When the devastating condo collapse happened in Surfside, Florida in June, everyone looked for an explanation. The details that have emerged since the tragedy have been tough to swallow. A 2018 report stated that the building had major structural damage, but the condo association didn’t know about the severity of the problem. Condo owners were in the process of paying assessments to cover $15 million in necessary repairs when the collapse happened.
This tragedy is a sobering reminder of the high stakes involved for condo buyers. Without due diligence, condo owners may pour all their savings into properties that need significant repairs, or aren’t well managed. Completing a thorough due diligence process (with the help of your real estate attorney) can help you avoid disaster. Fortunately, what happened in Surfside was exceedingly rare—but failing to identify neglect and deferred maintenance can prove costly for any condo owner.
We’ve seen this happen again and again. Longtime Boston residents may remember when the Harbor Towers condos made headlines nearly 15 years ago. The towers were constructed in the late 1960s, and by 2007, the original pipes were corroded to the point that a complete overhaul to the HVAC system was the only appropriate fix. The price tag: $75.6 million. Every one of the 500 or so owners was required to pay a special assessment of about 20 percent of their unit’s value, between $70,000 and $400,000. Naturally, this created an uproar. Some residents disputed whether such extensive repairs were necessary, and tensions grew among neighbors. Ultimately, after lawsuits and a contentious board election, the board collected the necessary funds to make the repairs.
What happened at Harbor Towers is just one example of how neglect and deferred maintenance can embroil condo owners in years of unanticipated expense and litigation. More recently, the trustees of the Cambridge Point condo association in North Cambridge discovered serious leaks and other construction flaws in the building, which opened in 2007. Repairs were expected to cost $2 million. The condo owners blamed the developers for the defects, but the condo bylaws were written in a way that kept them from being able to initiate litigation against the developers. Residents also had no idea where their HOA fees were going, and no minutes were kept from board meetings. Owners ended up in a years-long legal battle, fighting for their right to sue the developers for damages.
Due Diligence, Condo Buying and Your Real Estate Attorney
No one wants to buy a condo that’s going to turn into a huge legal or financial burden. Don’t rush into a decision because you find a condo that has a perfect location or great views. Once you’ve found a place that suits your wish list and your budget, your real estate attorney will help you map out a due diligence process that protects your interests. These are just some of the steps your real estate attorney may recommend.
1. Hire a competent inspector. A thorough inspection should always be a prerequisite for a property purchase. It’s absolutely critical for a condo purchase. If there are any issues with the building’s roof, basement, utilities or structure, you need to know about them before the sale. The cost for making those repairs will ultimately be passed along to you and the other residents. An inspector may uncover neglect or deferred maintenance in your unit or elsewhere in the building—or, in the best case scenario, the inspector may give you peace of mind by reporting that everything is structurally sound and well maintained.
In this competitive real estate market, there’s a worrying trend of buyers agreeing to waive inspections to make their offers more attractive to sellers. This is a huge gamble for buyers who may get stuck in an unsafe money pit. No matter how much you love the high-end appliances, or how many other people are making offers for the condo of your dreams, your real estate attorney will always advise you to get the inspection. It’s just too risky to make the biggest purchase of your life without looking under the hood.
2. Review the budget. No condo association has the cash on hand to make $75 million in repairs, but a well-managed building will have adequate reserves for ordinary maintenance and upkeep. Reviewing the association’s budget lets you verify that the trustees are prepared to maintain the building. If your inspector says that the building is going to need roof repairs within the next few years, and you find out that the association has almost nothing in its coffers, the cost of those repairs will likely be passed to the residents through special assessments.
But how much should a condo association have on hand? Your real estate attorney can help you assess whether the association has adequate reserves. Generally we want to see reserves that are sufficient to cover three to six months of operating costs, or maybe more depending on the age and condition of the property. The larger and older the building, the more likely it is to need expensive maintenance.
3. Review board minutes for the past three years. Minutes from previous board meetings can provide valuable insights into the building’s financial status and maintenance issues. Has the association hired any consultants or engineers to evaluate facilities during the last three years? If so, can the reports be reviewed? Have any assessments been proposed or adopted?
Reviewing the minutes may also help you get a sense of how the board and other residents approach issues in the building. If you see that residents have repeatedly raised the same concerns month after month without any action from the board, it may indicate problems within the association.
4. Interview the property manager and neighbors. The people who are in the building every day and who attend every board meeting are well equipped to tell you about any potential issues. Have any unit owners or third parties brought complaints or lawsuits against the condo association? Have any significant structural problems been reported in other units? What’s the general consensus among owners about the state of the building? These conversations may reveal details that need further investigation, or reassure you that the condo you’ve found is truly going to be a good fit.
As you think about buying a condo or other property, let the real estate attorneys at Sassoon Cymrot, LLC help you make the decisions that best support your financial future. From initial due diligence through the final closing, we’re here to make real estate transactions as simple as possible. Contact us today!