supposed to be used for. So, that's probably the most likely area where we're going to see some change because, I think what we've learned from Surfside is that, buildings and especially high rise condominiums, they're very technical, highly technical structures to maintain. And leaving the line long-term maintenance and repair of them in the hands of well-meaning folks but folks who may have their own and interests in mind, their own short term interests in mind, was probably not the best thing for ensuring the safety of everybody in the building, and ensuring the integrity and the longterm integrity of the building.

So let's talk about reserve studies. Look, I get being a board member is probably one of the hardest things to do because, you've got to make some really difficult decisions that may not be in the particular short-term best interests of everybody in the community or in the building. And you've got to see these folks every day, and you've got to deal with people that are the squeaky wheels at your board meetings, and it's a very hard job. But, like any kind of fiduciary of an organization, it doesn't matter what organization, you talk about a public company, the board of directors has a duty to ensure the long-term viability of that company, and to frankly maximize shareholder value.

Well, a condominium really isn't that much different. The board has an obligation, a fiduciary obligation to ensure the long-term viability of the buildings, and to ensure that everybody's equity in the building is maximized. And so, that means that you've got to take care of the building. Now, a lot of folks who come down to Florida, typically come from up north, somewhere in the Midwest, they're used to owning a home, a single family home somewhere, and they've decided to move down to Florida, and move into a condo because they don't want to have all the maintenance responsibility. They don't have to mow lawns, they don't have to paint, they don't have to do all the things that they used to do when they owned it at home.

And sometimes I think when they move into a condominium or a Home Owners Association environment, they forget that, even though they don't have to do some of those maintenance things, they're still responsible for them. They still have a financial responsibility for it. And so, that kind of amnesia about doing those things is where you have a lot of problems with members who don't want to have to pay for those things. And so, they show up at meetings, they they're vocal, they try to elect board members who agreed with them.

I think that's going to change. I think we're going to have... It's got to change. I think we're going to see the Florida legislature step in here and create some guardrails or some curbs around how that's done. But again, let's talk about, I kind of got off the track, reserve studies. So if you're in a newer... Let's say you just turned over. What happens if, in a condo, let's talk about condominiums, you just turned over, the developers just turned over the condominium, they hand an engineering report that probably has also a reserve study attached to it, and you get a bunch of assumptions about the longterm life expectancy of all of the elements that have to be addressed in that report?

Frankly from my viewpoint, that's like buying a house and letting the seller give you a home inspection report. Why would you ever do that? So there's a huge benefit here to an association periodically, at least out of the gate, getting their own study done, getting their own reserve study done, getting their own engineering study. That goes back a little bit what Sal was talking about before, having the buildings looked at. But also, periodically getting reserve studies to know that you're funding reserve's at the right level, and that you're making sure that you're keeping up, and that the life expectancy assumptions that may have been made at the very beginning, haven't somehow changed.

That's very likely to happen in Florida especially, and with older buildings because, this is a harsh environment. We have a tendency to assume that buildings are constructed well, and that they're constructed with state-of-the-art technology. But think about a building that may be 50 years old. What was state of the art 50 years ago? And how has that held up in a harsh environment like Florida, especially in a harsh environment that's on the coast? So that's why it's important to do those studies periodically and update them, and make sure that you've got accurate numbers and accurate assumptions to reserve.

You've got to resist the urge to not fully fund reserves. Board members I think coming out of this, and management companies that are looking at Surfside, I think they're going to really have to rethink how they're dealing with requests and efforts to waive funding of reserves. I know that's hard. It's going to be very hard to do, and I think the legislature is hearing, the Florida legislature is hearing about that. Again, that's going to be an area where I think some protections are likely to be put in place.

Now, what do you do if you're in an older building and the over the years, reserve funding has been neglected? Now, all of a sudden you've got a problem, and you've got to deal with it. How do you do that? Well, there's a couple of different ways. You're either going to have to pass through a big assessment, a special assessment. Who's going to pay for that? Is it going to be letting the unit owners go out and deal with that? Maybe they have to get refinancing on their unit so that they can cover that, or is the association going to consider attaining its own lines of credit?

One option is for an association to fund that through some borrowing. That may not be available to all associations because, they may have problems with default rates. You have to generally have under a 5% default rate on assessment collections in order to get a lender to provide the association with a line of credit. So, these are some hard choices that are going to have to be made. But, I think there's help that's going to be on the way. I think, again, I think the Florida legislature has to act here and create some guard rails around the whole reserve issue.

Alan Tannenbaum:

Jon, one misnomer that I think people have about the reserve requirements of the condominium actually, there are three particular areas where there's required reserve funding, which is roof replacement, building painting, and pavement resurfacing. There are a number of condos around the state that only reserve for those three items. But, there's additional requirement under the reserve section. It says, "And any other item of the building that has deferred maintenance or replacement costs greater than $10,000." That's where this bonded stucco or cantilevered slabs that are going to need to be repaired or other structural issues in the building, at the pool level, the pool deck and so forth, those items also need to be reserved for under the provision of the statute that talks about replacement costs of greater than $10,000.

So it was a little bit misleading when the legislature created that statute because, it highlighted roof replacement, building painting, and pavement resurfacing, really to the neglect of structural issues, re-piping, which was going to be coming down the road for many buildings. A lot of major expenditures that were not picked up or were not subsumed within those three categories. So that's been a misnomer.

Jon Lemole:

Yeah. And again, what is likely to be more than 10,000 may change over time too because, as your building ages, and you may have environmental impacts, climate impacts that are accelerating some things, that now may become more pressing repair and maintenance areas. And so again, that's just another reason why routine studies of your buildings are going to be a thing of the future. A thing that every board and every association has to consider is, not set it and forget it, and maybe you'll do 30 or 40 years down the road, you'll do a study. Maybe if you're in a particular municipality, or county, or city that is going to require you to do that, so you'll do it.

But I think what every association needs to look at is periodic studies. Whether they have to do them or not by law or ordinance, doing it solely for the purposes of understanding what the current condition of their building is, and what their ongoing reserve funding obligations and efforts should look like.

Salvatore Scro:

I just want to address one thing here. One of the questions here was, so what was the lessons... Okay, I'll state what it says here. "What were the lessons learned from original construction of Surfside?" I guess since that's what we're talking about here, we're focusing at this point on investigating your property. Don't just let the... Don't judge a book by its cover. Surfside had investigations later on that showed issues. Don't ignore them. So the lesson, the main lesson from Surfside in my opinion is, if you do what you're supposed to do as a board, do not ignore what you find. Take action on it. Don't worry about the cost, or what the value of your properties, which is always a big concern. That's not your duty to make sure that you have a high value.

Your duty as a board, as a manager of the board, is to make sure that you're performing your fiduciary duties for the association that's there, and that will be there in the future. So the lesson learned from that is, get the studies and don't ignore the studies.

Alan Tannenbaum:

Yes. And Kevin, it's a good question, and I want to follow up with Sal. We don't know why Champlain Tower South came down, and it's going to probably be a couple of years of study. It may not be able to pinpoint one precise issue. But my A claim from what I've seen is, it looks like there were original design and construction defects in that building, which if they would have been corrected at the outset, let's say within the first couple of years, the likelihood of the eventual conclusion would have been lessened, of the building having to collapse 40 years later.

So, we have seen situations where buildings have had problems 20, 30 years down the road. And usually, there's a component of original construction defect that contributed to it. That if those items had been corrected and then the building properly maintained, then it would have been there. Maintenance is a misnomer because, if you have underlying construction defects that you don't repair, you're putting a band-aid on a problem and not necessarily getting to the guts of it. A good example is stucco cracking. Well, you can patch the stucco, you could even re-stucco. But if the issue, let's say in a wood-frame building, is the actual structure behind the sheeting, that's causing the distress, that's leading eventually the stucco cracking, you haven't really gotten to the problem.

So, the first thing that comes is correcting construction defects. And then, you're talking about longterm maintenance strategy once you've corrected the defect. But if you don't correct the defect, it is going to come back to bite.

There's a question about the life expectancy of a reinforced concrete multistory building, four or five floors. There is no discrete number that you could put on the life expectancy. There's probably some buildings that are reinforced concrete buildings that are going to last 60 or 70 years, and there are reinforced concrete buildings that because of original construction defects or poor maintenance, are not going to make 25 years. So, there's going to be a broad discrepancy. I would say that, based upon the studies that were done in the '80s, reinforced concrete buildings, even well-maintained, were certainly not going to last a century. And again, the one study that came out of it was the early 1980s, said an average life expectancy on the coast, of a high rise, reinforced concrete building, to be 50 years. But to put a precise number on a particular building would be very difficult.

Norman asked a question about reserves. What do you think? The far left says you will require full funding. Well, every year the board's got to come up with a budget that reflects full funding of reserves. The problem in the statute is that, the owners and many times it's at the suggestion of the board, then have to vote when the budget's adopted, to either waive the reserves in their entirety or reduce the reserves with full funding. Potentially, the legislature will, as they have done at some stage, will remove the waiver alternative for the owners, and the full funding be required.

But it goes back to the board having an appropriate reserves study that covers more than just the three designated areas of the statute. It covers any other item that's going to have greater than $10,000 replacement costs, That's going to include piping, it's going to include elevators, it's going to include structural window replacement. Those things are often left out when it comes to reserve funding. So the next segment.

Jon Lemole:

Because, we talk about life expectancy of buildings, and I think we put too much emphasis on... It takes away from what we really should be thinking about because, we tend to rely on, "Well, 50 years? I can sit tight for a little while." The three of us I'm sure, me, you, Sal, we can all point to examples of newer buildings that have had structural problems because, there's been a defect in the waterproofing that you may not see. I can think of two right now that we're dealing with where, there's been significant concrete spalling, and corrosion, and post-tensioning, and other effects on structural concrete, and they're frankly very recent buildings. But if the waterproofing, the latent waterproofing structures are defective, are not well performed, you're going to have a problem.

And so, 50 year life expectancy in that situation is meaningless. So that's why Sal, me, Alan, we constantly beat this drum. Get your buildings inspected. It doesn't matter how old they are.

Alan Tannenbaum:

Yeah. And probably at least every five years for a major structural mechanical inspection would be a good starting point. So, I'm going to get into the next segment, which is, we called it, nipping problems in the butt. So I think you've heard enough about water intrusion. In Florida, the biggest problem other than original construction defect, is the impact of water on the structure. If anywhere on your structure you're allowing water to get in, it can come through the roof, the windows, as Sal indicated, any change of building surface are areas of vulnerability. You're allowing that water to come in, it's going to create rot, it's going to create mold. You're going to have a pretty serious issue developing. So, the biggest target of maintenance in Florida is stopping water from getting beyond the outside surface on the building, and that's the ultimate struggle.

Somebody asked about plumbing. So, there's a lot of cast iron portable water systems or piping, you have your sewage piping, and again, not intended to last forever. The other thing that happens in the construction industry is, somebody comes up with a great idea about using a particular product or material, and 20, 30 years down the road, it doesn't look like such a good idea anymore. I think that is often discovered. I remember many years ago, somebody came up with the brilliant idea of using lightweight concrete fill as a roofing installation. The stuff got poured all over Florida, it was great. Great at energy reduction, you can slope it easily. The only problem was that, after a few years, they discovered that under the Florida sun, that the moisture from the concrete went up into the asphalt roofing that was applied to it, and you had asphalt roofs ever deteriorating well before their time, as a result. So you do learn things.

Now, what I've heard from plumbers or the plumbing companies, because there's companies out there that are doing pipe relining to extend the life of piping and buildings, and I've heard from more than one expert who has said, it's a viable approach, but not if you have allowed your piping to reach the point of deterioration, where it really can't be lined anymore. So, it's a great example of jumping on problems when they first become evident. Because, you're sitting on a piping system in your building, you get it inspected, there's some rust and deterioration. And then, the board sits on it for five years, six years, seven years, finally gets it studied after seven years of the problem first coming.

One of the companies that was going to be doing the pipe-lining shows up and says, "Look, the piping here is far too deteriorated to use our system or our process. The only thing that you can do at this juncture is a full replacement." So, one of the consistent themes that we've seen in buildings is, if you get at a problem quickly, you have the opportunity of correcting it cost-Effectively. If you allow problems to exacerbate, then the repair is likely to be much more expensive, much more difficult, and much more impactful on unit occupancy and so forth. So, get on those problems quickly.

So Sal, what I'm going to ask you to do in the next segment, we have a lot of topic areas that we were going to have you cover, but we've answered a lot of questions and so forth. So, why don't you give a fairly brief synopsis of contracting for repairs?

Salvatore Scro:

Okay. So, many times the defects that you encounter, the problems you encounter are because of poor instructions. You wouldn't buy a desk for example, that had to be put together, and just start putting it together, if it had all these parts. You read the instructions. Well, it's no different with putting together a building or repairing a building. You want to have proper instructions. So initially, you want to have that investigation. I know there was a question in there, Nancy asked, the inspection you recommend five years is separate from our reserve study? Yes. Reserve studies typically just look at the buildings. They don't do any investigation as to what the extent of the repair needs to be.

Alan mentioned cracked stucco. If you have cracked stucco, it may be a stucco problem, but it could be the framing beneath. It could be a lot of different things. So, you want to have an investigation to determine exactly what needs to be done. Because, just patching and painting the stucco, it may be damaged the next day. It won't solve the problem. You need to know what that problem is. So you want to know what the problem is. You want to get on point specifications as to what needs to be done.

To correct and avoid the defective construction, how will you know... How do you know what to do? And how do you know if the appropriate to work is in the plans or in the specifications? A couple of things. Number one, you should have an attorney review the contract, somebody who's knowledgeable in dealing with construction defect matters, and also have a good owner's rep, somebody who's knowledgeable, or engage the services of your own engineer to review those plans.

Salvatore Scro:

The other issue is, who's going to do the work? You can go get any contractor out there, but you're only getting the people that show up on the job. So a couple of things you want to know about these contractors, one, you want to ask for references. If it's a big project, even more so, you want to ask for references. You want to know what the bond ability is, if they need to obtain a bond. And again, with bonds sometimes, those are different amounts for different contractors. So that would depend. If some contractors cannot get a bond, some would pay more than others.

The other thing you want to look for is, if a contractor is asking for a significant deposit, because they have to buy materials or whatever, that's a big issue that will raise a flag to at least do some more investigation about the contractor and what they're able to do. You want to look at what the warranties may be for the work that's going to be performed. How long will that continue?

And then the contract administration, a good owners rep. Many of the community association managers out there, they don't really expect to sign up for that. So if they are going to do that, there may need to be a separate agreement with your community association manager, as to how much and how involved they're going to be. But basically, and I did see a question in here that leads into this, one is, Tasha asked, why can't all the construction defects be addressed before the developer leaves and turns over? Couldn't developers create budgets of properly funding the HOA or condo instead of the practice of having low fees for marketing?

Salvatore Scro:

So here's the reason, my opinion. They built something for a profit. They do not want to go and be there every day to repair these things, to make sure that everything is in order. They're turning that over to you. And the thing you're going to find most is, all these construction defects, they're not defects, they're just failure to maintain. I've heard some ridiculous things in just the last week, in depositions I've been in, where people have stated that, some of the problems that are causing the defective conditions of the association, are because of lack of maintenance. So, how do you see that? And the answer is, well I see dirt on the building. That's not maintenance. You cannot maintain something that is not properly put together.

So a developer or a contractor, most of them will just want to patch the situation, get through their statute of limitations, get a signed release. So it's important that you have your own people. And we've stressed this quite a bit. Investigate these things. That your contracts are based upon what your investigation finds, not what the developer says needs to be done. If they didn't do it right the first time, if the contractor didn't do it right the first time, you have to be concerned as to whether or not they're going to do it right the second time. Did they have the proper plans and specifications? Was all the information in there? How do you know what that proper repair is going to be? And who's going to do the work? Hopefully that was brief enough for you, Alan.

Alan Tannenbaum:

All right. Thank you. So Jon, let's talk about communication with the owners. And really, tying it back to the Surfside issue, what was the challenge that that board had as far as leading the owners, or leading the group to make proper decisions about what to do with that building?

Jon Lemole:

Well, I think first of all, there was a problem with getting... With conflicting information being circulated among membership and even within the board. So, in order to communicate clearly with your members, the board has to have a clear understanding of what their role is, and what the needs of the community are, at any given point. Because remember, again, at the end of the day, the board is there to represent everybody who has an interest in that community, for the long-term viability, and security, and safety of the building, and for management, for fiscal management of everybody's assessment and need to contribute to the management, and security and safety of that building.

And so, if the board doesn't have a clear understanding at the very beginning, of what that is going to entail, then they're going to have a really hard time communicating that effectively and in a transparent way to the membership, or the community. And so, transparency is the key. And look folks, I'm a big believer in risk management. Every entity, every board, every organization wants to manage risk as best it can, and transfer as much of the risk away from itself as it can. That's always just good business practice.

So think of, most boards, they may be some very smart, well-meaning, educated people. They have great and disparate backgrounds in a lot of different areas but, how well do they really know building science? How well do they really know building, upkeep, maintenance and repair responsibility? So look, how do you manage risk in that situation? You put it on engineers. So, if you want to be transparent and clear, and manage the risks associated with managing the long-term viability of the building, you get regular investigations of your building with engineers, and let the engineers speak for themselves, and let the engineering reports speak for themselves.

And if the engineers who also have a fiduciary obligation, and a heightened standard of care as professionals, and certain statutory requirements every time they sign a report or seal a report, they're the ones whose malpractice is an issue, if they're not providing accurate information. So the easiest to me, I'm just one guy, but to me, the easiest way for a board to manage clear and transparent communication, is to periodically investigate the buildings, and let the engineers tell you what needs to be done, because they're the professionals. Don't let the tail wag the dog. You can't let the members who come from all different kinds of backgrounds, they may be short-term, they may be long-term, this may be the place they're going to stay forever, they may be only here for a couple of years, they may just be investors. You can't let them and their disparate interests and backgrounds, be the driver of the decision-making for the long-term safety, security, viability of the structure.

Alan Tannenbaum:

Yeah. And Jon, the distinction, the board is going to have better information than an owner, but they also have the fiduciary responsibility that the owner doesn't have. So, that's really what distinguishes the board. The board is required to lead and direct. The owners are specialists in complaining and obstructing. That's what they're there for. The board can't let the complainers and the obstructors in the building dominate.

What I'd like to do really in the last 10 minutes that we have, my last segment was on termination. We do a whole presentation on that. Obviously, if a building has reached the end of its useful life, termination is going to end up being the solution. In Champlain Tower South, that condo is being terminated because, it can't be rebuilt. The owners are not in a position to do that. So, the property is going to be terminated. It was interesting that one of the discussions was, they're creating the site there as a memorial. Well, tell that to the owners who have the possibility of sharing some of the $30 million or $40 million that the land value was worth, for that to become a memorial. I think what will happen is, the property will be sold and you will see a new development in its place, with the owners sharing the proceeds of the sale of the property.

But I want to go back to really summarize what we've covered here. And again, the topic of the discussion was, The Lessons Learned. So let's summarize the lessons learned. The first lesson is, know your building. That talks about doing periodic, thorough engineering studies, covering the major structural issues, roofing, plumbing systems, mechanical systems, electrical systems, your pool, your elevators. Have the best information that's reasonably possible, so that you know and understand your building, the repairing needs and the maintenance needs of the building.

You can't plan, budgetarily, you can't plan as far as needed maintenance and repair, unless you have an appropriate baseline of information from which to proceed. In Champlain Tower South, they did have some engineering reports. Did the engineering reports cover everything about the building vulnerabilities? I don't know the answer to that question. But that's the starting point, is proper engineering investigation, so that every condo board in Florida knows the challenges that its buildings are facing. That's number one.

Number two is budgeting. It's not only looking what needs to be budgeted this year to take care of what needs to be taken care of this year, but it's funding for five years, 10 years, 20 years, potentially 30 years down the road. That takes a lot of hard work, it takes a lot of study, it takes a lot of forethought. You have to produce a budget that's going to potentially have bad news from the owners about how much their assessment is going to increase this year, in order to include a proper reserve component for future repairs. But, one of the problems that you have seen from Champlain Tower South is, the difficulty when appropriate reserves have not been collected, of then trying to go back to the owners, to collect an assessment that would have been in excess of $100,000 a unit, in order to undertake those repairs. A very, very difficult political challenge for a board of directors.

The likelihood of owners, and there were owners in that building that had just bought it a year before, and all of a sudden, the idea of having to pay $100,000 in addition for the immediate repair project, would have been very difficult news. So the idea of waiving reserves, and then facing a situation 20, 25 years down the road where, now owner's going to be assessed $25,000, $75,000, $100,000-$125,000, we've seen creates a very difficult situation. So really, the second part of it is fiscal responsibility, once you have the engineering study.

The third part of it is leadership. The board of directors has a fiduciary responsibility to undertake the associations statutory obligations to maintain and repair the common elements. So, it's a statutory obligation on the part of the association. The board's got a fiduciary duty in undertaking that statutory obligation. That translates into the board having the onus to make the very difficult decisions, that protect the long-term interest of the building and the membership. So that means that, the board's got to make the first difficult decision, which is, investing association funds to get the appropriate engineering studies.

Somebody asked a question about, how much do engineering studies cost? Well, they are costing more and more because, engineers are being deluged with requests for inspections at this juncture. So, I don't know what they're charging, but they're probably 10 or 20% more than if you would have asked for the same evaluation six months ago. But that's the pressure of the marketplace. So, it's the courage to get the appropriate engineering studies, and go to the owners for the assessments to pay for them. It's then having the courage at the appropriate time, to either with the use of reserve funds or special assessments, do repairs when they're needed and not let the problems exacerbate.

