By now, if you have buildings of 3 or more stories, your condominium association or co-op has hopefully begun the process of fulfilling Florida’s structural integrity reserve study (SIRS) requirements and, if applicable, milestone inspection requirements. Because these laws are new, it can be understandably stressful or conflicting to choose a firm to conduct your SIRS or milestone inspection. Every community has different needs, so what route is best for your association?
With new firms being created nearly every week, and many coming in from out-of-state, how can a community guarantee they are making the right choices to ensure the physical and financial health of their communities while complying with the new regulations? Should you “bundle” your SIRS and Milestones or use separate firms for each? What about reserve items that are non-structural? What should we do with our existing reserves? Since being involved in the legislative process and conducting SIRS for nearly a year, here’s what we’ve learned.
Structural vs non-structural
This new legislation included in SB-4D (signed into law in May 2022) and modified in SB-154 (signed into law in June 2023) requires the full funding of reserves for SIRS components as determined by the most recent SIRS. Previous legislation required condominium associations and co-ops to budget reserves for roof replacement, building painting, pavement resurfacing, and capital expenditure or deferred maintenance expenses over $10,000, which remains in place.
Reserves for non-structural items or for one or two-story condos can still be waived by a majority vote of the community’s voting interests. But, because non-structural items can be significantly costly to replace, it’s helpful to understand if funding for non-structural items should be waived and the implications of doing so. Many components, while not included in a typical SIRS, still pose a significant financial impact on your association. In the sampling of SIRS our firm has completed since the new laws were enacted, we’ve found that on average, non-structural reserve needs comprise over 35% of the overall needs, with many associations spending more than 50% of their overall reserves on non-structural items.
When reviewing proposals for your SIRS, be sure to clarify how non-structural items will be handled. While your provider is conducting the SIRS, ask if they can review non-structural items as well. While professional review of these items is not a legal requirement, most Boards are not equipped to develop their own estimates of future needs and funding requirements.
Splitting existing funds
Since their introduction in Florida in 2022, we have seen many associations switch to the “pooled” reserves funding method as opposed to “straight-line” funding, which restricted components. Pooled reserves describe funding for a group of assets from one overall reserve fund as opposed to maintaining a separate reserve account for each item.
One of the first questions we received about the new laws was if pooled reserves are still allowed. While not specifically addressed in the statute, the Division of Florida Condominiums, Timeshares, and Mobile Homes has opined that pooled reserves will still be allowed. However, there are now clear restrictions regarding the use of SIRS reserves. Specifically, Florida Statutes 718.112 and 719.106 state, “For a budget adopted on or after December 31, 2024, members of a unit-owner controlled association that must obtain a (SIRS) may not vote to use reserve funds, or any interest accruing thereon, for any other purpose other than the replacement or deferred maintenance costs of the components in paragraph (g).”
This language means any reserves for SIRS items can not be used for non-SIRS items. We’ve established that a large portion of reserve needs can be non-structural, so we believe this language establishes a precedent to separate reserves for nonstructural items. We’ve found that creating two separate reserve schedules, one for SIRS components and one for non-SIRS components, provides a holistic picture of your community’s true cost of ownership, ensuring you meet SIRS requirements without neglecting the other needs of the property. It also provides a basis for splitting any existing pooled funds into two categories. This split should consider the portion of reserve components in each category and the timing and cash flow needs of each. Splitting reserves into two restricted categories does come with a cost. Based on the studies we’ve conducted so far, the split results in an average increase of 11% overall, compared to keeping the funds all in one pool. However, that can vary widely based on the timing of expenditures and the current financial position of the community.
The need to split your existing funds and future contributions is another reason to ask your SIRS provider to review both structural and nonstructural items as part of your next study. Be sure the provider is willing to help guide you through the implementation of the findings in your budget. For most associations, completing a SIRS is the easy part – the ability to comply with funding requirements is where things get tricky.
Can my SIRS provider also do my Milestone Report?
When SB-4D was first released, SIRS inspections could only be provided by licensed engineers or registered architects in the state. In reaction to a shortage of qualified individuals and incredibly high demand for the services, lawmakers expanded the list of qualified professionals to conduct SIRS to include Reserve Specialists (RS) and Professional Reserve Analysts (PRA).
These professionals evaluate components visually, but the need for further invasive testing by an engineering firm is not uncommon for structural elements. If an RS or PRA uncovers component-specific issues during their non-invasive inspection, they will inform you of the type of consultant needed to conduct further testing if and when it is warranted. On the flip side, if you’ve already had a milestone inspection or other invasive analysis conducted by an engineering firm, reserve study specialists will take into consideration any information gleaned from their findings when compiling a reserve funding plan.
Reserve study, engineering, and architectural design firms are all qualified to complete your SIRS so you can comply with legislation. Because communities are extremely nuanced, understanding your funding options and non-structural capital expenditures may be imperative to your ability to adhere to the requirements and keep your association financially and physically sound. Additionally, many boards prefer to have independent third parties conduct their reserve studies, rather than full-service engineering or architectural firms who also have an interest in future project work. Now that it will be mandatory to adopt the funding recommendations from your SIRS, it is even more important to avoid any real or perceived conflicts of interest from the source of the funding recommendations. Also, be sure to ask if the professionals will be available to present their findings to the membership. Sub-contractors or out-of-state professionals may not be around when the time comes to defend the results of the study.
Your reserve study should serve as a long-term planning and proactive asset management tool. By providing separate funding mechanisms for structural and non-structural components, you’ll understand when further expertise or inspection is warranted and your property’s true cost of ownership, all while fulfilling your SIRS requirements.