On June 24, 2021, at around 1:15 a.m., the Champlain Towers South condominium partially collapsed in Surfside, Florida. Since this horrific tragedy, one resounding question is at the forefront of everyone’s mind — how could something so terrible have happened? The sad truth is that a residential condominium is most likely the only type of building in which this particular disaster could have occurred. And in light of this, the need for systemic industry change cannot be denied.

When the owner of a commercial property, apartment building or residential home borrows money from a bank or refinances an existing loan, the bank requires, depending on the type of property and size of the loan, an engineering report, asbestos report, property condition report, roof report, terminate report and other third-party investigations deemed necessary by the bank. If the reports indicate issues that require immediate repair, the bank will either not close the loan until the issues are addressed or will make funds available to do so while closely monitoring the progress.  

A condominium, however, is the only type of real estate where the buyer of an individual condo unit can borrow money from a bank, whether for purchase or refinance, and the bank requires very little information on the building in which the unit is located. Other than an estoppel certificate confirming that there is no ongoing litigation and all maintenance fees have been paid, and maybe a copy of the most recent association budget, banks require no diligence reports on the larger condominium building itself – no engineering reports and no roof inspections. At most, they might require an internal inspection report on the unit being purchased, but there the focus is on leaks, mold and how well the AC works.

Once control of a new condominium building is turned over to the condo purchasers, there is no “owner” in the traditional sense. Each unit owner owns a small percentage of the overall building, or “common areas,” that are maintained by an association. Routine maintenance and necessary repairs are funded by assessments paid by each unit owner. With decisions being made by a board elected from among the unit owners, it is often difficult to reach consensus to increase assessments or to levy special assessments for required repairs. Associations do not often turn to bank financing for improvements and repairs to the common areas, and in fact such financing is hard to find. Without such financing, the condominium is rarely faced with commercial quality engineering reports or other studies and, most significantly, the association is not obligated to correct the defects.    

In Miami-Dade County, residential condominiums must be inspected and certified by a licensed professional engineer or architect after 40 years, and at 10-year intervals thereafter. The inspection is designed to focus on fire and life safety, general structural conditions, electric systems and other specific areas, but it does not rise to the level of what a lender or diligent investor in an apartment building would require. It is not nearly as comprehensive and, even if defects are discovered, it is often difficult or impossible for the association to find the money to make repairs. In contrast, an apartment building owner, whether purchasing or refinancing, would be faced with lender requirements that any major structural and repair issues be addressed before closing. In light of this limited availability of funding and the resulting lack of deep-dive diligence inspections that a lender would require, how the tragic Surfside collapse was able to happen starts to become clearer. 

So how can tragedies like this be prevented in the future? There are the obvious solutions, such as a change in legislation to require in-depth diligence inspections like those required by banks for other types of properties and increased frequency of inspections. But such inspections are expensive and the issue of funding repairs remains. Changes must be broader than this. Lenders need incentive to make loans and provide the essential funds needed for repairs available to condo associations. Federal or state agencies can guaranty repayment of all or some portion of the loan amounts, or establish a program to purchase such loans, creating liquidity in the marketplace while minimizing lender risk. Property insurers have a vested interest as well in ensuring these loans are made, and they could help fund such programs. Ultimately, changing the way condominium associations can assess aging buildings for defects and tap financing to address these extremely expensive repairs will save lives and avoid tragedy.