But, also maybe courage in a building that is under severe distress, of even telling the owners that, because the building is in such disrepair, that it may not be occupiable, which is also a possibility. So I would say, the combination of factors, lessons learned with Champlain Tower South, get the appropriate engineering studies, provide adequate funding to do repairs, do the repairs in a timely fashion. And for the board to understand what its obligation is, which is to protect the long-term interest and the safety of the membership, and not be concerned necessarily with owners who again, their interest may be short-term, their interest may be individual, financial difficulties, a whole slew of reasons that an owner's going to resist assessment or reserve funding. The board's got to have the leadership in order to respond to that. I'm sorry to dominate. Sal, Jon, do you have any closing thoughts?

Salvatore Scro:

I think we beat everybody up enough on the thing we see every day is that, the hardest thing for a board to do is spend money. Sometimes you need to spend money to find out what's happening. It's like going to the doctor. But it's also important that you don't take this on alone. You need direction, you need somebody to advise you. And there's a lot. Boards are not ignorant people. They're very smart people. But it's important to get the advice from the professionals that look at the buildings, from the people that deal with addressing the construction defects, whether it be the construction defect attorneys to lead you through the investigation, to make sure you pick the right people, to review your repair contracts, to make sure those are right, and that everything is being addressed so that you don't have a problem later on. It goes back to the question, why can't the developer set up a fund? Aside from the fact that they don't want to spend any more money, you want to make sure that they do it right the first time, and that you're protected. So it's important to get that direction.

Alan Tannenbaum:

All right. There, I see a question from Marshall Wizof about, can associations hire directors with pay? I don't think there's a particular restriction in the statute against that. I've never actually seen it happen. It's probably very unlikely that the legislature will ever require that, or your particular documents are going to allow it. But, it does make some sense.

There's a question about liabilities of the manager when the board doesn't listen to advice. As long as a manager documents what their advice was, and it's in the record, I don't think that creates any liability for the manager in any way. Your contracts have pretty strong identification language, so I don't think there's a great concern there. I think we've covered that.

Reserve studies, all right. Somebody asked a question about personal liability of board members. In Florida, it's a very narrow window for a board, individual board liability. Frankly, unless you're stealing from the association, or giving sweetheart contracts to your brother-in-law, or using your office for vindictive purposes, it's very unlikely that there's going to be a successful suit against an individual director for maintenance and repair decisions.

Now, if a board member gets an engineering report that talks about the building that has significant problems, where there's a threat of collapse, and doesn't present that report to the rest of the board, or the board withholds that from management, there could be a potential for some liability under those circumstances. But generally, the decisions are going to be protected from individual liability. The association, under its liability policy, could have a pretty significant liability.

So, we'll look through the chat, and we'll cover some of the other questions offline. We appreciate everybody participating today. Hopefully the information that we conveyed was helpful. And we will-

Speaker 4:

I've heard Mr. Lemole mention several times, periodic inspections. Could you be a little more specific?

Jon Lemole:

Well, I don't know that I have a particular timeframe in mind, but that's going to be driven by what engineers say, and what you do in response to it. So, if you have a report that recommends... If you have an engineering study done that recommends certain repairs be made, and you do those repairs, maybe the best person to ask for when should we be following up on this, would be the engineer, just like you would do with a doctor, for example. So, no particular schedule of it, but just period... I think from time to time, you have to check the health of your building.

Alan Tannenbaum:

Yes. I'm going to answer David Baker's question. We can hang on for a few more minutes. David Baker says, a question regarding directors and officers insurance. I believe every association is obligated to carry this insurance. Actually not. It is a discretionary purchase. Is $1 million per claim inadequate? I think the bump-up of fiduciary insurance is not that great. So if you want to carry more coverage, I think the insurance people will tell you that, a bump-up over $1 million is not going to be expensive.

Now, the question of how effective is the insurance as far as providing security for board members and property managers? I don't think the fiduciary insurance that a board purchases, it covers directors and officers not necessarily management. But maybe one of the insurance people can correct me on that. The funny part of fiduciary insurance in Florida is that, it doesn't cover misfeasance and malfeasance on the part of the board. So the irony of it is, statutorily, board members have a very narrow window of potential liability, and the fiduciary insurance doesn't cover the issues of misfeasance and malfeasance.

So most fiduciary policies are really there to pay legal defense costs, where a board is actually sued for something that it doesn't have liability for anyway. I know though the insurance companies are very happy to write fiduciary coverage because, there's a very low claims incident against the amount of premiums that they're collecting for the coverage. But, just for the fact of to cover the potential defense costs, I think it's very important that the board of directors have that, but it's not an obligated request.

Yes, getting an engineering report after turnover, if we didn't beat you over the head with that, that's really important. I think we've basically covered the questions, at least the ones we were able to answer. All right. We're going to say goodbye at this point. We'll see everybody next month. Thank you. There will be a recording, and we'll provide you access to it. Thank you. 

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Aging Condo Buildings – Repair or Abandon

Even if expensive, by statute necessary repairs cannot be avoided for aging condominium buildings. Allowing the buildings to deteriorate could constitute a material alteration for which a unit owner could take issue. Termination is a cumbersome process, but should it be considered for aging condo properties? Does repairing the buildings no longer make economic sense? Learn what alternatives associations have when faced with aging buildings…Repair or Abandon?

Alan Tannenbaum:

Our topic today is Aging Condo Buildings – Repair or Abandon. We've all been affected by the horrendous circumstances that occurred in Surfside. We actually had planned to give this presentation weeks in advance of what occurred in Surfside. It pointed out some of the issues surrounding this whole thing of condominium repair, obviously in the most drastic way imaginable. We all feel for the people who perished, the families in that terrible tragedy.

From somebody ... And our firm is involved in construction defects and consulting on major repairs of condominiums and homeowner association buildings. I've been working in this field for over four decades, and what occurred in Surfside, from my perspective, was inevitable that at some point there was going to be a collapse and there was going to be loss of life because we're certainly aware that there are a number of buildings, mostly along the coast that have been deteriorating from the environment.

Adequate repairs, investigations have not been undertaken. You have the issues of infighting among board members, owners and boards not being able to agree on repairs and paying for repairs. Unfortunately, in Florida you have the whole issue of reserves. As everybody familiar with the Condominium Act knows, every year a board of directors is obligated to prepare a budget that includes fully funded reserves for all building repair items greater than $10,000.

Then the owners can vote at a meeting to waive those reserves or to agree in decreasing the reserves. Unfortunately, what boards have done time after time is they've accepted that owner vote and reserves have either been waived or decreased. You end up with buildings that need massive repairs and the funds are not there to undertake them. Then the ability of associations then to assess their owners sometimes into the six figures to do major repairs creates a great difficulty.

If you haven't maintained the buildings, adequate reserves have not been funded, you end up with a problem many years on, which is a substantial cost of repair, a great difficulty in a board being able to pass a special assessment [inaudible 00:03:53], a lot of resistance from the owners and sometimes board members and you end up with a tragedy as what occurred in Surfside. You got a substantial cost, you got lack of adequate reserves, but there is a decision to be made.

It's a decision that eventually every condominium in Florida is going to have to make, which is when is the cost of repair so excessive that the actual termination of the condominium should be considered? I use the example of a condominium in Tampa that we represented. They were down maybe a little bit north of [inaudible 00:04:44] Stadium and the owners needed to be assessed about $30,000 each to do repairs, but the land was very valuable.

If the property was sold, every unit owner would have been able to realize $300,000 from the sale of the property upon termination. The question for that association was, do we go through the process of assessing our 54 owners, $30,000 each to do these repairs on these aging buildings, or do we move to terminate the condominium, put the property on the open market, sell it?

Rather than every owner being required to come up with $30,000 to repair the property, in theory they would each get a very sizable six-figure check, but then of course have to find someplace to live other than where they did. That's what the topic that we're going to cover today is, do massive repairs or do we consider termination, and what are the complications of each?

I'm going to invite my partner, Jon Lemole, to talk about what is the statutory of documentary duty of condominium associations to repair their buildings?

Jon Lemole:

Got it. Thank you, Alan. We're going to start with some basics, which will then segue us into the more meaty part of this discussion about the problem of aging condo buildings, but we've got to start somewhere. I expect that most of you on this discussion today are probably come from someplace other than Florida, may have experience owning a single-family home somewhere up in the Midwest or the Northeast or wherever y'all came from initially.

Think about a situation where you own a home. One of the primary responsibilities of home ownership is to take care of your home. It's a big investment, and so we're probably all familiar with things like replacing roofs and painting our homes and replacing siding or clapboard or stucco, if you had stucco up north somewhere.

Those are all the things that homeowners are well aware of, the types of repair and maintenance things that you do to keep your home secure, safe, water-tight, structurally-sound. When you buy a condominium, you're in a type of ownership which doesn't give you complete control over the place that you live. You can maintain certain things within your unit, but you rely upon some other folks and an association in particular to take care of the things that you can't take care of.

The law in Florida, as well as perhaps your documents, your declarations, but let's start with the statute, the statute imposes a very heavy burden on an association and its board, a fiduciary obligation on the board members, to look after the best interests of the property, the common elements that every unit owner owns a share of, but doesn't have the ability to take care of directly. Where do we find that obligation?

Well, we start with the statute. I'm going to share my here so we can all look at some statutory language. For a condominium, we start with Florida Statute, Section 718.113. That's the essential burden on an association where we find the burden of the maintenance of the common elements. You'll see I've highlighted in sub-section one there that the maintenance of the common elements is the responsibility of the association.

That's pretty clear language. The association can't work around that. There's no exception. There's no misunderstanding, no ambiguity there. The association has to maintain the common elements of the condominium. Now, the declaration may include some additional things and some additional burdens and so you always have to consider what the declaration say in addition to that.

But at the very minimum, you've got a statutory prerequisite, a command, an unambiguous command on the association to maintain the common elements. It's very important that each of you, if you're on a board or you're a manager, you're aware of this particular section, you understand what the common elements are, typically building exteriors, roofs, maybe balconies or certain portions of balconies.

There are certain areas that are going to be common elements and that are going to fall within this statutory obligation. There may be other things that are imposed by your declarations and so it's very important that you understand what those declarations are as well, and what the responsibilities of the association are. It's interesting.

I want to jump down here to Section 2A, because you're probably all familiar with the differentiation between maintenance and repair, and then the other section of the statute material alteration. Why that distinction is interesting is because a lot of you probably recognize that the association always having the responsibility to maintain and repair the common elements, doesn't typically need membership approval to do that.

Board can take on that obligation on its own and create assessments to fund that work. You're probably all aware of Section 2A which requires that if you're going to make a material alteration or substantial addition to the common elements or to association property, it has to be done in a manner that's set out in the declaration. The declaration may provide some directives about votes of the membership, what percentage of the membership vote is required.

In fact, in the statute, it gives you a baseline. If the declarations don't provide some method for determining what sort of membership approval is required for material alterations, then the statute provides a baseline of 75% of the total voting interest. Here's where this is interesting. I think many of you may have heard of a case on Longboat Key. It was called the Colony case, is a long and tortured history of a condominium, actually a hotel condominium, that eventually fell into disrepair.

There was a tremendous amount of litigation around that. Eventually it's been demolished and the condominium was involuntarily terminated, and is now being developed by a big real estate developer. One of the things that's interesting about that whole saga is that there was actually a decision in the bankruptcy court and one of the earlier litigations involving the Colony case, where you have a judge ... And this is law in Florida.

You have a judge that said that by allowing the condominium to fall into such significant disrepair and by overlooking its repair and maintenance obligations to such a degree, that the condominium essentially became unrepairable, that that was a material alteration. Therefore, by allowing that to happen without a vote of members, that exposed the board and the association to significant exposure and significant liability.

The association there had to pay a heavy price for that. Let's talk about what happens when the association doesn't perform its maintenance and repair obligations. Let's just jump down to Section 718.303, and a lot of you know this. I've highlighted the relevant language here, that actions for damages or for injunctive relief, injunctive relief being an order by the court for an association to do something, or both, for failure to comply with the provision to maintain and repair may be brought by the association.

Let's talk about what the unit owner can do. A unit owner can bring a claim for damages or injunctive relief against the association. In other words, a unit owner can compel the association to do what it's supposed to do under the statute and to maintain and repair the common elements. If the association doesn't do that or is found to be liable for not doing that, the unit owner prevails, then the prevailing party ... And I'm here in the red.

The prevailing party in any such action is entitled to recover reasonable attorney's fees. There's a case that was recently decided, I'll tell you it's a homeowner's association case, but the statute for the homeowner's association is very similar to the condo association. It's called Gonzalez vs. Coconut Key Homeowner's Association. Recent. A couple of years ago, appellate decision. In that case, a lot owner brought in a claim for damages and for an injunction against the association for failing to maintain a drainage swale.Now, here's the interesting thing about that case. The owner was not able to prove that the failure to maintain the drainage swale caused her lot to be damaged, but she did prove that the association was not maintaining the drainage swale. As a result of that, the court issued an injunction and told the association, "You need to maintain the drainage swale." And awarded the homeowner, the lot owner, the attorney's fees for bringing that action.

Even though the association didn't have to pay damages, they had to pay quite a bit in attorney's fees based upon that action. A unit owner prevailing ... Let's look at the green. A unit owner prevailing in an action between the association and the unit owner under this section, in addition to recovering his or her reasonable attorney's fees, may also recover additional amounts as determined by the court to be necessary to reimburse the unit owner for his or her share of assessments levied by the association to fund its expense of the litigation.

Takeaway there is, if a unit owner sues the association for failing to maintain and repair, and the association passes on an assessment to defend that litigation, the unit owner, if they prevail, is going to get basically credited back for those assessments. Let me end my screen share here for a second.

Alan Tannenbaum:

Jon, just to make it clear, even though 718.303 talks about individual board member liability, there's other sections of the Condominium Act which really strictly limit potential board exposure. To use the example of the Surfside situation, I think that the association under its liability policy is going to have significant exposure under that policy against unit owner claims for their losses, including loss of life and so forth.

It's very questionable whether an action against the individual board members of that condominium association would be successful because the board members were acting on engineering reports. They had actually assessed the owners to undertake the repairs, would be very difficult to prove a breach of fiduciary duty on their part and expose themselves to personal liability. I wanted to say that before any of the board members who may be on this call are saying, "Gee, with that statute, I ought to get off the board."

Because another section of the statute strictly constricts the exposure of individual board members. Frankly, unless you're stealing from your association or giving sweetheart contracts to your brother-in-law or using your power in any kind of vindictive way, mere failure to assure that the association undertakes repairs probably does not open up an individual board member to liability.

The association might have significant liability, but not necessarily a board member. Jon, did you conclude your section? I don't know if you had anything else to add.

Jon Lemole:

That was basically it. Now we understand what the obligation on the association is. We're going to probably take a look here what happens when the association doesn't perform or meet its obligations in a reasonable way. I'm done with the initial primer on association obligation to maintain and repair.

Salvatore Scro:

Okay. Thank you, Alan. I've been allocated about 10 minutes for this. I could go on forever, but let me just touch on some of the basic parts of this. As a result of what's happened in Miami with the collapse of this condominium, I've received a lot of calls. I'm sure Alan has and Jon has, from associations concerned about the structural integrity of the building, rightfully so.

Today it may not be an issue for many of them, but as a result, especially with those that have turned over and we have investigations, over time, if these issues aren't addressed, they can become problems. That's what we do. We represent associations to inspect, analyze, address these construction defect issues so that they can be remedied.

With regard to the insurance, for the managers out there, I'm sure that the majority of you, if not all of you, handle the insurance policies, obtaining them, renewing them. You will be receiving the applications. Those applications have various questions on them. Usually, the applications are provided to the manager from the agent that you're getting the insurance from. My advice is read it, read every question because they fill in what they believe to be the factual situation.

Many policies, if there's a misstatement or an untruth or something that was known that was not disclosed in the application, that would be a cost for the insurance company not to insure. I've seen it. I've represented associations where the application stated that a policy was never canceled a revoked. That was not the case. The owners did not fill out that application, the agent did, but they signed it.

They took advice from the agency. They've signed it and ultimately a collapse claim was in jeopardy because of that application. The policy renewal disclosures, those are important. If you don't know the condition, that may not be enough. If you do not investigate it, sometimes the insurance companies will. The insurance companies will come out there, send someone out there. You may know it. You may not.

They may come out and do an investigation and the next thing you know is you get a letter stating that, "We are canceling your insurance because of the condition of your building, or we are canceling your insurance for this other reason, or we are not renewing your insurance." How many of the managers out there have gotten a notice from their insurance company that says, "We won't be renewing your policy unless the stucco cracks are filled and the buildings are painted."

That is one thing that you need to be aware of, that sometimes stucco cracks are not just the drying cracks of stucco over time. Sometimes if you find yourself with uncontrolled stucco cracks, significantly large stucco cracks, these are things you should be investigating. You should be calling in somebody to say, "Let's investigate this." Especially if you're a building under 10 years old, you really want to investigate it.

Or if it's been a repair job that's under 10 years old, you really want to investigate it because you may have a claim against the contractors or the developers, whoever did that work, that may be resulting in a construction defect. The other thing you want to do is you want to look at your policies. Just don't accept the fact that you have a policy and it covers things.

I've seen problems with policies, from those that cover the contractors to those that cover the associations. You want to look at where's the venue? Where is it that I need to address this issue if there's a problem? Some of you have larger associations and you have a Lloyd's of London policy. You might want to read it because it probably calls for these issues if they have to be litigated to be addressed under New York law, in New York.

There's a difference between what New York would require and what Florida would require for example. What is the obligation in that insurance policy? When it comes to the condition of the buildings and what you're insuring and what may or may not be covered, you want to look at those things. The other issue with policies and not addressing the conditions of the building is that if you do have a claim, you will submit it to your insurance company.

They aren't always out there just to pay these claims. They're going to look at their policy very thoroughly, and they're going to send you what may be a reservation of rights letter. They're going to tell you what they cover, but 90% of the policy is what they don't cover. A lot of times they don't cover faulty workmanship, material, construction, installation. I'm reading from a reservation of rights letter. They don't cover from various subs.

They don't cover deterioration, depletion, rust, corrosion, wet or dry rock. Now, they may cover that if it's hidden. There are exclusions and then there are exceptions to the exclusion. Certain weather events they may not cover. It's important that you read those policies, because what will happen is you'll put in your claim and you're going to get a letter back saying it's denied.

I'm going to share for you with these older buildings you really need to sometimes take a look at what's out there and see. For example, you can see ... I'm assuming ... Jon, tell me if I'm wrong, but you're looking at a picture of a balcony out there. Is that what you see?

You're looking at a balcony out there and next, this is a stack condominium. This one is an older building. These balconies look to be in okay condition. I mean, but what's going to happen is ... Let me see if I can get there. Let's see, where did it go? Why is it not moving? Are you seeing ... Nothing changing. Why is this happening? Okay. In that area there, you're seeing that there is an area of the balcony that we're going to concentrate on here.

Here we go. This area of the balcony that you see shows a hole in the structure, the ceiling above the balcony. Here's a closer look at it. What you're going to find is this is the condition under there. This is what's holding these things up. You're seeing the structural steel that is supposed to be holding this balcony up, that it's not even there. This is what you have with regard to those ... Stop the share here. With regard to the conditions.

It's not just enough to paint the buildings. It's not enough to just look at these buildings. No. At the time of construction of this building, it's important to have an engineering study because what may be disclosed in the engineering study is that there are defects in the construction that are going to allow water intrusion. These are covered areas, the structural steel. There's no reason they should be rusting like that.

It's important with any new building to look at that, because over time, what is sold to you as a beautiful, nice project with a beautiful clubhouse area and pool is something that underneath you're not seeing what the issues are. Unlike a person, when you're having problems inside your body you might feel pain, the people in Miami know that they aren't feeling any pain until it's too late.

That's important. It's important to address the buildings, have them inspected, be proactive about that. I will end that part of it with that.

Alan Tannenbaum:

The question was asked about the policy defenses in the Surfside situation. Those policies will have an exclusion for long-term construction defects, so I'm sure the insurer will defend the case based upon the fact that this was not a spontaneous occurrence. This was a result of long-term deterioration of the building, and therefore not covered under the policy. They probably would also establish a defense that the association making application failed to disclose these engineering reports that they had.

Again, the practicality is knowing that that case is going to end up in front of a circuit judge in Dade County, who is not going to give the insurance company a summary judgment, and might eventually end up in front of a Dade County jury. I'm very sure that that case is going to end up settling, even though the insurer on its face, may have some valid defenses. Before I get into termination, there's a few questions that have come by.

Louise has asked, "What if the board tries to address issues, hold votes, but only 74% of the owners approve, can the owners who vote to sabotage the actions be held responsible in some way?" Usually, a owner vote is not required to undertake maintenance and repair obligations and pass a special assessment for the undertaking of those. I don't know what vote that you're talking about. The way a repair worked is the board gets the investigation done, maybe it gets a determination from an engineer as to what repairs are necessary.

The owners need to be noticed at any meeting where a special assessment is going to be considered, but other than have a say at the meeting, it's actually up to the board to vote on passing that special assessment. The owners under most condominium documents should not be able to block the board going through with necessary repairs. Thomas asked, "Will the 40-year requirement for inspections be adopted statewide and how soon may it be adopted?"

