Noticeably absent from the Miami Herald’s editorial “How can we avoid another collapse like Surfside? Florida can start with these reforms” (July 11, 2021) was any focus on the role of the developer. (Under Florida law, “developer” includes other than the originator of the condominium, but let’s assume it does not.)
In the words of a 1999 law review article by a veteran New York real estate lawyer explaining the history of condominium development: “Developers recognized that they could take the concept of the apartment complex … and enhance that concept with modest recreational facilities (in most cases). They could then sell the units for a quick initial profit and take back a recreation lease with escalations to ensure a continuing long-term profit.” As long as the real estate market stayed stable, it was all blue skies above: “Lenders and developers alike were raking in big profits and the condo purchasers were delighted with their new homes. Everyone was happy.”
But what if, in the process of designing and building the condominium, the developer and the contractor cut corners? And what if the local building authorities, focused on getting the condominium on the tax rolls, did a superficial job of inspecting and reviewing the plans and the construction itself, turned a blind eye towards obvious problems, or worse, were induced to look away? And what if, after the turnover to the Condominium Association, the Board and the unit owners shirked their responsibility to put money away for the inevitable rainy day?
Anyone who ever professed to believe that none of these “what ifs” was not only possible but, in many cases, likely, is too naïve to be credited.
But there are no provisions in the Florida Condominium Act designed to keep developers on the hook for construction defects that are (or should be) known to the developers from the time of construction but may not become evident until long after the developer ceases to exist or the developer “turns over” control of the condominium to the other unit owners (in the form of a non-profit Association governed by volunteer Board members). Yes, there are some provisions designed to impose some responsibility on developers, but they are not long-term solutions and usually are limited in nature and riddled by loopholes, and are difficult and expensive to enforce. See David G. Muller, Transition Committee and Construction Defect Claims (2020).
If the Florida Legislature intends to get serious on “Surfside”—talk about naïve!—here is one way that they could tackle it. The developer would be required either to post a bond, to last for a defined period of time (say, 20 years), in a particular amount. The amount would be determined by an independent structural engineer observing and testing the design and construction of the structure. Until turnover, the amount of the bond or trust would be unchanged. Thereafter, the Association would be required to fund, within the remaining years of the bond or trust, a per-year pro rata contribution to the Association’s reserve account, and the amount of the bond would be reduced by each year’s Association payment. The funds in the bond or reserve account could be used solely to finance capital (i.e., non-operating) expenses, as determined by an independent structural engineer.
The idea is to go where the profits are located and the responsibility for shoddy construction originated. If such legislation were passed, the incentive of developers to cut corners would be sharply reduced. The bonding companies would, likewise, have every incentive to oversee the design and construction to avoid ever having to pay on the bond.
The details can be worked out. Yes, the devil is in the details, but if the public’s attention remains focused on Surfside (too naïve to believe?), legislators would be less likely to remain in the pockets of the vested interests—developers and their dependent allies—who would fight to prevent the enactment of any such legislation. Or at least we can hope…naively or not.
