When What You Don’t Know Means Everything

The Champlain Towers Condominiums in the City of Surfside has caused us all to reexamine what we know about high-rise condominiums on the seashore. Remember that a “unit” in a condominium is essentially a box with four walls (to the unfinished surface of the drywall, normally), the floor beginning at the unfinished surface, and including the ceiling, again, only to the unfinished surface. In addition, by definition, a unit includes an undivided interest, shared with all other unit owners, in the structure of the building, including roads and parking, swimming pool, and importantly, the wiring and plumbing included in the walls.

The “unit” is normally not a problem to understand. Its use and repair is the responsibility of the unit owner. The other stuff, the “common area”, is always a problem.

A single-family home has all the same parts as a condominium building. But in a single-family structure, those parts are easy enough to understand, to inspect, or to fix. Those parts in a high-rise, beach-front condo building are so complex that normally only an expert in such buildings knows where they are, how they service each unit, and the age and condition of these common area items. When an owner sells a condo unit, the seller disclosure form is the same as the one for a single-family home. The problem is, a great bulk of what a purchaser needs to know involves the common area, about which the seller can truthfully say in his disclosure form that he knows nothing. So the purchaser is left knowing nothing about the majority of his intended purchase.

Common areas are run, by law, by an association comprised of those who own units. The unit owners most often are not experts in anything relating to the condition or maintenance of a high-rise building, particularly one old enough that we don’t trust its durability. Board members are not building maintenance experts; some may not even live in the building. Even if they do, they can’t constantly monitor the inner workings of the building.

I spent two hours yesterday in a meeting with Keith Wood from ERA American Real Estate and the state-wide council of Realtors, the purpose of which is to advise the legislature about changes to law made obvious by the Champlain Towers. As a threshold matter, my sense was that those present believed purchasers have very little way to know the status and quality of the common area improvements they are buying. Knowledge of that is critical, but generally unavailable, and maybe even nonexistent. Some very bright minds in Florida are working now to resolve that.

My contribution there, and here, is to say that Realtors with purchasers who desire a unit in a condominium, particularly one that is not new (and especially a high-rise built on the beach), should advise their purchaser to get in touch with a lawyer who knows condominiums before signing a contract. The standard condominium rider does not cover common area defects. That lawyer will close the transaction without charging more for the title insurance than any title company. The lawyer will charge for his or her time, for sure. But a purchaser who pays a half million dollars or more for a unit deserves to know all that can be known about this very complicated asset. You may not learn some important things. But mostly you will.

The lawyer is not a building maintenance expert, and will not give you a warranty on the building condition, but with you and the lawyer working together, your percentages of knowing what you need to know will go way up. More importantly, the lawyer will put into the contract requirements that you be presented with the Association budget, all minutes for the last years (at least three), a statement of the reserve accounts, and several years of all reports submitted to the board from engineers, inspectors or others. That lawyer will review those, and the purchaser (not the Realtor) should as well. In preparation for closing, the lawyer will probably prepare affidavits for the seller and perhaps for the management company to sign regarding questions about common areas that the purchaser might never ask, but for the assistance of the closing lawyer. The suspicious closing lawyer will also check public records for any sign of a flurry of recent sales in the building, particularly if those sales are by past board members selling their unit.

For Realtors, I have a prediction. Some deals will close that shouldn’t because there will be some mistakes. If your file does not contain a written disclosure to your client to the effect that your job is to bring buyer and seller together, not to evaluate or give advice about the common areas or association operations, your name will likely one day appear with others after the word “Defendant” in a very angry lawsuit.

You are no longer using a rotary dial telephone, and your car does not crank by winding it up. Please don’t assume that because you know a traditional single-family structure, you understand the Association or the common areas it manages. Almost always you will not.