I don't know if that's going to occur. Right now it's only in Dade County. I think waiting 40 years is too long. I would like to see it at a minimum have to occur after 20 years. There are groups that actually get an engineering inspection done every few years on their own, so having regular engineering inspections is the best way to go, but when the legislature will act, I don't know. 

Salvatore Scro:

There was one question out there about, does what we viewed just now constitute a criminal liability? I think that had to do with the photos we showed just now of the structural steel. I think that that's not really a question that we could answer specifically. There are many factors that would go into what would be criminal liability. We don't really address the criminal statutes. We do know that if you're aware of a problem, you do have the obligation to maintain. I think Alan can address that more because that issue was brought up in this Colony case.

Alan Tannenbaum:

Probably not there being criminal liability. Unless you're a board member stealing from your association or using your powers vindictively, I don't see a base for either civil or criminal liability on the part of a board member. The last question I'll answer because I want to get into the termination side, somebody asked, "Can a board member still be sued even though there's not liability? Is there exposure for attorney's fees and costs?"

Frankly, that's the main reason why every board should have a fiduciary liability insurance, mostly to cover the defense of an action. Most of the actions are not going to be successful, but it is going to cost money to defend them. That's primarily why you need that insurance in order to cover the defense cost. I'm going to get into termination. The statute in Florida is very cumbersome when it comes to termination. It's not easy to terminate a Florida condominium.

I want to go through fairly quickly the processes. It's all covered under 718.117. It's a fairly likely statute. There's one section that talks about termination because of economic waste or impossibility. It's a very difficult threshold to terminate under that portion of the statute, because the estimated cost of construction or repairs actually has to exceed the combined fair market value of the units after completion of the construction or repair.

It's very doubtful whether any condominium in Florida is going to meet that threshold. The second requirement. It has to be impossible to operate or reconstruct the condominium in its prior physical configuration because of land-use regulation. That particular section of the statute, economic waste or impossibility is likely only to be utilized where let's say a condominium is substantially destroyed in a hurricane. You'll have termination under that section.

That only requires if you do it under that section, that the amount of the membership vote is what's required in your documents to amend the documents. It might be 75% or less, or if there's a specific termination section in your documents. Most groups will not qualify for termination because of economic waste or impossibility. In a project termination, most groups are going to look at 718.1173. This is where a board of director submits a termination plan.

First has to be cleared by the division of land sales and condominiums, but it requires 80% of the unit owners agreeing to the plan of termination. It's not 80% of the voting members at a meeting where a quorum is present. You're talking about a full 80% of the membership have to agree on the termination. It's a very high threshold in order to undertake termination.

The real problem with the statute is that even with greater than 80% approving the termination, 5% of the membership can block the termination. In the condominium I talked about before, it was a 54-unit condominium in Tampa. The bulk of the membership wanted to terminate, collect a large check rather than pay $30,000 a unit to repair. There were more than 5% of those 54 owners who did not want to terminate. Of course the same people didn't want to pay the assessment either, but that's besides the point.

Those few owners were able to block the entire termination. Now, even if there's an impetus to terminate, you have the approval of more than 80%, there's a lot of due process requirements that are built into the statute. The mortgage holders are entitled to be protected. All of the obligations of the association have to be taken care of and accounted for, and you have a big problem with the provision in a termination plan of how the money in the eventual sale is going to be allocated.

There are a few different ways under the statute that valuation is determined. The key is that all of that is subject to challenge by any objecting owner, which then will send the termination valuation into mandatory arbitration. Then you have a full trial on whether the valuation was appropriate, the determination of how much each owner will end up with upon termination that will be entitled to. It may take quite a long time.

We did a termination where it was a 20-unit condominium, all the owners agreed to terminate, and it still took six to eight months to complete the termination process with really no objectors. The process will likely ... If there's anybody objecting, the process could take a year, a year and a half, or two years. Here's the problem. While the termination is proceeding, the association still has an obligation to maintain and repair.

It creates a situation where there is this period of time where the association still has some substantial exposure and it's going to take time for the process to conclude. There also may be a period of time where the units are no longer occupiable and the sale hasn't closed, which may take several months. You may have a situation where people are going to have to be housed or find housing and where they still haven't realized the proceeds of the termination.

There's a lot of issues in carrying it out. I personally think that the statute needs some revision. I think the percentage maybe needs to drop down from the 80%. I think that a higher percentage would be required to block the termination, but right now, 5% of the membership can block it. I think there needs also to be greater protection for people who are caught in the middle before the termination actually closes of how they're going to be taken care of as far as their living conditions and so forth.

It's quite a cumbersome statute. Now, there is a one-paragraph statute, 718.118, and it's called Equitable Relief, but I call it a judicial termination. This is the way the statute reads, "In the event of substantial damage to, or destruction of all, or a substantial part of the condominium property and if the property is not repaired, reconstructed or rebuilt within a reasonable period of time, any unit owner may petition the court for equitable relief, which may include termination of the condominium and a partition."

Now, it seems like that statute, again, was created for a hurricane situation where a substantial part of the condominium was actually destroyed, but it talks about substantial damage to, or destruction of all, or a substantial portion of the condominium. Now, in the Colony situation, you had the condominium buildings were under state of disrepair. A unit to actually used that statute, 718.118, brought an involuntary termination proceeding.

Again, there was no major hurricane damage, the buildings were just in disrepair and the owner was able to successfully terminate that condominium by judicial decree. You may see under 718.118, where you have a situation like the Surfside situation, where the building is in the state of disrepair, the board is not taking appropriate action. You may get into circumstances where 718.118 judicial termination is going to be utilized by a unit owner to request a circuit judge to actually terminate a condominium where the board is not following through on its maintenance and repair obligations.

Now, in the Colony it was pretty drastic. The buildings had deteriorated to the point where they couldn't be occupied anymore and the board was taking no action to repair. In fact, in a fairly unusual circumstance, the president of the association went to the town, invited the town out to do inspections, hoping that the town would actually condemn the buildings. The reason that occurred is the association could not garner the 80% vote that was required to voluntarily terminate the condominium.

It ended up actually the association through its court cooperated with that one owner who filed the judicial termination. They joined in that action and they circumvented the statutory requirement for approval by utilizing a judicial determination under 718.118. You may see more of those efforts coming, but right now the termination statute is difficult to work with, but eventually every condominium in Florida is going to reach the point.

It may occur this year or five years from now, or 10 years from now, or 20 years from now, where the cost of repair is going to be that excessive and the exposure of the association is going to be that great, or the building's reached a point where they're uninsurable because there's no insurance company, based upon the status of the condition, who's going to be willing to insure that building. That there's really going to be no choice on the part of the association, but to consider termination.

It ends up being that rather than face an assessment that may be six figures per unit owner, that it's going to make economic sense to terminate that condominium, sell it to a new developer who's likely going to raze the building, raze being R-A-Z-E, not R-A-I-S-E, raze the building and build a new development on that property. The proceeds of that sale will then be distributed among the membership who will then have to find a new place to live. That's basically how termination works.

What all these buildings are facing is undertake the proper engineering studies, listen to what the engineers say about what's necessary in order to prolong the building and make it safe, and either undertake those repairs and assess the owners to do so, or consider the possibility of termination. Then you get into that very difficult period of, what does a board do as far as maintenance and repair and occupancy while the termination is proceeding?

Again, the termination could take a year, a year and a half. There may be some statutory amendments that need to be made to the termination statute to make it a little bit more user-friendly on how it's undertaken. Let's see if we have any questions that we can face. There's a question from Christopher, "How about loss of property due to dissolution of the condominium?" Again, there should end up being an upside. I don't know what property Christopher you're talking about.

The question about insurance companies taking a hit, all of the boards and management know that there's just been a tremendous increase in the premiums that you're facing. Unfortunately, I think the Surfside situation is just going to make your insurance situation even the more difficult. That's why you're going to find, and based upon what Sal indicated, that you may find that there's more insured ... insurance companies are going to step up and refuse to actually issue insurance policies to some of these older properties, which is a problem. Let me see.

Michelle:

Alan, there's a question from a property manager that she wants to know what is the like ... Basically ... I'm sorry, I'm trying to find it now. From Pat, it's, "What is the responsibility of management company to recommend qualified vendors and follow through on work being performed?"

Alan Tannenbaum:

Okay. Any question that starts as, "What is the responsibility of a management company?" I always hesitate to answer that because their management contracts are written so wisely that management companies identify themselves against most kinds of liability. It certainly is part of a duty of a management company to help the board locate vendors, certainly to advise the board on the best way to undertake it.

I mean, one of the services that we provide as construction lawyers is that management companies bring us in to support the board in the contracting for repairs, for enforcing of the contract while repairs are going on, and if a repair job goes south, to help the board enforce the project. That is generally a role that the management company's taking on. What legal responsibility they have is dependent on what their contract would indicate.

Michelle:

This could be a question for either Sal or Jon. What is the description of the inspection that you ask for structurally maintenance-wise and which licensed professionals can do these? Then somebody else asked if they know of some issue, what is the obligation of the engineer to report the issue?

Salvatore Scro:

Well, as far as the type of inspection, it all depends on what you're doing. If you have a newly constructed condominium or homeowner's association that was turned over, you would want an investigation by a qualified engineer to do an investigation of the common elements. Now, would that start out with a visual inspection and then possibly a destructive investigation? None of you can really look at something and say what is beneath it.

We don't have that X-ray vision, so sometimes ... And I actually just received a call today from someone who is in the insurance business, who has an issue with a home that has water intrusion. They're aware of what goes through with this issue and the problem is, is that you don't really know where problems are coming from. If you see a symptom, if you have water intrusion or something, then you know, "Okay. There's a problem. I need to find out what the answer is."

You would ask for possibly ... And this is why, if it's something where you can address it to hold the potentially liable parties responsible within the statute of limitations or statute of repose, we always like to be involved in something like that, because we are able to direct you to the appropriate engineer. What it's called, there really is no name for it.

If you're not certain, then you should contact someone to help walk you through it. Don't take it on alone is always our advice, because sometimes you bring in somebody and they're going to give you an opinion. You may bring in somebody that's a roofer, but they're going to tell you about roofs. They're not going to tell you about the framing that may be causing the problem or other issues that are causing the problem.

Now you have an opinion in there that's going to hurt you if you don't know who the proper person is to bring in. That's one issue. I did see a question here that was, "Say the pool is an amenity and is leaking and to repair it is very costly. Can the board just decide to close the pool without an owner vote?" That was from George. Thank you, George.

No. I mean, the pool in all likelihood is an amenity that to take it out or to discontinue it would be a material alteration and cost is not a determining factor. Although it does play a role as Alan talked about, whether or not that cost would be considered economic waste. Sometimes you need to put in a whole new pool. To just say, "No, we're just going to close it up unilaterally." I think would be a problem.

Jon Lemole:

Hey, Sal, I mean, just to jump in and take the next step on something you had said about engineering. Folks, we're focusing on aging buildings today, and finding out whether there are things that need to be addressed or should have been addressed, but there's a huge opportunity and I bet there are some folks on here who are in newer buildings. It always struck me as odd. If I bought a house, I'm going to get a home inspection done.

I'm not going to have the seller give me their inspection or have the seller do an inspection report and hand it to me. For those condominiums going through turnover, think about what typically happens under the statute that the developer gives you an engineering report and says, "Here's our engineering report. The building's great." That's not always the case.

I'm not saying that it's not the case, but sometimes there are issues, which if you had uncovered them during or shortly after turnover, you'd be able to address them early on, perhaps get the developer to pay for it and not exacerbate a problem, or find that the problem over 10 or 15 years has been exacerbated and now you have a really big problem to deal with and no recourse.

I just wanted to take a second to underscore that the real importance here, for even newer condos, when you go through turnover and that board takes on the responsibility for maintaining millions and millions of dollars of property ... And these folks may be well-meaning educated people, but don't know much about roofs and stucco and building, waterproofing and roads and parking lots and asphalt and drainage systems and so on and so forth.

There's a huge opportunity to take and get an independent forensic engineering report and make sure you have a baseline of knowing what your building may have to deal with down the road. If there are problems, you can address them now, possibly get compensation for them, that they don't become bigger problems in the future and result in this situation where now you have a huge assessment to fix something that could have been fixed years ago, and what are we going to do about it?

Now you're dealing with that situation of an assessment versus termination. Don't overlook that possibility for you folks that are in newer buildings.

Alan Tannenbaum:

Good point. Folks, we're going to stay on because I know there's a lot of questions that haven't been answered yet. We'll stay on for a few minutes. Darlene had asked a question, if she's still here, "What inspection rights does a prospective purchaser of a condo unit have? Can the purchaser review engineering/structural inspection reports?" A very important distinction. A prospective purchaser's entitled only to a very limited amount of information.

There's a question and answer sheet that they can see. They also will receive an Estoppel letter about the assessments that are due, but they're not entitled to engineering reports or board minutes and so forth. The appropriate thing for a prospective purchaser to do is have the seller of the unit secure that information for them. The seller's entitled to get that information, not the prospective purchaser.

We get calls all the time from managers and board members saying, "We got this request from a realtor for a prospective purchaser for a whole list of items." It's our general advice that that information not be supplied, if not for the fact that, number one, managers would be spending half their day responding to those types of inquiries.

Secondly, then the unit owner seller comes back and says, "Why are you interfering with my prospective contractual relationship on the sale? I didn't ask you to supply that information." It's really a second reason not to doing it. There's a question from Elizabeth, "We're in the process of repairing our EIFS system. That's a wall system. We have owners who are refusing to buy windows, which is holding up the project. We started arbitration, but anything else we can do?"

Number one, I would probably consider amending the document so that window replacement is not within the purview of the individual owners. There're some documents that are written that way, where the association is responsible for the exterior wall system. The owners are responsible for replacing their windows. Long-term, that's a very poor combination because it's very difficult to control the quality of work that an owner's doing, as in your situation.

It's very difficult to force an owner to do the window repair. I don't think that ... Apparently that arbitration was filed. It doesn't seem like an arbitratable issue, but I will leave that to your association's counsel.

All right. There's a question about engineering liability. Is the engineer liable if he says that the building is in danger of collapse and it does not? Well, frankly, I think out of the situation in Surfside, you're going to have a lot more engineers who are going to err on the conservative side and say that, "Based upon my evaluation, there is a risk of collapse or some major structural issue occurring."

I don't think an engineer is going to be liable for saying the building is in danger of collapse. I think the potential for greater liability, unfortunately, for the engineer is in somehow saying the building's not in danger and then a few days later a major problem does occur. Probably for the engineers, their exposure is going to be greater by not red-tagging a building than it is if they did. A question-

Michelle:

Sal, did you want to add anything to what Alan was saying?

Salvatore Scro:

No. I was just looking at another question here about, are insurance companies obligated to satisfy a total loss claim when the building is deemed unsafe via an inspection as in the Crestview Towers in Miami? Well, always read the policy and what it covers and what it doesn't before something happens as you're getting those policies. What we're talking about here is would an insurance company cover a collapse claim? Different policies have different language.

Some defines a collapse as an abrupt falling of a building or a part of a building. It states if a certain part of it is standing, then that would not be considered. Going back to the question Alan just answered, and if you have an engineer deem a building unfit or unsafe, that doesn't kick in coverage. What that kicks in is that you associations haven't been taking care of your building, unless there was some construction defect in there, in which case then maybe an inspection wouldn't uncover it or something like that.

The insurance companies are going to answer it like that. You have an obligation to maintain. What you find is the policies, some that will cover collapse as a result of hidden damage or vermin or rot or decay. It will cover that if there's a collapse and then it kind of defines collapse as a part of a building. Well, what's part of a building? Is it just one framing member?

If it's vague, I think you have a good argument, but will they just cover and say, "Oh, you're in danger of collapse, so now we're going to give you all this money to repair your building." Highly unlikely. That's why it is important to get inspections. I did see another question. What type of inspection should a 23-year-old two-story unit should do and how often? The answer is, it depends.

If you've had inspections over the years, you can look to those and see if there were any warnings within those inspections. If you have symptoms of problems, then you should address them. If your construction is weather-resistant versus wood frame and sheathing, then you have other issues. It depends. I think the owners on the board and the management know the history of the building.

If you're repairing the same thing over and over again, or maintaining it over and over again, then probably you should have an inspection. It depends on the building. It depends on what you're doing, but if you're concerned and you wanted to do something like that, then possibly just hire an engineer to do a walk-around.

If you're concerned about that, again, if it's within 10 years of any work being done, then I would suggest calling a construction defect attorney to get a recommendation from them as to who they would want to do that walk-around. I know for example, I have plenty of associations that will contact us and I will get in touch with the appropriate engineer and in no charge they'll just do a walkthrough and say, "These are areas I'm looking at that may be a concern and they need further investigation."

Sometimes there's no charge to that. Sometimes there's a reasonable minimal charge to that walk-around. It depends how in-depth you want to do it.

Alan Tannenbaum:

Yeah. As far as Henry's question about how the insurance companies are going to respond to a Crestview Tower situation, where before there was a collapse the building say was condemned, the owners were forced out, versus the situation in Surfside. You're going to have a much more aggressive defense likely by the insurance company in Crestview Towers to dispute the claim than you are going to have in the carriers who are involved in the Surfside situation.

Again, the fact that there was loss of life or the fact that there was an actual collapse may set a much more difficult case to defend for the insurance carrier than a situation where there was not an actual collapse and there were no, fortunately in Crestview Towers, no personal injury. I think you're going to see a different approach by the insurance companies in Crestview Towers versus the situation in Surfside.

I'm getting a very persistent question from John about material alteration versus maintenance and repair. We actually give a full presentation on this, John, if you're still there. If a repair is required for the maintenance and repair of the building which alters the common element, there's an argument that the repair obligation will supersede the material alteration restriction.

You get into situations where let's say a particular portion of the building needs to be repaired and in order to do so, you can't recreate what was installed originally, either because the building codes have changed or because a particular product or material is not available. It's very likely under those circumstances that the material alteration restriction is not going to block that repair, but it will be on a case-by-case circumstances.

A question from Donna and we're going to cut it off shortly, "What type of report is needed for an older building, 50 year, five stories?" In Dade County, it would be a very comprehensive report, but no matter where you are, there should be a very thorough structural examination. It should be mechanical and electrical. A 50-year-old building that's five stories tall, it would be prudent for that board of director to get a full-blown inspection, mechanical, electrical, structural in order to know what's necessary for the repair.

All right. Louise, this is the last question we'll cover. Window question comes to the issue of what is necessary report that board can ... I guess the repair the board can mandate and assess without a vote? What is merely a material change the owners have to vote on? The difference is unclear. All right. Louise, I can cover this very ... The primary obligation of the association is to maintain and repair.

It may be in undertaking the repair that there will be an incidental material alteration. If it's incidental to the repair, it's likely not going to require the vote. If it's a significant alteration and not justified necessarily by a repair, then you're going to probably need the vote. In each circumstance, it's going to be a very careful analysis of the particular facts.

Frankly, if you have enough of the vote in order to get a material alteration passed, you might as well have the vote, but if it's necessary for repair, the association may go ahead without the vote. It depends on the facts and circumstances. All right. Was a lot of questions. All right. Elizabeth has asked a question about arbitration. Again, you're probably best to go back to your association counsel.

I'm not quite sure why that issue is being arbitrated, but I can't, without seeing the documents, help you. Last question, Martin, "Who would want to become a director given what is unfolding at Surfside?" That's a very tough question. It is going to impact the ability of folks who are going to want to be directors. Fortunately, as I indicated before, the liability exposure for an individual director is very, very narrow under the Condominium Act.

I don't think the individual directors are going to have liability at Surfside based upon what we know about the news reports. The board was ... they gathered the engineering reports. They had assessed the owners for the repair. They had no indication from any engineer that the building was at threat of imminent collapse. I don't see it as a situation where the individual board members have liability exposure.

With knowing that the personal exposure is a very narrow window, then I don't think it's a great risk, but yes, you raise a good point.

Salvatore Scro:

Let me just add something to that. That is a concern and one of the things you can do as the individual board members, when you have these meetings, you have minutes, you can make your positions known in those minutes. However, and we caution about what goes into minutes, if you are going to bring these issues up, and there is a potential claim, then understand that all these things that you put into the minutes can trigger a statute of limitations if you have to address a construction defect issue.

If you're finding a symptom or you're talking about possible problems with your building, and you're getting that into the minutes, you're building a record that says you knew about a problem, or you should have known about a problem at this particular time. If your dog starts barking, then the statute of limitations will end four years from when you should have taken some action on it.

When you get this information and you build your minutes, keep in mind that you should seek some consultation as to what you should do if there's a potential of addressing a claim against somebody to recover for it.

Alan Tannenbaum:

All right. Folks, past 12:50. We're going to call this one a wrap. Anybody who has any questions can ask us offline. We'd be happy to answer some additional questions. This is a wide topic. We probably could talk about it all day. Thank you for your attendance today. We will try to answer as many questions as we can offline. Everybody, be safe on the West Coast as this tropical storm passes by.

We will see you for the next one. Michelle will take care of all the managers CEU credits. We're going to say goodbye at this point. Thank you for attending.

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The Smart Board & Property Manager Legal Guide Key Rules of Evidence Preparing for Court

Alan Tannenbaum, Esq.:

My name is Alan Tannenbaum, I'm here with my partner Salvatore Scro and Jon Lemole. Tannenbaum Scro Lemole & Kleinberg. We are construction lawyers who primarily service the Community Association field and our market is from Daytona Beach across to the Tampa Bay area and down to Naples, that's where we have the bulk of our client load and what we do when HOAs and condos turnover, we assist the new boards and management in analyzing potential deficiencies both from a financial standpoint and a construction standpoint.

