Contributed by: Tyler Powell
On June 24, 2021, the Champlain Towers South Condominium Association in Surfside, Florida, collapsed without warning. The tragedy captured national attention. The Champlain board estimated the total cost to fix the building’s dilapidated roof, a poorly designed pool deck, and crumbling support columns was $15 million dollars. However, the board only had $800,000 in reserves. The issues surrounding deferred maintenance and inadequate savings, as seen in the Champlain community, are not unique. However, is poses the question of who is responsible for failing to repair the building?
Condominium associations are controlled by the covenants and conditions outlined in their governing documents, as well as their respective state statutes[1] and common law. A breach of any of these may open the association and potentially the board members up to liability. While there are incentives for the board to keep prices low and kick the repair can down the road, a condominium association’s failure to make necessary and reasonable repairs within the community may ultimately cause the association’s members to offset the cost of repair through increased or special assessments. To avoid a circumstance like that in Surfside, Florida, it is imperative that a condominium board develop a financial plan for repairs that involve large capital expenditures.
Ohio law mandates that condominium boards have reserve funds in excess of 10% of the annual budgets for large capital repairs[2]. The law allows associations to waive the reserve requirement but only with approval of the majority of the association’s voting power. Kentucky statutes do not specifically address reserves but the common law establishes a non-waivable ‘fiduciary duty’ onto the board that requires board members to act within their authority, to exercise due care, and to act in good faith and with ordinary care that they believe to be in the best interest of the association[3]. If successfully sued for a breach of fiduciary duty, board members can be individually liable.
By maintaining adequate reserves for large capital repairs, condominium associations can stave off liability, support the safety of the members, and avoid unpopular special assessments.
For any questions regarding condo associations, please contact DBL Law attorneys Justin Knappick (jknappick@dbllaw.com) or Katherine Simone (ksimone@dbllaw.com).
[1] In Kentucky, Kentucky Revised Statutes §§ 381.9101 – 9207 addresses most of the duties conferred upon condominium associations. In Ohio, condominium duties are outlined in Ohio Revised Code §5311 and homeowners association duties are outlines in Ohio Revised Code §5312.
[2] ORC §§ 5311.081(A)
[3] Ballard v. 1400 Willow Council of Co-Owners, Inc., 430 S.W.3d 229, 241 (Ky. 2013)