We negotiate resolutions with developers and contractors, sometimes in court, sometimes out of court. We also act as construction counsel when an association is undertaking a major repair project and offer consulting services and drafting contracts and in helping administer major repair projects, the bulk of where our practice lies. The setup for this particular course and Michelle Colburn will handle the CEU, if you have any questions about getting your CEU's credits Michelle, you can handle those offline.

The setup for this course is the following. So right now, all of your properties, and either your board members or managers, things are happening. There's people who are maybe tripping and falling at your property. There's owners who may be fighting with each other. Somebody this month didn't pay their assessment. There's a multitude of things that can happen at your property that-

Everybody, please mute. We're hearing some backdrop there. So all kinds of things can be happening, and what you don't know as a manager, or as a board member is which of those incidents are going to turn into a claim. Well, you might find yourself a year and a half from now, a city with a lawyer, lawyers asking you to present evidence and testimony and you say, "Gee, that happened a year and a half ago, my recollection is problematic." Or, "Which issue is that?" And, "I don't have the records and so forth."

And what this course will help do is set up procedures and set up a knowledge base so that you could do the right things today and when something happens in your property, in order to prepare for the possibility that that could be the one incident that is going to end up in court where you're going to have to present testimony and evidence. So we're going to show you some basics or teach you some basics about the Florida Evidence Code. Some of the things will surprise you and we're going to talk about business records.

We're going to talk about incident reports, things that you should be doing on an ongoing basis in the end to prepare an appropriate record for court if one of these issues ever gets there. So I'm going to ask my partner Salvatore Scro to talk first about the attorney-client privilege. Who it applies to, who could waive it so that you have a basic understanding of that.

Salvatore Scro, Esq.:

Morning everyone, good to see you again. So let's start with the lawyer-client privilege and this is important because when we deal with our clients a lot of times, the question is who can know certain things, what can be disclosed, what cannot be disclosed and who can it be disclosed? So the first thing you have to know of when dealing with a lawyer-client privilege, the attorney client privileges, who is the client?

So the client can be ... The way the statute reads if it's under the evidence code which is section 90.502. The client can be any person, it can be a public officer, a corporation, it can be the association or any other organization whether it's public or private who consults with a lawyer, and this is the key part, with the purpose of obtaining legal services, or who has rendered legal services by a lawyer.

So that part means if you're discussing the possibility of engaging a lawyer, that would be an attorney-client privilege. So what can be disclosed? And one would be is what makes the communication confidential? The key is that if it's not intended to be disclosed to a third person other than the disclosure is in further in surrendering the legal services, and also to who can it be disclosed would be those people reasonably necessary for the transmission of the communication and that a lot of times means the association managers, it could mean possibly some of the employees of the association, a lot of times we will have ... We will be asked to give a presentation to owners at an owner's meeting.

Sometimes it could be all of the owners, but it's key that that privilege ends once you insert somebody who is not entitled to that privilege, who is not necessary for the transmission of the communication or who is not there that you're servicing and rendering the legal services. So one of the other things that section 90.502 speaks about is that there's no lawyer-client privilege under this section when, and this is key, the services of the lawyer were sought or obtained to enable or aid anyone to commit or plan to commit what the client knew was a crime or fraud.

So do not speak to the attorneys about how to get away with something if you know that it's a crime or a fraud because you're not going to have that privilege if something turns up later on. So that's the key to the attorney-client privilege is, first, that it's for the purposes of rendering Legal Services, it's not just a discussion out at a restaurant or something like that, it has to be something that is for the exact purpose of either retaining the attorney or already under the retention by the attorney for legal services, that the disclosure is in furtherance of the rendition of those services and that only to those people who are reasonably necessary for the transmission of the communication.

Sometimes that could be also the engineers. We sometimes ask that engineers be retained through our firm so that it's more of a work product. And I'm not going to get too deep with that. But there are differences between state and federal as to what is privileged and not privileged with regard to those communications. But for the most part, that's the essence of the attorney-client privilege.

Alan Tannenbaum, Esq.:

And be careful about inadvertent waivers. We've seen some groups where we give attorney-client privilege advice, and they reproduce our opinion within the body of the minutes. We get it to litigation, the other side sticks to those minutes, and we have a battle as to whether that advice or the privilege over that advice has been waived because you've incorporated your minutes. So we generally recommend that you don't put our legal opinions or anybody's legal opinion right in your minutes where they could end up being discoverable. So Jon Lemole, talk about the account-client privilege.

Jon Lemole, Esq.:

Good morning everybody, well, that ... This is pretty easy, except in one regard because it pretty much tracks exactly what Sal just told you about the attorney-client privilege. So any conversations or communications between the client and the accountant. So in your case, it would be the association, and particularly the board of the association and its accountants would be similarly privileged. And that would extend to people who also like managers who are necessary to the communications between the client and the accountant as long as there's an intent to keep that conversation or that communication privilege.

Here's the interesting thing about the accountant-client privilege. An accountant is defined in the statute, and this is for anybody who wants to geek out on, look at the statute, Florida statute 90.5055. An accountant is defined as a certified public accountant or a public accountant. Now, we've talked about that in the office many, many times. In fact, yesterday, we were talking about it again, and none of us really understand what's the difference between a certified public accountant and a public accountant, here's the best that I can come up with.

It's not a bookkeeper. I don't think it would extend to somebody who's doing bookkeeping functions. It may not extend to somebody doing bookkeeping functions, say at the management company. A public accountant at the very least is somebody who has an accounting degree and holds themselves out with themselves out as an accountant to the public. As far as I can tell, the difference between a certified public accountant and a public accountant is that a Certified Public Accountant obviously has gone through some certification process and only a Certified Public Accountant can file reports with the Securities and Exchange Commission or can do audits of publicly traded companies.

So that normally wouldn't apply to nonprofit community associations. If you're in doubt as to whether the person who is doing your financial auditing, record keeping is somebody that would be covered by this privilege, then by all means, speak to your general counsel, and ask them and get an opinion on there. And like the attorney-client privilege, it's the clients, only the client can waive it, it has to be preserved. If the client says to the accountant, "Don't disclose that." The client and the accountant can't and the accountant always has to presumptively believe that that information can't be disclosed unless somehow waived by the client.

And also like the attorney-client privilege, it doesn't extend to communications in furtherance of a crime or, wire fraud or bank fraud or something like that. So it's not any of those communications, but the regular communications back and forth between the association and its account for audit purposes, for annual audits, for tax filings, all of that stuff is generally going to be privileged against disclosure. The association should guard that privilege zealously in minutes that are going to be available to the public.

If you have decisions that are made with regard to advice provided by your accountants, you should be very careful about how you disclose that in minutes and to the extent that you disclose those communications in minutes. And again, that's something that you can run by general counsel. Easy, right? Okay. Thank you.

Alan Tannenbaum, Esq.:

Well, again, on the criminal side, it's interesting that if you robbed a bank yesterday, you can go seek the advice of your lawyer, your accountant about what you did, that conversation is privileged. If you walk into your lawyer and accountant and say, "I'm planning on robbing a bank tomorrow." That is not a privileged communication. So the aftermath is protected, the planning is not, not that anybody in this audience is planning on that, but keep that in mind. 

I'm going to talk about the husband-wife privilege in Florida. This is not directly pertinent to a lot of management issues, except sometimes you have these husband and wife pairs who let's say manage a beachfront community, it could be a little bit chauvinistic. The pattern is usually for the wife to handle the front office and the husband would be the maintenance guy, but sometimes that's reversed.

So during the marital relationship, you can't force a husband to testify against your wife or the wife to testify against the husband. So any pillow talk, there is a privilege for that. If you get divorced, the privilege still applies to the time that you were married. So if you get divorced, and you're particularly angry at your spouse, and you want to spill the beans about something, your spouse said during the marriage, they will be able to assert a privilege to stop you from doing that.

If you're in a divorce, it's no holds barred, you're able to present any testimony in the divorce and the privilege without apply in that proceeding itself. And to use the example of the breach fund manager if the wife embezzled funds from the association, the husband didn't know anything about that. And they're both charged with a crime of embezzlement and the husband needs to testify about what the wife may have said in order to be exonerated and the charge against the husband, in that circumstance, you can bring up a privileged information. Important, it doesn't apply to common law marriage, only applies to the traditional marriage, and it has not been modernized to cover husband, husband, or wife, wife. And maybe someday the legislature will get around to it.

Right now it's called ... Well, interestingly, it probably could be interpreted to cover illegal gay marriage too, but that has not been ... I have not seen the court opinion on that one yet. So Salvador, tell us about compromise and offers to settle and subsequent remedial measures. Pertinent to the Community Association field.

Salvatore Scro, Esq.:

Okay. So we see this a lot in matters we handle in the breach of contract cases, construction defect cases, things like that where there's claims against the developers or the general counsel or the subcontractors, and there's problems with the construction. The client sometimes will say, "Well, once we start, if they offer to settle, that would not be admissible." And we hear, but they know they were wrong because they were offering to pay us money.

Well, that's really not the case, they're trying to buy their way out of it. So the statute, the applicable statute if you want to look it up is and the evidence code is 90.408 and the way the statute reads is that evidence of an offer to compromise a claim which was disputed as to validity, or amount, as well as any relevant conduct or statements made in negotiations concerning a compromise is inadmissible to prove liability or absence of liability for the claim or its value.

So the key there is that there's a disputed amount. If there is an offer to compromise, that would be something that would not be admissible to show liability, it would not be admissible to show that they owed at least a certain amount of money, or the amount of money they've proposed. You will find that this happens in personal injury cases all the time and insurance company may offer to pay, that would not be admissible.

If an insurance company offers to pay in association for some claim, that's not admissible to show liability. The facts of the situation are what are admissible to show whether or not there's liability. Along with that is Section 90.407 which is subsequent remedial measures. So if somebody slips and trips and falls, say slips and falls, I'm from New York, so we're used to ice, but down here, you're not going to find that. So if somebody trips and falls on the sidewalk, and there's some impediment to walking and the association managers send somebody out there to make some adjustment or change to the sidewalk, that is not admissible into evidence to show liability.

So somebody tripped on the sidewalk, you can see to the jury or to the judge, "Hey look, they slipped and fell on the sidewalk. They knew it was a problem because they went right out there and fixed it." That is not admissible as towards liability. What there is an exception to the rule is that subsequent remedial measures, some action they have taken would be admissible if it's offered to show evidence of something else.

So if they say, "Well, this wasn't ... I didn't own this part of the property, this wasn't mine." Well, you can offer into evidence the fact that they were out there doing some repair or some sort of remedial measure as possibly evidence of ownership, or that they had control if they were leasing that area. Something to show other than the liability of the impediment or whatever the cause was that you're attributing the negligence to.

So you do not need to be afraid to go out there if something happens on the property, you do not need to be afraid to go out there and take some sort of remedial measure. You should not be out there discussing things. You shouldn't be out there saying anything like, "Oh, I knew this was going to happen." But go out there, do your job, take care of the situation, clean it up if you need to, and you can be assured that that would not be offered into evidence has something to show liability.

Alan Tannenbaum, Esq.:

And the concept behind what Sal has just described. That society needs cases to settle, the very ... If every case made it into court, the court system would be totally overwhelmed. So there's a public benefit to people being able to make settlement offers and resolve cases. And if your settlement offers were admissible in court, people would be reticent about trying to settle. And the same thing about the remedial measures, if those were admissible, manufactured items or site deficiencies, nobody would ever get them corrected because they'd be afraid that, "Well, it's going to be an admission in court of liability."

So those really are further in some cases getting resolved, and problems being corrected. The other part of it is if somebody is injured on your property, and there's a defect in that property, you can defend that first case to say, "Well, we didn't know there was a problem, and we weren't really negligent." But if you don't get it corrected, and the second person gets hurt, they now have a record it's going to make their case a lot better. So the issue is you should get items corrected that create some potential exposure.

So let's talk about what you can say or what you should say or what you should do. And let's use a trip and fall, somebody's near your dock, and they fall through a plank that was rotted, they're in pain, they're hurt, we get there, you're the manager, you're a board member. You can ask them how they feel. You can give them ... Make them more comfortable, you can call the ambulance, you can take them to the hospital. You can sympathize or empathize with their situation and it's best to do so because it's far less likely that somebody is going to sue the association if they are treated well at the time that they have a problem or an injury.

So you can write down a note that says, "I'm sorry for what had occurred, I'm sorry for your trouble, I'm sorry for your pain." That's never going to find its way into a court of law, a judge is never going to allow that in to try to prove that, "Well, they were empathetic or sympathetic. That means they must have felt guilty, that means they must have done it." That evidence will never get before a jury because again, from a public interest point of view, we want people to be sympathetic, empathetic, help them if they're injured.

But there's a very important distinction and it says right in the statute 90.4026. The statement or writing or the gesture expressing sympathy is not admissible. But a statement of fault which is part of or in addition to any of the above shall be admissible. So you've got to be very careful. You get out there and you're a manager and you say, "Oh man, it's terrible what happened to you. Are you okay? Let me make you more comfortable." And I told that board six times that they needed to get these planks fixed or the dock worked on.

Well, all the expressions of sympathy can I help you, so on and so forth are not going to get into evidence. But your statement about what the board should have done is readily admissible as an admission. So one of the things we greatly believe in is having a very discreet incident report form that you keep. For every incident, it my occur out of property. It should not talk about anything else, but the facts that were observed the statements that were made, at the time by people who were involved, time of day, photographs, but it really shouldn't get into any board policy or politics or talk about what the association should have done or should do in response to that.

It's all about what occurred to having a record of it and as you'll see later, you'll see why that type of of recommendation is important. And Sal, I'll cover the payment of medical and similar expenses because I think that's related. 

Michelle Colburn:

Okay. And, then hold on one second, then you have another question about a pool. So is it relevant if you have a pool function to have a lifeguard there? That was from Laurie.

Alan Tannenbaum, Esq.:

Okay. Let me get to those in a second. As far as a payment of medical and similar expenses. The association could pay the deductible for somebody's health insurance if they're injured. Again, any of the any of the promises to do that or the actual doing of it is not going to be invisible. So send them flowers, go to see them at the hospital, bring them a gift. If they're struggling to pay their health insurance deductible, it's certainly something the board to consider because it mitigates against the possibility that that party is really going to come against the association. So let me address a couple of the questions that Michelle has pointed out. All right, so [crosstalk 00:27:05]

Salvatore Scro, Esq.:

Alan, with regard to that pay medical expenses, what you said is important there. And this happens a lot, everybody goes to the doctor. Bedside manner is key. If you have a good bedside manner, it's less likely somebody is going to want to come after you for their piece of flesh. So it's always good to be nice. Like Alan said, you don't have to worry about certain things. As far as if you're paying medical expenses, or you offer to pay those medical expenses, that is something that ... The bedside manner is key. So keep that in mind.

Alan Tannenbaum, Esq.:

All right, let me answer Stan's question. That there's a legal opinion that the association wants to share with the owners. The reason the attorney-client privilege you want to make use of it is to protect the association from by a third party outside the community generally who would make use of that legal opinion and further a case against the association. If you get a legal opinion for instance from your lawyer about a covenant enforcement issue where it clearly expresses what the association's rights are, in enforcing the covenants, and you want to send that letter to the owners so that you can assure that your rules are going to be properly enforced.

There's really no impediment to releasing that letter. There's no downside to it. So in that case, what you're really talking about is are there instances where it's appropriate to waive the attorney-client privilege because that particular legal opinion is really helpful for the association to make that disclosure. So in that instance Stan ... Now, if the legal opinion was, let's say you had a construction defect case, and the lawyer wrote a lengthy letter talking about the strengths and weaknesses of the case.

You would not want to release that to the membership. You would not want to release that to or append that to the minutes. So the difference is can a third party who the association has got a legal dispute with make use of that opinion to their benefit? You want to protect the privilege. If it's an internal issue when there's really no downside to the large opinion being released to the community, there's less reason to protect it.

Yes and Laurie, yes, paying a medical bill does not assume any liability. So you can do that. There's a question about the condo is more liable if it holds a social event like a kid's pool party. Should they have guards there? It's a little bit outside the context of today's issue, and it would greatly depend on who's sponsoring the party. Is the association sponsoring it? Is it an individual owner who's bringing guests to the ... Put up your signage, you could probably request that they have a lifeguard on duty in order to approve a kid's pool party, that really gets a little bit outside of our field. That's a great general counsel question. So I'll leave it at that. Jon, you're going to talk to us about hearsay.

Jon Lemole, Esq.:

Yes, thank you. Folks, we probably spent ... Each of the three lawyers here probably spent weeks in law school going over hearsay rules, I'm going to try and distill what we learned in a couple of minutes here. So I hope I hit the points that are important to you all. And after 30 years of being a trial lawyer, and I'm sure other lawyers would agree with me when asked what hearsay is or is in most of us go, "Oh, I know it when I hear it." But here we go.

Let me see if I can share something here. Okay. So hearsay is one of those things that we deal with all the time, all the time in court because so much of what we know or so much of what we learn, and by we, I mean clients, people who may be testifying for the community on a certain issue, the source of that is maybe something that they heard from somebody else, or they saw written somewhere else. And so this is a very common thing that we deal with and that you all would deal with if you're in the position of having to litigate an issue before in court.

So let's talk about real quickly, what is hearsay. Hearsay in the statute is defined as a statement other than one made by the person who's testifying. So there's a person who's testifying in court about something and then there's the statement that's made by someone else who's called the declarant. But don't worry about that term, I'm in court saying that I heard or heard somebody say something, or read something that that somebody else authored or a statement in a document that I didn't see firsthand, or that I didn't experience firsthand.

So it's a statement other than the one made by the person testifying at trial. And here's the most important thing about hearsay is that it's got to be offered to prove the truth of the thing that you're saying. So let me give you a really basic example. And hopefully, this will clear it up for you. Somebody asks you, "When were you born?" You say, "In my case, I was born August 3rd 1966."

I don't know that firsthand. I certainly don't remember it. And if you do, I guess maybe you'd be a special person. But I know that because people have told me that's when I was born. Now, there's exceptions to this, certain family history is an exception to the hearsay rule, vital records. I learned this by looking at my birth certificate, that's all. That's all an exception to the hearsay rule. But that in a nutshell should give you a good idea of what hearsay is.

So anytime you're in court saying, "Well, I heard so and so say something." Or I read such and such in a report. You're going to get from the other side of hearsay objection, and then your lawyer is going to have to stand up and say, "Well, why can I ... Why is there an exception to this that I can prove here?" Let's talk about what a statement is. Okay. So talking about testifying as to a statement that's made by somebody else.

So it's repeating on the witness stand something someone else said or it's a document. I may be offering a document into evidence that contains statements of another person. So an incident report or a memorandum or a security law, gate logs, any of those things are potentially going to receive a hearsay reaction. Here's a new one, we'll have a little fun here. So here's Santa Claus and on the witness stand.

The other lawyer is saying, "So you admit that labeling my client is naughty is based on hearsay from other children, not from any actual facts?" That's just a funny way of encapsulating what the hearsay rule is. Okay, let me stop sharing this. Let's talk about exceptions. What kinds of things and I want to talk about this in the sense of what are some of the things that routinely happened with the Community Association and how you can anticipate these issues when they come up.

Okay, so the Florida Evidence Code defines divides exceptions into two instances. One where the person who said the thing is unavailable, can't find them, they're dead and therefore, you can admit certain statements that they made out of court. There are certain other exceptions that doesn't matter whether they're available now or not. So let's talk about the ones where the person whose statement you're trying to offer an evidence is unavailable.

You can always offer former testimony. So if that person is unavailable, and they've testified ... So let's suppose you have a member of your community, and you're in there, you've got an action against them for payment of assessments and this is the second case that you've had and in a previous case, you took a deposition of that person, and they said, "You know what? I'm never paying the assessments of this community, they're not going to get a red cent out of me." Then they die. You're suing their estate perhaps, to get these assessments and you want to admit that evidence that that prior sworn testimony. Well, you can do that as long as the person is not available or dead.

Here's another one that's interesting and important. Statement under the belief of impending death. So if a person is no longer available because they passed away, let's suppose you had somebody's walking on your property, they fall into a big, open, a hole in the sidewalk and after they fall into this hole and have this horrific head injury, they're lying there on the sidewalk, and they say, "I just fell into the hole. Oh my gosh, my head just went over, I'm going to die."

That statement if that person does pass away and somebody else goes into court say, "That's what he said. He said Billy tripped into the hole. That's what caused the injury, that's what caused him to die." That statement is admissible because it's a statement of a person who's commenting on the reason for their and the circumstances around their belief that they're about to die. Why is that important to a community if you have an incident? Right?

Anytime you have any kind of incident, accident at your community, it shouldn't be some ... There should be a procedure for getting out there. And having somebody get out there and record what's going on in the aftermath. What are people saying? So that you know and you can anticipate these things, and you can tell your lawyer, "Hey, be ready. This is what the guy said, somebody said, a passerby said that the person who fell in the hole said this is what they thought was this was the cause of the accident." That's all important stuff, your lawyer is going to want to know that to give you good advice on how to handle those things.

So the statement under a belief of impending death. The third one where you don't have to have ... Where the person is if they're not available, you can still admit a hearsay statement as if they make a statement against their financial or property interests. Okay, so any kind of statement which would be against detrimental to an interest that they have whether it's financial, or about their property. If they're unavailable, that stuff is deemed so important by the courts and the legislature that we don't take those statements lightly and people don't generally make them unless there's some ring of truth to them.

Okay, so those are the three areas of hearsay where you'd have to show if you want to admit those things that the person is no longer available. Now there's a whole another class of exceptions to the hearsay rule where it doesn't matter whether the person who said the thing. They may be alive and well, you don't need to bring them into court because certain types of statements ring true, they have an element ... And that's what underpins all this, they ring true there.

There's reasons to believe that people don't make these statements unless they're accurate or true or reliable. Okay, so I'm going to run through these real quick because I'm looking at the clock here. Spontaneous statements. Let's go back to the accident. Let's suppose somebody is watching this person fall into this big hole in the sidewalk, get horrifically injured, and they start yelling, "Oh my gosh, that guy just fell into the hole. He's bleeding, his skull is cracked open."

That person's statement about that spontaneous utterance of a condition or a thing that's happening, that is admissible. That person doesn't have to come to court. Somebody else can say, "I heard that person say that thing." Excited utterance, very similar to that. Spontaneous statements, excited utterances is they go hand in hand. There's statements about where somebody is excitedly, they're under the influence of this event or this condition and they're there spontaneously and excitedly utter, saying things about the thing about the condition that they're experiencing.

So again, from the association standpoint, anytime you have an incident, it's good practice to get out there and record what people are saying so that you can anticipate some of these things or it may be the opposite. Somebody may say, "Oh my gosh, that guy saw the hole, walked around it and faked it." You'd want to know that. Maybe that witness doesn't want to come to court, they don't want to be bothered, but you heard him say that. Well, that would be important to know.

So again, good or bad, know what you're dealing with, know what people are saying in incidents. A recorded recollection notes, not memorandums, incident reports. If you make an incident report while your security guard makes an incident report, it's fresh in their mind. It's got to be made in circumstances where it's fresh, it's at or near the time that the incident occurred, it doesn't have to be right then and there, but while it was fresh in their mind, they went back and recorded an incident report. Incident reports are going to be admissible, business records [crosstalk 00:42:56]

Alan Tannenbaum, Esq.:

Jon, before you move on from the incident report. So every manager and board member needs to hear this because in the introduction that I gave at the beginning of the session, we talked about being in court a year and a half after an issue occurred. And there's been a thousand things that have happened since then. And you can't remember precisely what occurred, but at the time that it did occur, you did a good memorandum or an incident report that was very factual, you could pull that report out.

It actually substitutes for your memory that, "I don't really remember it, but here's a report that I did at the time that it occurred." And that incident report or you're reading it, and then refreshing your memory. That's an exception to the hearsay rule. So that's why it's so important that the bias of the court system is recordations or recollections that are made at or near the time of the incident or the issue or there's a bias towards that evidence being admissible, versus eight months later deciding, "Well, I better write a report about that item I was involved in." That's less likely to be an admissible document for recollection eight months later. 

Jon Lemole, Esq.:

No, that's a great point. Yeah, absolutely. And when you think about the turnover that sometimes occurs in let's say with security personnel or guards, maintenance people, you may not have that person available, not that their availability matters under these exceptions, but those reports and the absence of a person a lot, that live person saying what they remember, that report is crucial. And even if you do have the person, they may say, "Well, it was a year ago, I don't really remember what happened, but I made a report about it."

Okay, here's the baby. This is one that lawyers deal with all the time and it's the business records rule or the business records exception. So anytime a company, an organization, a community association, a management company, any records that they regularly keep in the ordinary course of their business, it's a little bit more complex than that, but I'm going to distill it to those core elements. It's the regular records ordinarily kept in the course of the business of this organization and these are the types of records that this organization typically maintains or keeps.

All of those are going to come in under this exception to the hearsay rule. So the importance of this or for an association or management company is to have policies and practices around record keeping, and documentation of things. Okay, so architectural control issues. Let's say you deny somebody's request to paint their home a different color, the architectural review board denies an application. If you don't have a regular process for how you handled those requests, and the records relating to them, then you might not get certain information that's contained, or that was considered that that was discussed about that issue into evidence.

Similar thing would be security, security logs. You're logging, your security guard is logging all the cars that come in, you want to have ... That would qualify as a business record as to who came and went into the community. And so if somebody came into the community and committed a crime in the community, you could rely on that log to show, "Well, this car with this license plate which is registered to this person came into the community." I don't have to prove that ... I don't have to have the security guard come in and say, "Well, I saw it." I could put the records in and they would qualify under the business exception rule.

The key to that though is that you have to be ... The association has to be really careful and meticulous about keeping those records all the time and having policies about those, keeping those records, retaining those records. What are some of the others?

Alan Tannenbaum, Esq.:

Let's talk about assessment collection in particular because the corollary section is the absence of entry and records can also be admissible. So the reason management companies have a particular system for recording assessment payments where when a payment comes in, the software records, the receipt of that paper, or the non-receipt of that payment, you're a year and a half later trying to prove that the owner failed to pay their assessment and the person who for the management company who oversees that accounting system would be able to go in and say, "This is the practice, this is how the software works. Every payment that comes in gets recorded, gets data entry and here's a report for February of last year, and there's no showing of a payment for that particular unit."

That business record is going to get into evidence if it's properly authenticated to prove that that assessment payment is not paid, that particular employee of the management company is not going to remember for the number of associations that they're overseeing that that particular association one payment did not come in last February. But the authentication and the entry into evidence of the technology, the software and the report will get in. I'm sorry Jon, go ahead.

Jon Lemole, Esq.:

No, that's absolutely correct. And where we run into it frequently in our practice would be in how the community handles homeowners complaints or unit owner complaints. If you have strong protocols and procedures about handling complaints, that makes our job easier if we want to put evidence, a homeowner says, "I've got these huge cracks in the stucco on the outside of my building." Maybe we don't need to bring that owner in to testify about that if you've got a written complaint, and it's maintained in the regular course of the community association business and so on and so forth. So that's all really important stuff.

Admissions are always ... You hear somebody make an admission about something, then that's going to always be admissible even if the person is not there to make the admission in court. Former testimony goes without saying anybody gives testimony under oath, that would be admissible too even though it's hearsay. So those are the big exceptions, there's 20 more exceptions, but for our purposes, they're not going to be really relevant to what you all do. And we're getting near the end. So I'm going to pass it back to Alan, thank you.

Alan Tannenbaum, Esq.:

Okay, we're ask Sal, there's a few minutes we have left to talk about self-authentication in public records.

Salvatore Scro, Esq.:

Make this quick. Basically, what would concern the associations and the managers of this particular section goes along with what John said. For the most part, the public records which runs along with this, but self-authentication would be if there's something under seal or you can get a certification from the public officer that where the document is kept, it states that this is kept, and it was properly recorded. So if it's an official record, it was authorized by law to be recorded and actually was recorded, then the custodian of that can give a certification that this is a true document.

You would not need to bring in the maker of the document to testify as to the authenticity of the document. What's a concern for the management companies is just what Alan and Jon talked about, those particular documents. So an original or duplicate of evidence, this is what's coming from the statute that would be admissible under the hearsay exceptions which is maintained in a foreign or domestic location and is accompanied by a certification or declaration from the custodian of the records or other qualified person certifying or declaring that the record was made at or near the time of the occurrence of the matters set forth.

By or from information transmitted by a person having knowledge of those matters. For example, if you take an incident report, and it was kept in the course of a regularly conducted activity of the business, or entity, so you have to say, "For example, we always make these reports at times, events and incidents like this." And was made at a regular practice in the course of the regularly conducted business activity. Now, along with that, and I'll touch on this very briefly as public records.

Again, official records or documents to be recorded or file that actually were if they're authenticated as stated by the custodian of those records. So why would you need a copy of the records for example, if you have a dispute as to who has ownership of a particular condominium and you want to bring in a recorded deed or something like that? That may be an issue where you need to go to get a public record and get a certification of that public record, but for the most part, that's about where we're at on that.

Alan Tannenbaum, Esq.:

Yes, Sal, let me mention the assessment situation. If you're in an assessment collection, action, you are about to go to court, you have maybe one of the younger lawyers from the law firm showing up, please ask them if they have a certified copy of that assessment lien because a shrewd lawyer defending that unit owner with the lawyer presenting a copy of the assessment lien trying to get that into evidence can object to it on the basis that it's not a certified copy and I defended a unit or a very large assessment claim early in my career where the lawyer for the association did not have a certified copy of the lien.

We objected to it, the judge would not allow a recess and the lien count, and the ability to get attorneys fees fell with the fact that they couldn't get the lien into evidence because it was not a certified copy. So a little tip.

Salvatore Scro, Esq.:

Okay. Well, we have a few minutes and I'm sure we have some questions that we needed to address.

Alan Tannenbaum, Esq.:

There were some questions set in advance, which is better, arbitration or mediation? They actually are not ... Mediation as a settlement process. Arbitration is a situation where a private party determines a dispute and it's binding upon you, somebody who's not a judge. So we like circuit court, if you're going to take a matter to dispute to go to state court with it if the association's generally the plaintiff, but we believe and most cases end up getting mediated. So they're not really in opposition to each other. Let me see what else we had.

Salvatore Scro, Esq.:

One of the questions that came as I was speaking was, how do private emails apply to all of this? I believe that had to deal with either ... I don't know if that dealt with hearsay, or public records, or whatever, but private emails, again, if you're the one testifying in court, and the email was sent to you, then you would be able to testify as to the receipt of the email and who it was from. If you just want to introduce somebody else's email, that won't fly unless you or somebody copied on it.

You can't say somebody gave me this email, there would have to be some authentication to that. But again, as board members, you need to be careful about what you discuss through each other as a board between emails because those can be considered association records which would be discoverable. So I think [crosstalk 00:57:34]

Alan Tannenbaum, Esq.:

Yeah, we're going to answer a number of questions offline because we got a lot of good ones and we don't want to hold anybody up here. Really, the takeaways from today, get your procedures in order so that you can authenticate appropriately the business records that you might need to get it to evidence. Don't be afraid to be sympathetic to somebody injured on your property, that's not invisible. Definitely repair items that have the ability of causing further damage.

And don't combine your incident reports with opinions and policy and so forth. They should basically be a discreet document that as Jack Webb used to say, "Just the facts." Definitely recording what people said at the time, photographs appropriately marked, and so forth. So those are some of the takeaways. You could fill out the poll if you like. I see the Michelle put that up. Michelle will deal with CEU credits for all the managers, so contact her offline if you have any questions about that.

We'll try to answer as many questions as we can offline. Like I said, there were some very good ones, but this was a packed presentation. And anybody has any questions and follow up, we're happy to respond as long as again, it's within our areas of trial practice and it's construction, we're happy to respond to those. Other than that, we've hit noon.

Salvatore Scro, Esq.:

Thank you very much, good seeing everybody.

Michelle Colburn:

And Sal and Jon and Alan are available at anytime, so please feel free to reach out to them via email or me and we will answer your questions and thank you all for joining us, and we will see you at our next Smart Board and Property Manager Guide, Legal Guide in July.

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The Smart Board & Property Manager Legal Guide - Key Elements in a Contract

Condo and Homeowner Associations have substantial leverage for dictating favorable contract terms in major repair and construction contracts. Our panel will highlight key features favorable to associations which should be negotiated into repair contracts to increase the chances the project will be completed on time, within budget and with a minimum of flaws.

Video Transcript:

Alan Tannenbaum, Esq.:

I'm Alan Tannenbaum. I'm here with my partners, Salvatore Scro and Jon Lemole. I think Salvatore's here. We are construction defect lawyers. We take associations through Central Florida. From Tampa Bay down to Naples. Through turnovers handle construction, defect claims, financial claims. We've taken hundreds of groups through turnover. That's a major part of our practice.

Alan Tannenbaum, Esq.:

But we're going to be talking today about the other side of our practice which is advising condominium homeowner associations on major repair and renovation projects. The topic for today is, key elements that a repair contractors can apply to clubhouse renovation too. It's not only repairs but it's also renovations.

Alan Tannenbaum, Esq.:

The reason I mentioned the construction defect side is that when we get a call from a client about to take on a repair project, we take off our construction hat for a moment and put on our construction defect hat and say, "Well, before you jump into this project, are you a property whose buildings or improvements are less than 10 years old?" If so, we will ask the questions about have you considered whether this is an original construction defect and that there may be responsible parties who will pay for at least a portion of the repair costs that you're about to entail. We will ask that question.

Alan Tannenbaum, Esq.:

The other possibility is, you had a repair job done two years ago or three years ago and the reason for your repair today is because that repair job failed. We will then ask questions about whether there's a potential culpability or breach of a warranty coming out of the prior repair project.

Alan Tannenbaum, Esq.:

I want to mention that. That's a question that should be asked before you jump into things because if there are culpable parties, you've got to look to issues like preserving evidence. Putting them on notice. Giving them an opportunity to inspect all of those things in order to protect that type of client. But beyond that, we're going to get into the central issue of this subject matter. I just want to make sure, Salvatore, are you there?

Salvatore Scro, Esq.:

I am here.

Alan Tannenbaum, Esq.:

Okay. Well, the first topic that my partner Salvatore Scro is going to attack are detailed and on target plans with specifications. He's going to tell us why that's a key element if you're about to undertake a repair project. A key element to have in the contract.

Salvatore Scro, Esq.:

All right. Good morning, everyone. My name's Sal Scro. I'm going to take probably a little bit longer on this first part than the rest of the parts that we'll do today and then they'll shorten up as we go through. But this is a pretty important part. I'm going to share a screen with you and you'll see... It's a little PowerPoint that I put together. Let me just start this out.

Salvatore Scro, Esq.:

Can everybody see this slide here that says, why this is important to you. I guess you can nod your heads and that'll be fine. Number one, you want to protect yourself. You also want points of direction for your client and your association.

Salvatore Scro, Esq.:

A lot of responsibility is put on the board members and the managers particular lead the managers [inaudible 00:04:06] from the board to help lead them in the right direction. A lot of the things you're going to hear today, we don't expect you to absolutely know everything about them. But at least you should have some knowledge to say, you need to contact these particular people so that you can show that you're guiding your association and in the right direction.

Salvatore Scro, Esq.:

You don't want to take it on alone either. A lot of times, people will look at one particular manager or board member and say, "Hey, you run with this." Well, running with it, the right thing to do in this situation is look to get help from the right professionals, whether it be engineers, attorneys, whatever, to make sure that you are in the best position possible to take on this task.

Salvatore Scro, Esq.:

You want to protect your client. That's another. You want to protect your client, your association. Whoever you're working for, you want to protect them. You want to give them the benefit of your knowledge of these issues. That's why you're here today so that you can get a working knowledge of these issues. Then ultimately you want to successfully accomplish a task.

Salvatore Scro, Esq.:

Contract. These are some of the different contracts you may want. One is with your design professionals. A lot of this depends on how big your project is. You may need a contract with your design professional. The engineer or the architect, whoever that may be.

Salvatore Scro, Esq.:

The contractor. Obviously you'll need a contract with your contractor. The owner representative. If you are going to be using an owner representative to help guide yourself through this, you may want to have a contract with that owner representative. Then sometimes your community association managers, they don't expect to take on these tasks, but they're saddled with them. You may want to look at, what is in the association manager's contract and what are they going to do? Is this part of their duties or not? You have to address those things. Those are some of the things.

Salvatore Scro, Esq.:

Why do you need a contract? You want to establish the job. What are they going to do? Define in detail the work, which is what we're going to get into. The target plans and specifications and the clarity of those expectations. Also when you have a contract, it's a disincentive to bad behavior. A lot of times you will say, "Hey, you're not supposed to do this, or you're supposed to show up at this particular time, or it was supposed to be done in this way and it wasn't done. Why is that?" You can point to the contract and have a reason why it wasn't.

Salvatore Scro, Esq.:

You have a problem. Whether it be because of age, defect, whatever it is. You want to find out, what is it? You want to find out, where is it? You want to find out, when did it occur? Those are the things you want to know. Why do you want to know, when did it occur? Because you may have a cause of action against the party responsible for the defective condition. If it was a bad installation. If it was a code violation. Whatever that may be.

Salvatore Scro, Esq.:

Who should you contact? If you have a roof problem, you call A, and everybody can say it out loud. I can see your lips. You're going to call a roofer. If you have a window problem, you're calling somebody to take care of windows. If you have a stucco problem, you call stucco. Everybody said the same thing, I'm sure. But I disagree with all that. I don't think those are the people you call because we don't know. Then you're looking at me like this. But you do not know who that problem is. You need to know where the problem comes from.

Salvatore Scro, Esq.:

A stucco problem, could be a stucco poor installation. It could be bad flashing. It could be bad window installation. It could be bad framing. A case Alan had some years ago, they kept trying to repair the stucco. The biggest problem wasn't the stucco, it was the framing. You need to know what to do.

Salvatore Scro, Esq.:

To do a proper investigation, you should probably get the original plans and specifications of your project so that you know what you're looking at. You want to know if you had any prior work contracts so that you know what work had been done to the original work. You do want to invest some money before you start doing work, especially the more detailed the project, the more money you want, you may have to spend. That may be that you need some destructive investigation. Some destructive testing so that you can identify what needs to be done so that you can prepare proper plans and specifications.

Salvatore Scro, Esq.:

I know Alan's used this example sometimes where if you go to the doctor and they say, "We don't know what's wrong with you. We're just going to start... Bring you in for an operation and start cutting you open." Well, that's really not the way to do that. They take tests. They take MRIs. They take x-rays. They do blood work. They want to know what they're doing before they start going after it.

Salvatore Scro, Esq.:

Why do you want to have destructive testing? The benefits of that investigation are this. You identify the extent of the defects. You identify who the responsible parties are. If you're within statute of limitations period which is four years from discovery, not to exceed 10 years from the work, those are your statutes of limitation and repose. You want to look and see in that investigation where the problems are. If somebody was responsible for them, maybe you can have a cause of action against those people to address those issues and have them pay for your repair that you're about to undertake.

Salvatore Scro, Esq.:

You also need to know, if you're going to do that, you're going to go after some parties. You're going to want to know what are these problems? Because under Florida Statute Chapter 558, you need to give them a notice. You need to give them a notice of what those problems are and give it in reasonable detail so that before you commence any action to address that, sometimes you can settle it through that 558 process.

Salvatore Scro, Esq.:

Also, you limit change orders. Why do you want to limit change orders? I showed this to you guys. Some of you may have been with me last time, but there's that big boat that says change order. There is the original contract. You do want to get an idea of what has to be done so that they're not opening up your building and saying, "Geez, we just found this. We need a change order." That's where you're going to spend all your money. That's not part of your budget. You do not want that.

Salvatore Scro, Esq.:

You want to have that investigation so you can know as much as possible. You spend a little money up front, but it's going to save you money in the long run. You limit change orders. You get detailed and on target plans and specifications. You get a repair protocol from those experts. They will tell your contractor exactly what needs to be done.

Salvatore Scro, Esq.:

That protocol will be set forth in plans and specifications that will be incorporated into the contract so that you will have a complete set of instructions. Just like if you buy something that has to be put together for your kids, you're going to have something that says how to put this together and how it's going to be done. What's going to be used. There's not going to be any questions if you have the right expert to provide those specifications.

Salvatore Scro, Esq.:

That's pretty much just a summary, a quick summary about why you would need detailed plans and specifications. There's other things that I'll get into later on that relate to those plans and specifications. But we'll go on to the next topic.

Alan Tannenbaum, Esq.:

All right. Jon, draw schedule. What is a draw schedule and what do you mean on this category about it being balanced? Why is that important?

Jon Lemole, Esq.:

Hang on one second because I think there's something I wanted to put up here. Okay. Time is money and you want your project to get completed on time. Think about a contractor just like any other business owner. They come to work every day. They've got costs. They've got overhead. They've got payroll. They've got subcontractors to pay. What are they in it for? They're in it for whatever it is. The profit that... Whatever percentage of profit on your job that they're making. 15%, 20%, whatever it is.

Jon Lemole, Esq.:

Like a lot of other business owners, a contractor wakes up every morning. A general contractor wakes up every morning and he has to decide if he's got five or six different projects going at once and that's probably the case. Maybe even more. He's got to decide, or she's got to decide, where am I going to put my people today?

Jon Lemole, Esq.:

If it's a bigger project like a big project where there would be a lot of subcontractors involved, a lot of different trades involved, that general contractor has to figure out which subcontractors am I going to have show up on this project today? All of those decisions are going to be impacted by whether or not that opportunity showing up on your job is going to provide that contractor with a profitable day. Whether he's got risk in the project or not.

Jon Lemole, Esq.:

This is an area where we spend a lot of time negotiating with contractors. When we're representing community associations and we're looking at repair contracts, we spend a lot of time looking at the draw schedule. The reason why that's so important is because you never want to be in a situation where the contractor has no risk on your project. Where he's disincentivized to show up because he's already been paid profit that he's going to earn on the job.

Jon Lemole, Esq.:

And so maintaining or coming up with a very balanced draw schedule, a draw schedule that's going to basically delay that contractor getting his profit on the job until the end of the job, it's critically important to getting the job completed on time. And you and your community association board not being those people sitting there in the orange vests waiting and waiting and waiting for the completion of the project.

Jon Lemole, Esq.:

Deposits. A lot of contractors ask for deposits. We try to resist that. A lot of times you'll hear, I've heard many a general contractor that say that their deposit is their profit. Why would you give a general contractor the profit on this project right upfront? We would definitely urge when we're looking at contracts, we would try to negotiate out any deposit upfront for the work.

Jon Lemole, Esq.:

Then finally, retainage at the end. It's always a good idea to hold some money back. At least hold back some portion of this contractor's profits so that they complete the work, including all punch list. Because we've seen a lot of projects where basically the contractor's been paid. There's a lot of punch list things that need to be completed and it just drags on and on and on and on.

Jon Lemole, Esq.:

How it works with every contract is going to be a little bit different. There's no one size fits all draw schedule. But that's an area where we definitely say, if you're doing it yourself, take a really good look at that. Hard look at that. Make sure that you're coming up with something that makes sense. But most times get a lawyer involved. Get us involved or any other construction lawyer that has a lot of experience with dealing with draw schedules and ensuring that the contractor has risk on the project throughout the entirety of the project.

Alan Tannenbaum, Esq.:

Yeah. Push your design professional. They usually create a draw schedule or have a comment on it. But you really have to push them to look carefully at it. What you want to avoid as a bottom line is the contractor having been paid 80% of the contract price and only 60% of the contract having been completed, you're going to be in a lot of trouble getting that contractor back to complete the job.

Alan Tannenbaum, Esq.:

We are also strong believers in retainage. The industry standard is 10% so that 10% of the contract price is withheld until the time it's final payment, which is a very strong incentive because the contractor's profit is going to be tied up in that 10%. We're very strong believers in that.

Alan Tannenbaum, Esq.:

With deposits, they will tell you we need to purchase materials. If you happen to go along with that, just make sure that those are actually materials being purchased for your job and the contractor is not using it to pay their 90 day balance with their supply house for materials used on other jobs while frankly your materials they get somewhere else. Be careful with that.

Alan Tannenbaum, Esq.:

I'm to get into a couple of topics about insurance requirements and damages for delay. A few things. Let's talk about the design professional first. Most design professionals will have a million dollars of professional liability coverage. What they've been providing associations over the last two years are contracts that have limitations of liability. That may say that the design professional is a limited liability to the amount of fees that they're paid on the job or some stated dollar amount significantly less than their insurance coverage.

Alan Tannenbaum, Esq.:

When you get a design professional contract where they're going to be the design professional on a major repair that's maybe costing into the seven figures, you don't want to limit their liability. You want it to at least be the amount of insurance coverage. There's one issue. We've had projects that are five million, six million, $12 million with a liability policies of only a million. You can actually buy those coverages up to a greater level and increase the insurance coverage. That's something that's available.

Alan Tannenbaum, Esq.:

When you want your contractor to have minimum insurance for general liability for automobile, certainly automobile coverage there are standard policy requirements. Really important that you negotiate to be the name insured under the insurance policy. Now, why is that important? It's important because you then have the right, you're now first party under that coverage. If you had to eventually sue to collect damages under that insurance policy, under Florida Statute you're entitled to attorney's fees under first party claim.

Alan Tannenbaum, Esq.:

It's really important to be named insured. It gives you a lot of leverage against the insurance carrier if you get a claim pay. Most of them will agree and negotiate that. Include that in your negotiations when you're looking at the insurance requirements.

Alan Tannenbaum, Esq.:

Damages for delay. Damages for delay typically sets forth a particular deadline for completion by the contractor. They don't complete within that time period, there is a per day penalty for the contractor if it goes beyond the completion date. I think anybody who's contracting for work today, there's some contractors who are signing contracts to say, "Look, we won't even be able to start this job until September." There's even a backup on initiation.

Alan Tannenbaum, Esq.:

It's really important to have that damages for delay as a great incentive for the contractor to assign the subcontractors and personnel in order to get your job done. Just think of a general contracting company. They're taking on five jobs. They've just started five jobs. The question is, which of the jobs are they going to pay the greatest attention to? Assign their better subcontractors to? Assign their better superintendent to? They're going to be the jobs where there's a contract that they enter into that has some disincentives as Sal indicated against bad behavior.

Alan Tannenbaum, Esq.:

If they have five jobs that they're starting and two of the jobs have penalties for late completion and the other three don't, and they have to make some very difficult decisions about assigning subcontractors and assigning personnel, the owner of the company is going to be very aware that this particular contract has things like damages for delay. It's a penalty, but it incentivizes the contractor to actually get out and complete your particular project over projects that they won't.

Alan Tannenbaum, Esq.:

We see contracts every day that say that there's no particular completion time. There's no penalty for delayed completion. I'm always wondering a year and a half later, when a group comes to us and says, "They haven't completed the job." We look at it and say, "Well, there was no requirement that they complete it within a stated period of time." You're going to be in a lot of trouble.

Alan Tannenbaum, Esq.:

With that, Sal's going to cover a couple of topics. Work inspection and rejection rights and the right to reject or replace subcontractors. Sal, you have your speaker off. There you go.

Salvatore Scro, Esq.:

All right. Work inspection and rejection rights. Who's going to inspect? That's what needs to be decided by the association. When you take on this repair project, who's going to inspect? Who can reject? Is that going to be the owner's representative? Is it going to be the engineer? Would it be the architect? Those are some of the things that you need to decide.

Salvatore Scro, Esq.:

A lot of times you put the inspection rights into your engineer. Or sometimes depending on how minor the project might be, your owner's rep. Your architect. But, can they accept as well or should you have some right to do that and should there be some reasonable time? You need to make sure that you have enough time and that you have some control over your representative. Whether that be the engineer or architect, whoever that is so that if there's something that is not suiting what you intended and it's under the contract, that you can direct your representative to say, "No. That is not acceptable. You need to do that."

Salvatore Scro, Esq.:

The other thing is, if there's a problem, what do you do? Especially if you have multiple buildings. I've talked about this in other seminars we've put together. If you have multiple buildings, you may want to open that up to see what the problem is. If you're going building by building and you have some leaking going on, you may need to do some destructive testing.

Salvatore Scro, Esq.:

Again, find out where that problem is so that you can identify, is this just a one-time problem? Is this a systemic problem that is in the plans that is not working out right? What is it? What is that problem? Spend some money having your contract, that if you need to open up something, that if it's their fault, that they're going to pay for all that expense.

Salvatore Scro, Esq.:

If it's something that you've asked them to open up is unreasonable, then maybe you might have to meet that expense, but at least you know it. You do want to have provisions in your contract for that, as far as who's inspecting? Who's rejecting? If there's a problem and you need to investigate, what do you do?

Salvatore Scro, Esq.:

Also when you hire these contractors, you're not just hiring the company, you're hiring whoever shows up that particular day. You want to make sure that if you have a problem with the workers that are there, the superintendents, who are they? The contractor typically decides who the superintendents are. Who the subcontractors are. If you've had experience with other subcontractors in the past that you do not want on your project, you want to let your contractor, your general contractor know that in advance.

Salvatore Scro, Esq.:

You also, if you have the right people reviewing your contracts, they may want to see. For example, we deal with subcontractors every day. We know what subcontractors names we see all the time and depends on how we see them. If we see them in a litigation matter, then we know that we've seen them for these reasons. If we see them as repairs, then we know we've seen them for that reason. You want to have some right to reject or replace your subcontractors and a right to approve and or terminate the superintendent and those subcontractors.

Salvatore Scro, Esq.:

Let me just go back. We're not going to talk about prevailing party attorney's fees right now, but you do want to have the ability to have some control over who's being there. I'm taking a little shorter time on this one because I went longer on the first one. But let's go on to, I think we're going to talk about protection against liens next.

Alan Tannenbaum, Esq.:

Well, before Jon gets started, Sal, the issue that you brought up is really being a proactive owner. It's your property. You want to have knowledge of actually who's walking towards your job every day to do work. Even before the contract is entered into, you could have provisions in the contract that they have to give you the list of who's going to be the superintendent on your job. Who are they going to be the subcontractors. If they choose to have somebody else but that superintendent and those subcontractors, they have to notify you and you have to be able to qualify those people again.

Alan Tannenbaum, Esq.:

Every contracting company that I've dealt with of any magnitude, they have a handful of superintendents who have been with the company for 18, 20 years. They have vast experience. Then they have the guy they hired last week. A journeyman superintendent. They got a lot of work in or one of their key superintendents retired. Now you're dealing with somebody that they don't even him very well who's now assigned to your job. It's a matter of qualifying them and being proactive. You have the right to insert that in the contract to be able to do that. Jon, now you're going to tell us about protection against liens.

Jon Lemole, Esq.:

Well, I got to tell you how unenthused I was when I drew this topic. Because folks, I'm going to be honest with you. Even for lawyers, lien law is confusing. And so for managers, for boards, I can't stress enough how important it is to take the topic of protection against liens seriously.

Jon Lemole, Esq.:

Here's a practical piece of advice before we get into some more details about liens. The practical piece of advice is that, have somebody on your project. Whether it's the engineer, if you've got an engineer who did the design work, or you've got a construction consultant. But it always makes sense to have somebody who is tasked with ensuring that any potential liens are avoided. Released. Protect your property from problems down the road with contractors and subcontractors, potential liens from that project.

Jon Lemole, Esq.:

Your engineer, if you've got an engineer, if they provide that kind of construction management or services that you can pay them to do, then it makes every bit of sense in the world to do that. But let's talk about liens for a second in general.

Jon Lemole, Esq.:

It's really a question of a very dedicated management of the projects' paperwork. Okay. Because you want to make sure that there's a lot of different things that get... For example, you start a project, you need to absolutely make sure that you file a note or record a Notice of Commencement. You want to put the world on notice that there's a project and protect yourself. That's the way that you protect yourself from potentially having to pay twice for the work.

Jon Lemole, Esq.:

It also is a notice to any subcontractors on the job that if they want to have any lien rights, they've got to file Notices to Owner or serve you the owner with Notices to Owner. They've got to do that within 45 days of starting the work or providing the supplies.

Jon Lemole, Esq.:

Filing, I'm sorry. Qualifying according to Notice of Commencement is the first step that you as the owner should do on any repair project. If you've got a bigger project and there's a lot of subs on that project, tell the contractor, ask the contract, the general contractor, you want a list. You want to know who are the subcontractors and suppliers that they're going to be using because you want to be able to anticipate who may have potential liens. You want to keep track of whether those people have filed Notices to Owner or served you with Notices to Owner.

Jon Lemole, Esq.:

In a contract, if you're negotiating the contract, things like that like providing a list of the subcontractors and suppliers, are all things that could be put into the contract. Could be requirements that you can negotiate into the contract.

Jon Lemole, Esq.:

As the project goes forward, here's a mistake a lot of people make. It's just a common thing. I don't have to worry about liens if I pay. I pay. I paid what I was told to pay. As long as I paid, I'm good. Remember, you're paying a general contractor. You're not paying the five, 10, 15 subcontractors who you have no contractual privity with. You're relying on that general contractor to pay those subcontractors and ensure that by you paying the general contractor, that you're not going to be exposed to liens from subcontractors.

Jon Lemole, Esq.:

And so that's why it's critical to manage all of this paperwork. It can be confusing. That's why you should always consider having somebody do that for you. Somebody who's got a lot of experience doing that. Whether it's the engineer, like I said, or some other consultant or project manager that's working just for you to do that.

Jon Lemole, Esq.:

But every time you make a payment, you should be ensuring that you're getting a release or a partial release for that work. That release should be specifying the work that is being paid for and being released. It should specify what subcontractors are being paid for or what subcontracted work is being paid for. You should be insisting on getting partial lien releases from those subcontractors or completely releases from those subcontractors.

Jon Lemole, Esq.:

You should be knowing every time that you make a payment, what work you're excluding from the potential of being liened. That's just a day-to-day recordkeeping type of thing that has to go on, on a project. Smaller projects, it's a little bit easier to do. But if you've got a big project [inaudible 00:33:29] a lot of subcontractors, that can be a very confusing thing to do.

Jon Lemole, Esq.:

All of these things, all of these requirements need to be specified in the contract. Because if you don't, then you're just relying on the good faith of the contractor to do things that are going to potentially help you ensure that you don't have liens on the project. But they have really no obligation to do. You want to make sure that when you're negotiating this contract, you're anticipating all of those things that you want from that contractor to ensure that your project is paid for, not liened by him or any of his subcontractors or suppliers.

Jon Lemole, Esq.:

Then as you go forward in the project, you've got to keep meticulously on top of that record keeping and all that paperwork. That's it. There's really no trick to it. It's just being really, really proactive about organizing and maintaining those best practices.

Alan Tannenbaum, Esq.:

If you want to really be proactive as an owner, within that 45 day timeframe of a contractor, subcontractor providing work on the project or material supplier supplying materials, you get this Notice to Owner. I don't see any problem unless it's prohibited by the contract with making contact with the contractor who submitted that Notice to Owner or the material supplier and saying, "I got your notice and I'm very interested in your being paid everything you do on your contract. Please let us know if you're having any payment difficulties during the progress of the job because we want to avoid the potential of you enforcing a lien against our property."

Alan Tannenbaum, Esq.:

A lot of general contractors will tell you, "We don't want you talking to our service suppliers." A standard response that I give is that, "Well, that's fine because they just sent me a note and I'm a very... I have good manners and somebody sends me a communication, I acknowledge the communication and say thank you for sending this." And that line of communication has started.

Alan Tannenbaum, Esq.:

Again, at the end of the project, you need final releases of lien from all the parties who filed Notices to Owner and you get something also called the contractor's final affidavit, which you must get before you issue the final payment to the contractor. Which is an additional protection against liens. Okay. I'm going to talk about payment-

Salvatore Scro, Esq.:

I just want to just say two things because Jon reminded me of it and you did also. One of the things that would be nice to see in a contract when you're negotiating it is if you have your general contractor, if he's going to hire subs, if you can require in your contract that any contract that the general contractor signs with a subcontractor, that you're identified as the associations identified as a third party beneficiary.

Salvatore Scro, Esq.:

Sometimes they'll do it, sometimes they won't. But it adds an added layer of protection because now that subcontractor is contractually liable to you as well. Also in the insurance that the general contractor has, I've seen it in some of them, but it's nice if their insurance policy ensures the work of their subcontractors. Most of the time it will not ensure the work, but if it does ensure the work of the subcontractors, you have another added layer of protection there.

Alan Tannenbaum, Esq.:

Thank you, Sal. Payment and performance bonds. Payment bond is a bond that protects the owner when the general contractor doesn't pay its subcontractors and materials suppliers. That surety will come in under those circumstances and cover that bond. The subcontractors only, and the material suppliers only have rights against the bond rather than your property. That's the advantage of having a payment bond is that it removes the prospect of your property being lien.

Alan Tannenbaum, Esq.:

Performance bond. The surety agrees either to pay for the completion of the job or to provide you with another contractor who completes the job at the surety's cost. It guarantees a performance of the contractor. On a major repair project, we definitely recommend payment in performance bonds. There is a price to it. Roughly speaking, it's going to add 1% to the contract cost depending on the particular contractor involved. On a major project, if you have a three and a half million dollar project, you're talking about 30 odd thousand dollars of additional cost. But it's great to have the protection.

Alan Tannenbaum, Esq.:

But there's a underlying reason why there's a preference for payment in performance bonds. The reason is, the general contractor will never want you to have any communication with the surety and make any claim against that bond because it not only affects your ability and their level of bonding capacity the next year, but also the premiums that they would have to charge an owner because part of the premium cost of a bond is based upon the amount of claims ever made against that particular contractor.

Alan Tannenbaum, Esq.:

What I said before about delayed damages, same holds true about having payment in performance bond as being a disincentive to bad behavior. Because if I'm a general contractor and I'm starting five projects, and again, two of them have a performance bond in particular, the other three don't, as the owner I'm going to show up on the jobs that have bonds more. I'm going to by nature assign my best people to those jobs. Because the last thing I want is that job to fall into default, the surety be contacted and it affects their bond ability on jobs going into the next year.

Alan Tannenbaum, Esq.:

That's an end reason why a bonded job, you're apt to actually get better performance. They're not going to risk not paying their subcontractors and have the surety contacted, which is going to affect their future ability to get work. Jon, with that, spend a few moments on dispute resolution procedures. Why is that important? What does that mean?

Jon Lemole, Esq.:

Well, you hope that your job goes well and that there's no problems and you don't need to access the dispute resolution procedures, but that doesn't always happen. There can be problems that occurred during... Disputes or disagreements about how the work is being done that arise during the project. Then there are the big disagreements or disputes that arise after a project's completed and perhaps you find out that it wasn't done quite the way that it should have been done.

Jon Lemole, Esq.:

And so it's really important that when you negotiate these contracts, you look at what do you need to do or what are you going to be required to do in order to ultimately resolve a dispute with this contractor if it comes to that. Now, there are three things that you need to be looking for because we see them in a lot of general contractors contracts.

Jon Lemole, Esq.:

The first is, where can I bring a claim if I have to bring a claim. Let's suppose we haven't resolved this thing and I've got to bring a claim against the contractor or vice versa. Let's assume you pay the contractor and it's really a question about defects in the work that was done or defects in how it was designed or the scope or whatever.

Jon Lemole, Esq.:

What you'll see a lot is a preference in the contract for avoiding Circuit Court and requiring you to arbitrate your dispute. A lot of people have this mistaken idea that arbitration is better, faster, cheaper. And so, yeah. That sounds like a good idea. Why do I want to go to court? I'd rather go to an arbitrator.

Jon Lemole, Esq.:

I have to say that we typically don't like and recommend arbitration for construction disputes. It's not always cheaper. In fact, it rarely is cheaper. Sometimes just the filing fees at the American Arbitration Association alone could be 5,000, $7,500, $10,000, depending upon the size of your claim. You pay a filing fee of $400 in Circuit Court.

Jon Lemole, Esq.:

Don't ever forget that your project has not just you and the general contractor, but there may be other parties that are involved as well. There's a lot of subcontractors and maybe you want to bring a claim against the subcontractor for their defective work, but you're not in contract with them. You can't force them into arbitration. If you want to bring a claim against the GC, you've got to go in arbitration. But if you want to bring claims against subcontractor too, you've got to have a separate action in Circuit Court. All of a sudden your expenses are exploding.

Jon Lemole, Esq.:

Maybe the general contractor does have in his subcontracts arbitration. Maybe they bring those subs into the arbitration, but maybe they don't. You don't have necessarily any control over that. Circuit Court is always preferable because you can always claim, bring your claims against everybody and anybody that's involved in that project in Circuit Court. You can't always do that if you're forced to go into arbitration.

Jon Lemole, Esq.:

Arbitration is not always cheaper. Definitely not as efficient and a lot of times, just as slow as Circuit Court. The other drawback of arbitration is that you don't get the same type of discovery that you get in Circuit Court. You have no set right to take depositions, get documents, asking a rogatory and all of those things that lawyers typically do in order to find out what the facts are and make the best case that they can for their client. In this case, you, the association.

Jon Lemole, Esq.:

The other thing to look for and what we typically find with general contracting contracts is a preference for, if we do go to Circuit Court, you're waiving a jury. Jury waivers, that's a case-by-case thing. But don't make that decision right at the front.

Jon Lemole, Esq.:

Look, there may come a time if we're representing a client, we may say, "Hey, maybe we should not try this in front of a jury. Maybe it makes more sense to try this in front of a judge." But if you've already waived in the contract the right to try it in front of a jury, you don't get to make that decision. A jury may be the best place or your lawyer may think that's the best fact finder for this case. You'd rather be in front of a jury.

Jon Lemole, Esq.:

The other thing that we see and that you need to be aware of, and this can work to both parties advantage is prevailing party's attorney's fees. In America, under our system of law, unlike in some other parts of the country, the loser doesn't necessarily pay the winner's legal fees. It can happen if you're contract to do that. Or if there's some statute which requires you to do that. Lien law might be one area.

Jon Lemole, Esq.:

But if you're just suing your contractor, if your contractor's done a really bad job and has done the work with all kinds of building code violations and other problems, if you don't have a contractual provision for prevailing party's attorney's fees, you're not necessarily going to get attorney's fees if you win. It cuts both ways, but we always recommend that you put a prevailing party attorney's fee provision in your contracts. [crosstalk 00:46:32]-

Alan Tannenbaum, Esq.:

Understand the standard industry form contracts do not have a prevailing party attorney's fees incorporated in them. If somebody had joined AAA or a AGC a form contract, you actually have to add the provision of prevailing party attorney's fees.

Jon Lemole, Esq.:

That's correct. The AIA contract has this built in preference for arbitration so be careful with that. We see the AIA contract being used more and more by contractors. It's got very, very confusing and frankly onerous during the job dispute resolution procedures. What do you have to do? Who do you have to bring it to? Who has to make a decision? Engineers, architects, everybody has to get involved in that. Those provisions aren't always conducive to getting the work done quickly.

Jon Lemole, Esq.:

Dispute resolution procedures, we can spend a lot of time on this. But the point is, if you see those things in your contract, think about them. Run them by an attorney and make sure you spend a lot of time in determining and negotiating how are we going to deal with situations that arise where we just can't agree and we've got a problem that needs to be resolved?

Alan Tannenbaum, Esq.:

Sal, do you have anything else to offer on that topic because I want to answer a few questions?

Salvatore Scro, Esq.:

Yeah. I just wanted to touch on a few things that I think are important in any contract that sometimes are overlooked. I'll go through these real quick. Again, the prevailing party attorney's fees Jon touched on, but that is an incentive to do well because of the risk of paying the fees. But it's a double-edged sword too. If you're not holding up your end of the bargain, you have that risk as well.

Salvatore Scro, Esq.:

Also it's an incentive to settle a weak case. But there are things that... I'm not going to go into documenting the job or project close out. But other terms that I think may be important in any contract would be hours of work. A lot of times, oh, you hire them. You give them the deposit. They don't show up. Those are things that you may want to discuss. Have in your contract. What days of work are they supposed to show up?

Salvatore Scro, Esq.:

The entrance and the use of the premises. How many people are going to show up on your project to work every day is an important thing to consider. Staging and storage areas. Who's going to maintain the materials? Where are they going to be staged, stored? How are they going to be protected? What happens if there's a storm? You need to address those things as well.

Salvatore Scro, Esq.:

Clean-up. That's an important thing as well. The clean-up, you want to make sure sometimes that they'll sweep the area for nails and things you don't want. You want a magnetic sweep every day so your people aren't blowing tires, running over nails, things like that.

Salvatore Scro, Esq.:

Notice of work areas to your owners and the owner's access. If they have to shut down portions of access to the buildings, where will that be and how is that going to be done? How much notice are your owners going to have if they can't use a portion of their building and what is their access and who's going to provide that access and the protective area for them?

Salvatore Scro, Esq.:

Those are just some of the things. If you do have a litigation matter that may come up, you do not want to destroy evidence. You want to make sure that you notify your attorneys in advance so that they can make sure that parties are there to view what needs to be viewed. Stored evidence, categorized evidence, things like that. Photograph evidence. Those were just some of the things I wanted to touch on before we go to questions.

Alan Tannenbaum, Esq.:

Let me raise the issue of assignability. I've seen this in some roofing contracts that have come across my desk. Make sure you have a provision of the contract that it can't be assigned. Because there are companies out there, they're more like roofing marketing companies. They have fancy brochures. They have a big online presence. They sell roofing jobs and then they assign them to other roofers to actually perform them. You don't even know who's showing up on your job.

Alan Tannenbaum, Esq.:

Really important that you have a provision of the contract that says it's not assignable without your permission. I want to cover a couple of questions. We have a short amount of time and I know Michelle wants to do a poll. One of the questions is, what's the difference between a surety and a payment in performance bond?

Alan Tannenbaum, Esq.:

The surety is actually the entity that issues the payment in performance bonds. The surety, it's not an insurance policy. They're not an insurance company. They're a guarantor. It's a guarantor agreement where they agree to come back behind the contractor and either agree to pay money that the contractor is obligated to pay its contractors and subcontractors and material suppliers. Or come in and end up performing the project.

Alan Tannenbaum, Esq.:

I have a question about attorney's fees. How much does it cost for us to be involved in the contracting process? The first thing that we will do is usually you'll be handed a proposed contract from the contractor for a fairly nominal charge, depending on the size of the contract. Maybe between $500 and $750. We can go through what the contractor has provided and tell you what's in there that's going to come back to bite you. Or what should be in there that should be there to protect you.

Alan Tannenbaum, Esq.:

Then you can come back to us and say, "We want to revise this contract. We want some suggested language." Which we can come back and do. But a lot of times, even on a relative, let's say a contract of a $100,000, for a relatively modest amount of money, we can offer some suggestions that can greatly improve that contract from the aspect of protecting you as an owner.

Alan Tannenbaum, Esq.:

All right. We're going to send the poll out because apparently that's not working. Are there any other questions because I want to respect everybody's time. If you have a particular question, you can unmute yourself. Paul asked a question about a 110,000 to $120,000 pool resurfacing contract.

Alan Tannenbaum, Esq.:

We do think a contract at that level justifies some level of attorney review to make sure you're protected. Should we consult with an engineer on a project like that? I think that's certainly enough of an expenditure to justify it.

Alan Tannenbaum, Esq.:

In the area of contracting, I would have to say and I hope I don't insult any former pool contractors who may be on the call, but it's not the highest level of achievement in the pool contracting industry. It's probably an area where you should have somebody knowledgeable out inspecting there.

Alan Tannenbaum, Esq.:

It doesn't have to be an engineer. It could be somebody whose head was in the pool business for 40 years, who now is a consultant. They're going to maybe cost less than an engineer, but at least it's somebody to have their eyes on the project.

Alan Tannenbaum, Esq.:

Again, when you talk about this, it's set up to bad behavior. A contractor who knows that somebody knowledgeable is going to be observing their work, and at the time of the first draw is going to have the ability to reject it, is really the greatest incentive for that contractor to get the best people on it and look carefully at the work that's going to be done.

Alan Tannenbaum, Esq.:

Yeah. The key is, and I'll conclude with this. I use this in my presentations. When you're contracting with a contracting company, pretend that you've just hired a group of 17 year old boys to come to your project and do work. Think about the type of disincentives you would want in a contract to make sure those 17 year old boys behave properly and use that as a psychological basis for approaching the contract work.

Alan Tannenbaum, Esq.:

One of the things, everybody, at least the 99 people who got on, because I see that we had 99 participants. Then I think because of the Zoom problems today, everybody above the 99 didn't get out of the call or didn't get on the Zoom. We'll be dealing with all the managers on your certificates for today's session.

Alan Tannenbaum, Esq.:

Anybody have any other questions, you can provide us an email, I'll get your questions answered. For most major projects, we offer free one hour consultation. A lot of what we end up doing is educating your [inaudible 00:56:47] for your managers. It's educating your boards on spending the money and time in order to protect themselves. It saves them a lot of money in the long run if they approach the job properly, have a good contract and so forth.

Alan Tannenbaum, Esq.:

Thank you everybody for your participation. Hope you heard some things that were valuable for you today. Make sure in your engineering contracts then, you want to look for those general conditions that limit liability and get rid of those. I've seen too many of those lately. See everybody hopefully next month.

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The Smart Board & Property Manager Legal Guide: Tips to Avoid Major Repair Headaches and Heartbreak

Take advantage of the experience and wisdom of our trial team in What Every Condo and HOA Board Should Do Before Launching a Major Repair Project.

Video Transcript :

Alan Tannenbaum, Esq.:

All right. We're going to get started. I'm Alan Tannenbaum of Tannenbaum Scro Lemole & Kleinberg. We are construction lawyers with our major focus being on community associations. We do turnover claims for HOAs and condos. We take groups through turnover. We handle major repair projects, support them. The subject is near and dear to us. I've been personally advising associations for over 40 years on hopefully successfully undertaking major repair projects. And the tips that we're going to give you today arise from those experiences. We have several that are pending now. We're really in two categories. Either we're preparing a group to do a major repair project or they didn't call us, that we're trying to help clean up a project that didn't go well. We work in both specters.

Alan Tannenbaum, Esq.:

My partners, Salvatore Scro and Jon Lemole, the three of us are going to go topic by topic, take different topics as we go along. You have an outline that I think at one point was projected. I'm not sure if you're seeing that in front of you now. But we're going to go in somewhat of a logical order.

Alan Tannenbaum, Esq.:

We're going to hit the fine points. We're not going to get too far into the weeds. Really what this is going to help you to do is identify things that you should be thinking about if you're undertaking a major repair project. We don't have enough time within an hour to give you all the formula for effectively carrying it out successfully, but at least we'll give some of the issues to think about. So let's get started. I'm going to hand the program over for a few minutes to my partner, Salvatore Scro, who's going to cover the first topic, get the right expert. You're on Sal.

Salvatore Scro, Esq.:

All right. So good morning everyone. Thanks for joining us again. It's nice to be able to see everybody that showed up. Probably one of the most important things we're going to speak about today are not only things that you need to remember, but these are things that should be in writing and in the contract for repair. First off, I'm getting some feedback from somebody, and I don't know where. But anyway.

Salvatore Scro, Esq.:

First off, if the building's less than 10 years old, the board should consider and a manager would be wise to inform the board that a forensic inspection and possible investigation of the common element should be performed, or if there was repair work that's been performed within 10 years and a symptom of a defect has appeared. So you're going to want to do some investigation if you have to take on a repair. Regardless of the age of the building when there's a significant repair project to be undertaken, you got to know what's the first step. For us, we recommend it's to retain the services. There's a horn going out there if you can hear it. I don't know why. It's to retain the services of an appropriate expert, whether it be an architect, an engineer, or some other expert that would provide the necessary services of investigation of the area that needs to be repaired.

Salvatore Scro, Esq.:

So who should select that expert? Typically, our advice is always to retain a qualified forensic engineer, and for every building problem, there's an associated expert that's appropriate to investigate the issue and specify the appropriate repairs. Some engineering firms have experts on their staff who cover most of the issues that you may deal with. However, if they don't, there's specialty experts that can be called upon to supplement the review.

Salvatore Scro, Esq.:

The selection of the expert is something that should not be primarily based upon the cost. As one astronaut put it once when he was asked how he felt about to go up in the space shuttle, he said, "How would you feel being strapped into a rocket built by the lowest bidder?" So you really want to make sure that you're choosing the right expert and not just the lowest bidding expert. One of the things that people might say as well, "In an association we have to get bids and take that lowest bidder." That's not the case. And right now everybody's probably looking at me and maybe looking like that. In any event, you don't need to take the lowest bidder. Section 718.3026 of the Florida Condominium Act applies to that and that is not a requirement.

Salvatore Scro, Esq.:

As construction defect attorneys, we know certain matters require us to bring in various experts or consultants. We know we're not engineers. We're attorneys. We know what we may need to present as evidence to win a case on a construction defect claim, so we bring in the appropriate experts to provide the opinions to support the claim. Those experts do not know what of their opinion or investigation may fall short of providing adequate proof to win a case, so we guide them. Similarly, is the case with board members and association managers. They can recognize a problem they know there needs to be a repair. But to retain the right expert and know whether that expert has performed the appropriate investigation and obtain the proof necessary to support the claim, they should not take on that responsibility alone and they should consult with someone to identify who that expert they may want to retain it.

Alan Tannenbaum, Esq.:

Yeah, obviously, for board business judgment, one of the requirements for the protection of the board business judgment role is that the boards rely on appropriate experts. You may have people on the board who are former contractors and engineers and so forth. Not really a good idea to rely on in-house expertise in undertaking especially a major repair project. Besides the fact that those folks are not insured usually in Florida which could get them in personal issues. So Jon, Jon Lemole. Knowing fully the problems requiring correction, why is that an important step in having a successful repair project?

Jon Lemole, Esq.:

One of the things that we see frequently in our practice is a failure of the association to understand what are the effects of a problem that they're having that they're repairing. Let's take an example. Let's suppose you have leaks around the windows in your building. So you bring in a contractor and they verify that, "Well, we need to make some repairs to the ceiling around the windows," or, "there's some flashing issues that need to be addressed." And a lot of times that's where the inquiry and the investigation ends.

Jon Lemole, Esq.:

And as probably a lot of you know, and I'm going to share a screen here, water doesn't always ... You don't know where water goes. Water sometimes winds up in very interesting places in your building. So if you're having an issue that you need to repair that's based upon water intrusion, one of the first things that any decision maker should do in that situation is think about, "Well, how do I fully delineate where this problem may have wound up. It may not just be confined to the area where I see it, where I patently observe it."

Jon Lemole, Esq.:

I'm showing you a picture here where there were observable leaks around these windows. And also, you can't see it up here, but there was also some water intrusion that was observable up on the roof to wall transitions. So if you're seeing that and you're making a decision, "Okay, we've got to repair the windows, maybe we've got some roof repairs that we need to do to control this," you may think you fixed the problem. And in fact, you haven't, because when we took a look at this building and did some forensic evaluation, you have water migrating down through these windows and along this corner and it's creating a situation where the entire framing down here at a much lower level is completely rotted out. I'll give you another even better picture.

Jon Lemole, Esq.:

This is a situation where we had observable leaks in the roof up here. Oh, I'm sorry. To get back to that. The initial reaction would be, "Well, we've got to bring in a roofer and we've got to make some roofing repairs." And if you just ignored, if you just did that and you didn't investigate where this water may have wound up any further, you would have missed all of this framing damage underneath. And you've literally got a situation here where the interior, the building structure is rotted away as a result of water migrating.

Jon Lemole, Esq.:

The takeaway is that when you're faced with a repair issue, you've got a condition, you think you may know where, what the repair is, you may have a contractor who's coming and saying, "I know exactly what needs to be done here." Don't stop your inquiry there. Talk to general counsel, talk to a construction lawyer, and think about bringing the right experts in, as Sal said, to take a look and see where the problems may really have wound up, so that you're not just repairing the observable condition but you're also going to take the steps to repair what that observable condition has caused. Because repairing the observable condition may just be half of the story.

Jon Lemole, Esq.:

That's why we say know fully the problems requiring correction. It's not always obvious, and you may have to do a little bit of digging, but don't neglect that very important step because you may not be doing ... You may be solving a problem that is just putting a band-aid over a much bigger issue that you're going to find three, four, five years down the road. It's going to get much worse. It's going to create a very significant financial burden on the association.

Alan Tannenbaum, Esq.:

So failed roofing projects keep our team very busy. I've seen a few recently. There's a lot of roofing companies that are selling roof overlay products. No need to tear off your current roof and go down to the roof structure. We could merely put this product as an overlay over your existing roof. And there's not proper forensics done of the condition of the underlying roof, the insulation underneath and so forth. And putting a new roofing product over an overlay that is not in good shape is generally not a good idea, and we've seen it over and over. So that's an instance where have you really understood what your roofing problem is in order to determine what's the appropriate step, what's appropriate roofing system to put on your roof, and really from a pricing standpoint there's a lot of groups that are going for those overlays and it's really not correcting the underlying problem. So we have seen that.

Alan Tannenbaum, Esq.:

All right. Engineering proposals. I'm going to cover this topic. It's really a pet peeve of mine because a lot of times a group comes to us, say, "We would like your help in drafting the contract with our repair contractor for this major repair project," and I say, "Well, what about your engineer?" "We already have the engineer." "Have you signed a proposal with the engineer?" And usually we get, "Yes, we've signed it." Groups are not looking carefully at the engineering contracts, and there's some members of the engineering community who are not very happy with us and pointing this out. But several years ago, really bolstered by their insurance companies, engineers started to put general conditions into their engineering proposals. Sometimes they're on the back of their form. Sometimes it's an attachment.

Alan Tannenbaum, Esq.:

So what are some of the typical clauses in engineering contracts to be wary of? One of the most important ones is limitation of liability clause which say for instance that the limit of the engineer's responsibility if they screw something up is the amount that they've been paid or some fairly modest dollar amount. I've seen $50,000. I've seen $100,000. So you're hiring an engineer who may have a million dollar professional liability policy and too many groups of shiny contracts that have a limitation of liability clause of a much lower level, and we end up when we're asked we negotiate with the engineers to at least increase their limitation of liability level to the level of their insurance coverage, which I think is a fair compromise.

Alan Tannenbaum, Esq.:

But there's other things. There's venue clauses. Sometimes they want the venue in the county where they're headquartered. It may be different than where your project is. And sometimes you have a contractor who submits a contract that has a venue for any dispute, and yet a third county. Those have to be appropriately aligned. Prevailing party attorneys' fees clauses are important too.

Alan Tannenbaum, Esq.:

We suggest, I mean, you can do your own internal review, but when you're handed an engineering proposal, especially on a major project, look at the fine print, look at the conditions. You can even run them by us and we'll take a look at them. The engineers would reluctantly agree to renegotiate those and take some of those clauses out, so just be wary of that.

Alan Tannenbaum, Esq.:

So I'm going to give the program back to my partner Salvatore Scro, and he's going to tell you why having detailed and on target plans and specifications are important for a successful project.

Salvatore Scro, Esq.:

Okay. Let me just ... I had a screen up there with a shot for you, but I want to ... Okay. Sorry about my guy there, but here's the issue that you have. If you don't have detailed plans and specifications, all right, the problem is that there's going to be requests for information, there's going to be different questions that arise during the case of the project. So you want to know initially what the detailed plans and specifications are so that you can get the proper bid for the project. They tend to be generic. Your engineering firm that prepares a plan, you should urge them to make sure that they have detailed specifications. And it's also good to have those plans reviewed by a construction consultant because the contractors are the ones that actually do the work.

Salvatore Scro, Esq.:

What happens is if you don't have that done, a lot of times the original contract is the little one and the change order is what causes the grief and the expense. Many times the contractors that perform the work as I said will not have very detailed plans available to them, and the contractors, they'll construct their work based upon what they believe should be done in accordance with the building codes. And we find a lot of times that those contractors' interpretation of the building code is not always on point, or they may possibly assume that if the plans did not call for certain work to be performed, then it was not necessary that it be performed. So supervision of the project not just by the owner rep. That role will be discussed later on. But by the general contractor and subcontractors or possibly the design professional you retained is key.

Salvatore Scro, Esq.:

The staff of the general contractor and some contractors are not always of the same experience. Subs bring in laborers to do that what they may be told, but are they doing it correctly? You need someone to be sure that they're being supervised, and that the person supervising them has knowledge so that they know whether or not they're performing the job correctly, another contract term that should be included in the contract.

Salvatore Scro, Esq.:

You really don't want to end up with a situation where your plans are not detailed and the left hand does not know what the right hand is doing. You do want to make sure you have those detailed plans and specifications.

Alan Tannenbaum, Esq.:

All right. Jon Lemole, let's talk about repair contract preparation.

Jon Lemole, Esq.:

And here we're talking about the contract with the contractor, and this is really where rubber meets the road in your repair project. I look at my role in reviewing repair contracts as involving two big areas, other areas besides those two big areas, but the two big areas are how do we ensure that the project gets completed in a timely fashion for the association. We'll discuss that a little bit later in this program. And then what happens when things go wrong, because they will go wrong.

Jon Lemole, Esq.:

I've not seen very many projects that go off without a hitch. And I'm looking at the chat. For example Alice, and I'm going to get to your question, you're talking about a situation where you had a balcony reconstruction and now you're seeing some cracks in the work of the contract. And what do you do about that? What's your recourse? So when I look at a contract from a contractor, and I see them ... I've looked at contracts that are page long and I've looked at contracts that are 50 pages or 60 pages long. There's no right answer as to the how many pages that this contract should be. It's what's right for the project. But, there are certain things that are key that we want to do to protect an association when things go wrong.

Jon Lemole, Esq.:

There's a lot of ways that contractors try and skew that in their favor. Alan and Sal talked about indemnification, limits of liability clauses, and sometimes we'll see that. Where you can sue this contractor? What kind of forum you have to bring your claim? Are you allowed to bring your claim in circuit court or do you have to go through arbitration? Contractors seem to like this idea of having claims brought to arbitration. We're not a fan. To tell you right now, we don't like that, and we would always try to reserve, negotiate that out of a contract. We've seen contracts where the contractors had the right to assign their work to somebody completely different and the work ... So you have somebody showing up to do the work that you don't even know who they are. So you want to address all of these issues to make sure that when things go wrong, that you've got effective recourse against the contractor in the place that you want to have that dispute heard. And for us, that's always circuit court.

Jon Lemole, Esq.:

One of the other things that we frequently see is dispute resolution procedures within the contract, in other words when things arise, sometimes you get these convoluted things where the first has to be brought to the architect and the architect has to make a decision, and then if the architect makes a decision that nobody likes, then we have to bring in a couple other people, a panel of people to figure out what the right path is, and all these complex different ways that the contractor tries to make it where you put roadblocks up to you folks, your association, having quick and significant recourse against that contract.

Jon Lemole, Esq.:

So getting back to Alice's question, what do you do, we've got a problem. The answer is I don't know, I'd have to look at your contract. But presumably you have some remedies in there. And if you've had a lawyer look at that contract and make sure that they've done all they can do to protect the interests of the association, then you should have very effective recourse against that contractor. But without looking at the contract I can't know because that's what controls everything. It is the most important thing in your project as far as I'm concerned, is have that contract reviewed by counsel.

Alan Tannenbaum, Esq.:

What a lot of engineers typically do is and architects too is that they will put a form industry contract in the bid documents. Those contracts are pretty sophisticated contracts, they're very thorough contracts, but they have provisions embedded in them that are not particularly helpful to associations, and they're not really aligned for a repair project in Florida. I've often said that these form agreements, they're great if you're building a 50-story high-rise in Manhattan, but they're not particularly designed for a re-roofing project in Florida or a balcony repair project.

Alan Tannenbaum, Esq.:

So what we do many times is that we see those form contracts, we do addendums to them to clear up some issues. They generally don't have prevailing party attorney's fees clauses. There's other issues that need to be cleaned up in them. So we do that. But be wary of that.

Alan Tannenbaum, Esq.:

All right. What I have next on the agenda is selecting the owner's representative. I'm talking about a major repair project. The engineers never understand this. Why does the owner need an owner's representative? That's what we're there for. I've been doing this long enough to know that everybody who you bring onto your property needs to be watched and overseen. The engineers are not there all the time. If they were, you would be paying a fortune for project management. They're usually only there at limited amounts of time. You have people coming to your project all the time.

Alan Tannenbaum, Esq.:

What some groups do is say, "Well, that's what our manager is for." I know there's some managers there might be already shaking your head that we already have enough on our plate, we're not construction experts, we're not here to oversee a major repair project, plus the repair project gives them extra workload anyway, managing parking and renters and funding the project budget and so forth. We are great believers on a major repair project associations bring in a outside owner's representative. Could be a retired contractor. There are owners representatives who exist out there on a consulting basis, to really watch the job, handle the communication. They don't make decisions. They will confer back with the board on a major decision that needs to be made, but it's a third ear to be there, to be looking over things.

Alan Tannenbaum, Esq.:

Engineers miss things. Contractors miss things. Sometimes you have subs showing up. There's no project superintendent there. What are they doing today? We are a great believer in having owners representatives, usually an outside party. We're talking about a major repair project will generally save a lot of headache. Now, I've seen some groups say, "Well, we got this retired contractor on the board." Perfect. That'll be our owner's representative. The project starts in January. This board member's doing a bang-up job, keeping things in order, and come Easter he's heading back up to Michigan for the summer and who's overseeing the project through the summer months? Usually that's generally a bad idea. And again, volunteer owners representatives can end up being more trouble than they're worth.

Alan Tannenbaum, Esq.:

All right. Sal, carefully vet bidders and qualify the repair team. Why is that important for a successful project?

Salvatore Scro, Esq.:

All right. So you have different projects, different repairs. You want to choose the appropriate contractor for the job. When you have an idea of who that contractor is that you may want to select, you want to ask for references relative to the work that you're proposing and you want to interview them. You want to speak with them. Be sure that they specify who their superintendents are, who the subcontractors they may want to bring out to the job.

Salvatore Scro, Esq.:

When you interview them, you want to get references from them, you want to know what projects they may have done, take a look at those projects, see how they've turned out. Also, you want to see how busy they are. You want to make sure that they can devote the time they need to to your project. So it's important in the contract that maybe you put in required days, hours on the job, required number of personnel that they'll have on the job, the laborers to do the work, make sure that they have the materials.

Salvatore Scro, Esq.:

You also want to know if they have the funds necessary to provide the materials for the job. If they're asking you for money upfront, then that's something you need to consider. Are they well enough off to handle your project or are they taking your money and buying materials for a different project? If you do give them money upfront, you want to make sure that you allocate that money to the materials that you're going to use for that project.

Salvatore Scro, Esq.:

And find out who they're going to be bringing on the project. Not just their own staff. A lot of times general contractors don't even have any of the laborers to do the work. They subcontract everything out. So you may want to check with the attorney handling your contract, whether they have any knowledge about the general contract or the subcontractors that may be considered for the project.

Salvatore Scro, Esq.:

Construction defect attorneys sue contractors. That's what we do. Not because we love to sue contractors, but because they're the ones that created the defective condition causing the problem for our clients. So we do have experience with these different contractors and subcontractors. And while anybody can have a day, a bad day sometimes, a bad day over and over again is something to be cautious of.

Salvatore Scro, Esq.:

Also, you want to make sure in the contract terms that the subcontractors that they use are subject to your approval, and that you have the opportunity to accept or reject the subcontractor. The same thing with maybe the personnel that are supervising the project. So it's important that you know the viability of the contractor that you're using, who the subs are that they may use, put in there what the minimum hours are, and also find out what they do to prepare for the project, what they do during the project. Do they do the cleanup every day? How are they going to store their materials? All these things are important things that you need to look at when you're seeking out the right contractor.

Alan Tannenbaum, Esq.:

When you get references, call them because I think there's an assumption that if somebody gives you a list of references that they all had good experiences with your company. Not always true. Or they may say, "They ended up doing a great job but they assigned Tony to the job as the superintendent. We hated Tony. And they gave us a much better guy. You should really ask for that guy, would be the better superintendent." So you will learn things about the job. So it's really great to call those references, find out what their experiences are, what tactics did they use to get the best performance out of that contractor. So call your references.

Alan Tannenbaum, Esq.:

Jon, let's talk about draw schedules. Why is that important to a successful job, to have a balanced draw schedule?

Jon Lemole, Esq.:

Okay. Folks, I want you to remember two things. And if you remember these two things, you're going to be way ahead of the game. Number one, your project is not your contractor's only project. They have multiple projects going at the same time. Number two, they're probably not staffed to do all of the projects that they have going at the same time. Every morning whoever's making the decision, whether it's the owner of that contracting firm or some scheduling people or supervisors or management folks, they have to make a decision as to how they're going to staff the projects that they currently, the multiple projects that they have going at any one time. They've got to put their people in the right places. They've got to order materials and make all of these decisions about staffing, supplies, things like that. Those decisions like for any business are going to be made upon the issue of where they're going to get the most bang for their buck, where are they at risk.

Jon Lemole, Esq.:

So if they don't have any risk on your project because you've paid them more than they've provided in value, likelihood is that they're not going to be putting too much of an emphasis or a priority on getting to your project versus a project where they've got more value in the job than they've gotten paid. And I can't tell you how many times we see associations just accept whatever draw schedule they get in the contract that they're presented with by a contractor. And by and large the contractor has come up with that draw schedule knowing full well that they want to make sure that they have as little risk and they're not financially behind in that project.

Jon Lemole, Esq.:

A lot of these folks have it down to the science. They know how long it's going to take them to get supplies. They know what kind of credit terms they have with their supply suppliers and material suppliers. So they're looking to create a draw schedule that's favorable to them. And when they have a draw schedule that's favorable to them, that is a golden opportunity for your project to get delayed and not be completed on time, and perhaps not even on budget.

Jon Lemole, Esq.:

So a good construction lawyer who's really familiar with these concepts of risk and contractor risk is going to look at that draw schedule and say, "Okay, I want to make sure that my client, his association gets this job done on time. So I want to make sure that this contractor, every morning when he wakes up, he's looking at my project and saying, 'Man, I got to get people out there because I got to get that next draw payment because I don't want to be upside down at any point in time on this deal.'" And that's essentially it. It's a very simple risk reward calculation that needs to be made, but what you're presented with by the contractor is very rarely ever going to be in your favor. And you can address that. You need to address it, and it's one of the most effective ways to make sure your project gets completed on time.

Alan Tannenbaum, Esq.:

Be very careful about deposits. What we try to negotiate for associations is the first payment made to the contractor is after there's some work has been completed and the first draw request is made. Deposits, I've seen some contractors take the position that what you've handed them the deposit is part of their profit on the job, they don't even use it for materials applied to your work. So be careful of deposits.

Alan Tannenbaum, Esq.:

All right. Sal, document the conditions before the work begins, why is that important?

Salvatore Scro, Esq.:

Okay. All right. So we're back. We left off here. But you want to ... This is a really simple topic and a quick topic. You're going to have work done to your buildings, to your units. Maybe they have to go inside the units. There may be some heavy work being performed outside and percussion or something. So you have your interior unit. You may want to document the conditions, because especially if they have pictures on the wall, if they have valuables, if people have to go into their units, you want to ask your owners to go in and just document the conditions. You want to document the conditions outside. There's two reasons.

Salvatore Scro, Esq.:

One is for the protection of the association in the event there's damage to property of an owner, whether it be inside their unit, outside their unit, vehicles, whatever. Also, it's important to document the conditions so that when you identify a problem that the contractor doesn't say, "Oh, that happened before." You want to make sure you let them know, "Hey, I have a document of the conditions and here was a problem."

Salvatore Scro, Esq.:

Don't be afraid to document not only the buildings but a lot of times pavement, sidewalks. We find a lot of times that pavement is damaged with the placement of heavy equipment. Sidewalks are damaged, are stained with certain paints or materials that they're using. But if you don't document those conditions, what happens is for example if this is the unit of one of your owners and the lamp that they got for $10 at Walmart now all of a sudden gets broken, the next thing you know is this is what their place looked like and this is what they want to be reimbursed for. So you want to make sure that you document the conditions to protect the association.

Salvatore Scro, Esq.:

Take photos, dates of the photos if you have date stamps. If you don't have date stamps, you want to have some evidence of when the photo was taken, where it was taken. Make sure you take wide-angle views of things so that when you have to zoom in on certain things, you can identify where they are. But you do want to have proof of existing condition so that if there's trouble, you know what the condition was and what was damaged.

Alan Tannenbaum, Esq.:

All right. I'm going to spend just a few minutes on payment and performance bonds. A payment bond assures that your general contractor pays their subcontractors and suppliers. That's what the payment bond is for. Performance bond protects you if midstream in the project general contractor goes out of business and you have somebody to complete the project or otherwise defaults, you have somebody to step in and complete the project or pay you to complete the project. They're very important protections on major repair jobs, but there's a hidden value to especially the performance bond because the general contractor never wants an owner to have contact with their surety.

Alan Tannenbaum, Esq.:

So if a general contractor is starting five jobs at once and two of them are bonded jobs and three of them not, they're going to have a tendency to put their best people and give their best attention to the jobs that are bonded because the last thing they want is their surety contacted for a claim to be made against the bond which can result in either the bond capacity for that contractor for the following year to be reduced or the bond premiums to go up in cost which could affect the business that they're able to take on in the subsequent year. Contractors do pay more attention to their jobs that have bonds because they don't want that type of owner contact, they don't want any claims against those bonds.

Alan Tannenbaum, Esq.:

One of the things in requiring bonds is some of your contractors who are financially insecure and not bondable, you can strike them off your list because they say, "Well, we're not able, we're not bondable, we're not able to get a bond for a job like this," and then you know you're dealing with people who are qualified financially because one of the prerequisites for securing a bond is you've proven to your surety that you're a company that's financially run has appropriate reserves in order to qualify for bonding.

Alan Tannenbaum, Esq.:

One of the things you'll find if let's say you get three bids and it's a bondable job where you're requiring a bond, you may get different premiums quoted because usually the owner pays the premium, and all of a sudden one contractor will say, "Well, our premium's $7,500," and another one, "It's $4,500." And that's usually because the one that's $7,500 probably had some claims against their bond or maybe they're not as financially secure. And we've gone back to contractors and say, "We're happy to pay the $4,500 worth of your bond, but you're going to have to pick up the other 3,000 because your bond premium is too high relative to these other contractors." So keep that in mind.

Alan Tannenbaum, Esq.:

But it ends up being an incentive for the contractor to pay their subs and suppliers and to complete the job. That's kind of the incidental impact. I mean, I would have to say that part of the answer as to why to have a construction lawyer as part of your team is when they know that a firm like ours is involved, they actually tend to pay greater attention to that job and make sure it comes out right because they know you have a construction lawyer as part of your team. That's another incidental impact of our involvement like would be a performance and payment bond.

Alan Tannenbaum, Esq.:

Jon, keeping regular job minutes and confirming understandings in writing in a timely fashion, why would that be important?

Jon Lemole, Esq.:

And this will be pretty quick. I think it goes, it's obvious, somewhat obvious, goes without saying. But like Sal's discussion about documenting things prior to the start of the job, it's equally important that as the job is progressing, that you document things that are happening on a routine basis. Even if there's nothing that is unusual going on, it's always best practice to have a routine job inspection. Your owner's rep should be meeting with the contractors and inspecting the work that's been done so far and documenting that. But certainly, if there's problems or if there's things that need to be changed, that should always, always, always be put in writing.

Jon Lemole, Esq.:

I'll give you an example of where not doing that became a little bit of a problem. We overcame it, but we had a case a little while back. It was a mid-rise condominium building and it was a re-roofing project. And about a third of the way through the re-roofing project there was a very, very big rain event and the contractor hadn't tied in the new with the old roofing very, very effectively and they had a pretty large flooding problem. And where we had some problems was the failure to have really good documentation about what type of remedial work that contractor needed to do in order to fully ensure that there were not other problem areas with the roof that had already been put down, because again, as you know, water can travel in very different directions.

Jon Lemole, Esq.:

So what happened was this roof got finished and what was discovered subsequently is that there were still some really very wet and moist areas underneath this roof that continued to exist. There's a lot of water trapped under this new membrane. We did a great job. We got a great result for that association. But one of the things that I personally wish I had as a lawyer was much better documentation by the people involved in that project of the type of work that should have been done in order to fully delineate that. We had a lot of wrangling with the roofer as to what that they did what they were required to do, that they fully delineated it, they didn't know where this water was coming from. It certainly wasn't from this rain event. And if we had really good records and minutes on the aftermath of that, it would have made the case a very ... a whole lot easier to deal with.

Jon Lemole, Esq.:

So the takeaway is routinely get out there, document the job, keep minutes, circulate them. If there's things that you and the contractor are going to agree to do, make sure it's in writing. Don't ever assume that we all know what's going to happen. Put it in writing and make sure that everybody confirms that understanding.

Jon Lemole, Esq.:

One other quick reason for that, is if you do find yourself in a dispute and you end up in litigation, one of the things that you want to do is tie that contractor's insurance carrier into this litigation because that's where the checks are going to get written to settle. And a lot of times the CGL carrier only has responsibility for consequential damages. In other words, they don't insure the contractor to repair the work that they did, but they do insure the contractor for damages that their work caused to other areas. So if you do have a problem, documenting what other damages that problem may have caused, other consequential damages, may be key in helping ensure that their carrier comes to the table and that you're not dealing with an LLC that's not adequately funded so that you get a judgment which you may never collect.

Alan Tannenbaum, Esq.:

So at the end of the day when you've had a meeting at the site with the contractor and they made certain promises, doesn't have to be too fancy. We're talking about job minutes. You could just shoot out an email that says, "We had this meeting today and this is what you agreed to," it could be a time, it could be something that's included in the contract. It's not going to be an extra. You confirm it and you can just say at the end, "If I have not properly summarized our discussion today, let us know," and if you get no response, that should be sufficient.

Alan Tannenbaum, Esq.:

Sal, nipping issues in the bud, why would that be important for a successful project?

Salvatore Scro, Esq.:

Okay. Before I touch on that, I did see a question come up that was where do you find an owner's rep. And that's interesting, because you can look for an owner's rep whether it be a contractor could be an owner's rep, an engineer, architect could be an owner's rep. It could be a board member or it could be an association manager. I've had cases where I've had association managers handle the matter and they've done an outstanding job, but they know what their limitations are. They know when to ask questions. They know who to go to to find out if they need additional assistance. So owner's reps, I know Alan can touch on this some more later on, but I just wanted to mention that, because I saw that question. You want somebody who's knowledgeable in what to look for and when to know that they need more assistance as well.

Salvatore Scro, Esq.:

As far as nipping issues in the bud, this is important, especially if you have multiple buildings that work is going to be repeated over and over again, then you want to address what if there's an issue right away so that it doesn't repeat itself over and over again. Usually around the first draw request when the work is completed for that first draw request, you'll have an inspection to make sure the work is performed properly. That's when you need to let the contractor know if there's a problem, and you need to be strong about that. Again, owner's reps are key with that as well because some of them just look and approve and others are very diligent and tough to deal with, and that's a good thing. I've seen both, and the ones that are tough, they may give the people a hard time but they know they mean business and they're going to be on their toes from then on.

Salvatore Scro, Esq.:

I remember when I was young, my parents were building a house and my father was pretty involved in the plans, and he asked for rooms to be insulated on the interior. This is up in Syracuse, New York. We didn't just want the insulation outside but he wanted rooms to be soundproof so that you don't hear noises going through the house. The sheetrock was up, the drywall was up. He went in and he said, "Is the insulation in there?" And they said, "Yeah, it's in there." He said, "Put a hole in the wall," and they said, "We can't do that." He said, "If it's there, I'll pay for it. If it's not there, then you didn't do your job." They put a hole in the wall and there was nothing there, so they had to rip out all the drywall and do it over again. So you need to make sure that those things are done right away.

Salvatore Scro, Esq.:

Most of the contractors are capable of doing good work if you keep them on their toes. Make sure they keep good accounting records so that you know what materials were used so you're not paying for materials that were on another job. So have details of what was used, what materials went into the project. Don't just accept what they say. You want to really scrutinize the job and the accounting, things like that. I actually learned from that at a young age.

Salvatore Scro, Esq.:

The first home I bought, I think I was 23 years old. I bought a home. It was a new town home and I went in, I walked down the carpet and didn't feel the same. So I went and at my closing I said, "The pad isn't right." Well actually before the closing. So they ripped out all the carpet on the two floors, they put a new pad in. I went back in. It still didn't feel right so I went to the model, I lifted up the vent, I ripped out a piece of the pad in that unit. I went to the mine and I ripped it out. One was a quarter, one was a half inch. And the general contractor said, "Well, the subcontractor, that was his fault." I said, "Well, I know it's not my fault. So it's either done or it's not." So they ripped it all out again and put in the new pad.

Salvatore Scro, Esq.:

If you let them know you mean business and you have certain protections in the contract, which is why it's important to have all your repair contracts reviewed by an attorney because we would look at those contracts, we would look at what the possible pitfalls are, what it may be that happens throughout the course of the project that may cause you trouble and put in protections in there that you have the right to inspect and to require inspections and changes if it wasn't done appropriately.

Alan Tannenbaum, Esq.:

All right. The last subject which I'll handle in two minutes is final payment job close out, really crucial. That's the last time you're holding money that the contractor would like, especially if you have retainers it could be a substantial amount of money, that's when you have leverage to get items corrected, to make sure the finances are in appropriate form, to make sure you get all your warranties. One that I've seen, one thing I've seen in project is really project exhaustion, where you've had a board member, owner has been dealing with this repair project for a long time, they're exhausted at the end of the job, and there's got to be a burst of energy while you still hold that final payment to make sure that you get documentation all your lien releases, things get corrected.

Alan Tannenbaum, Esq.:

I'm a great believer in punch lists being done before the contractor has all their money because getting a contractor back to do punch list work is very difficult when they've been paid or there's only a small amount of money that is there.

Alan Tannenbaum, Esq.:

All right. Let me answer a couple questions. Does the engineer or the contractor get the required permits? It's generally the obligation of the contractor to pull the permit. That's who the building department is going to want to see. Who pays for performance to payment bond? That's generally an owner obligation to pay for that bond, but I've seen owners say and negotiating the contract that require the contractor do it, but generally it's an owner obligation. When is arbitration an acceptable option? We don't as a whole like arbitration for owners, generally because the people who are on arbitration boards for construction cases are generally contractors, engineers, architects, construction lawyers. There's no managers or condo board members on typical national arbitration boards.

Alan Tannenbaum, Esq.:

The other thing that you don't have is full discovery rights and you don't have third party practice. A lot of times if something goes wrong, you need to have other parties in the forum, a dispute resolution besides the contractor. Arbitration has great limitations on that. So we generally strike those clauses and go for circuit court for owners.

Jon Lemole, Esq.:

And Alan, it never ... usually it's often said that arbitration is cheaper, and I don't think that's the case. For example, the filing fees for the American Arbitration Association for example are very high. There's a barrier built in at least from the contractor's perspective because when you're looking at a $10,000 or $12,000 or $15,000 filing fee at the AAA, that's a lot of money.

Alan Tannenbaum, Esq.:

So think about it, and Jon's correct, think about it for circuit court, you may have a $400 or $500 filing fee. AAA arbitration, it could be $15,000. And then the judge is getting a salary paid by the state of Florida to administer your case. If you have a three member AAA arbitration panel, you're paying generally half the cost of some very high hourly rates for those arbitrators to review your case and eventually decide it. So actually is not in the end even administratively a procedure that is inexpensive.

Alan Tannenbaum, Esq.:

We've taken up our hour. You could see that we hit some highlights of issues that would need to be ferreted out in greater detail which we can't do today. Hopefully we gave you some food for thought. If you have additional questions, and some of the questions we didn't get to, we will answer them. Hopefully this has been helpful kind of general orientation.

Alan Tannenbaum, Esq.:

The next session we're going to hold in April is going to be on what to include in a good repair contract. We're going to get into the weeds of repair contract, what provisions should be in there, what provisions you should be wary of. We're going to do a full session on that topic, and we're going to carry on every month with these sessions as long as there's a demand and there was a great group of folks came today. There's an evaluation form that's anonymous that you can fill out. Let me see if there's any other questions before we go. Somebody, Michael asked a question about a restoration project. That's something that we can handle offline. We're happy to answer that question for you.

Alan Tannenbaum, Esq.:

I hope this was helpful for everybody, got a little bit of orientation. We have offices in Orlando in St. Pete, Sarasota and Fort Myers. We handle the I-4 corridor and from Hernando County down to Naples. If you're managing a project in Miami, I'll send it to a good construction lawyer down there, but we stay away from the south Florida market for our services. That's allowed me to still be practicing law after 40 years that I got out of south Florida as a lawyer 1983.

Alan Tannenbaum, Esq.:

Thanks everybody for attending, and again, we'll be in touch offline for anybody whose questions we didn't answer. Michelle Colbert will let you know about the video being available because she did record this. So have a great day. Thank you.

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The Smart Board & Property Manager Legal Guide to Resolving Claim Arising from New Construction and Major Repair Projects

The Smart Board & Property Manager Legal Guide - Resolving Claims Arising from New Construction and Major Repair Contracts

  • Has your association recently transitioned to owner control?
  • Are your buildings less than ten years old, and latent defects have become apparent?
  • Are you about to undertake a major repair project?
  • Did you complete a major repair project and are now sideways with the contractor?

If your answer to any of these questions is yes, take advantage of the experience and wisdom of our trial team with over 50 years of combined experience in resolving such claims. 

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Addressing Needed Building Repairs

The Smart Board and Property Legal Guide: Addressing Needed Building Repairs.

"The primary purpose of Florida condominium and homeowner associations is to maintain and repair the common areas and other components under the jurisdiction of the association. The Board of Directors' duty to direct proper maintain and repair steps is heightened by both the Condo and HOA Acts placing directors in a fiduciary relationship with the owners while at the same time, through statute and the governing documents, prohibiting owners from undertaking self-help measures. Securing appropriate engineering studies, with guidance from construction counsel both as to the choice of the engineer and the scope of the investigation, is suggested in order to assure that the Board is meeting its fiduciary obligation." 

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