Tamela Eady Wiseman: Turnover property inspections

Unless purchasing property "as-is", it is common practice for a contract purchaser of used property to require an inspection of the improvements by a licensed professional as a condition of sale. Although condominium associations cannot refuse turnover, nor should they try, they have a similar interest in evaluating the physical condition of the condominium property. This is especially true because as a result of the statutory warranties imposed on condominium developers and contractors, associations do not have to accept in an as-is condition the property which they will be required to maintain.

A condominium association after turnover may be strapped for cash. If the buildings look "okay" and major problems have not surfaced either in the units or on the common property, the board may find it difficult to appropriate the money necessary to have a quality inspection performed. However, failing to inspect the property, preferably as close in time as possible to the turnover, is a mistake. Even if no serious problems are discovered, the money is well spent. The board will have peace of mind as to quality of the property. As an added bonus, the inspector, usually a licensed engineer or general contractor, can offer advice as to future maintenance requirements and schedules as well as reserve funding.

Associations, regardless of whether they actually fund reserves on an annual basis, are required to determine reasonable useful lives and replacement or deferred maintenance costs for each reserve component and to include that information in the annual proposed budget supplied to owners. Associations must update the information regularly. The reserve calculations originally supplied by the developer are often "optimistic" as to both how long a component, such as a roof, will last and what it will cost to replace it and must be adjusted accordingly. To do so, the volunteer layperson board will need to rely on a qualified professional. (Another method -- obtaining actual bids from contractors -- will not work very well. Contractors are logically reluctant to take the time to bid work that may not be undertaken for a period of years.)

Even though the statute of limitations period for lawsuits on construction defect claims does not begin to run until the turnover date (and for most causes of action is four years from that date), it is important to act fast. Because the association is charged with maintenance responsibility, the longer the period between when the developer surrenders control and the date of the claim, the more valid can be a developer's charge that the problem arose or worsened due to a failure by the association to perform routine maintenance.

So what does a board need to pay attention to when undertaking a property inspection? First, in selecting a professional, boards should look for those who have significant experience in performing similar work for associations. Preferably, the individual or company selected will not have as a client the developer, general contractor or major sub-contractor of the condominium. It may be necessary to use the inspector as an expert witness in settlement negotiations and/or legal proceedings. An inspector with a conflict of interest could damage the association's case or require work to be duplicated with another professional, costing the association valuable time and money. Because of the possible use of the work product of the professional, the one selected should be able to demonstrate success as an expert witness. The ability to deliver powerful and unshakable testimony in negotiations or legal proceeds could make the difference in the association's case.

Many different levels of inspections exist, and most professionals will offer a menu of available services that can range from a cursory review to a full blown evaluation including destructive testing (i.e., opening up building components to inspect improvements which would otherwise not be visible). An association may choose to focus on areas which have experienced problems. If the same construction companies performed all the work on the condominium, the association may save money and time by having the inspector review only representative buildings and units.

It is the board's role to focus the professional on the issues which are of most concern. In order to do so, the board should request the owners to inform it of any issues owners have noted in their units or on common property. This list can form the basis for identifying problems common to all or most of the units. In that case, the association can pursue those claims on behalf of the owners.

Ultimately, the nature and scope of the inspection report will vary based on decisions made by the board in conjunction with the inspector and the association's legal counsel. A phased report makes sense to the extent that the association can start with a limited scope. If the initial review discloses the likelihood of serious problems, a more thorough inspection can be conducted. The contract ideally should stipulate the costs for the various phases, including rates for serving as expert witness. This allows the board to budget these expenses, so that funds will be on hand when and if needed.

A qualified examiner will be looking at improvements from three distinct perspectives to determine the sufficiency of the project.

First, the inspector should confirm that the plans and specifications which were filed and approved by the appropriate permitting authority were followed. This generally necessitates a comparison of the records obtained from that authority with those plans and specifications which the developer was required by law to provide to the association at turnover. It is not uncommon for a developer to utilize "value engineering" during the course of a project. If something is deleted or changed to an inferior product but the change was never filed with the permitting authority, the association may have a claim for the difference between the value of what was permitted and what was actually provided. Using the roof example, a claim could be validated if the permitted drawings provided for a tile product when shingles were actually utilized.

Second, the inspector should analyze compliance of the project with applicable building, fire and life safety codes.

The third test is more amorphous and is whether the construction meets accepted trade practices and standard of care.

If this all sounds complicated, it is. The identification of claims for construction defects and determination of remedial measures must be carefully considered. The amendments made earlier this year to Chapter 558, the construction defect statute in Florida, imposes rigorous guidelines and timelines on associations attempting to have such defects remedied.

Failure to strictly adhere to the provisions of that statute can cause an association to inadvertently waive claims forever. Although the stated purpose of the new law is to resolve construction defect disputes without the resort to litigation, the practical result is that legal counsel is necessary to maneuver associations through the landmines set forth in the statute from the date of turnover until resolution of all claims.

Legal fees do add cost to the pursuit of construction defect claims, but an effective lawyer will not only preserve and pursue an association's rights but will perform an ongoing cost versus benefit analysis. Litigating construction defect claims is expensive, and rewards of attorney's fees are generally not available.

Associations also have a duty to mitigate damages, meaning that the association may have to make repairs from its own funds to prevent further damage. None of the decisions are easy to make as a director whose own assets, health, safety and welfare as well as that of others are at stake. Professional guidance not only protects directors from personal liability for decisions made but can be far less costly in the long run than going it alone.

Tamela Eady Wiseman is the president of the law firm of Tamela Wiseman, P.A. She writes this article as a public service to the community. She is Board Certified by The Florida Bar as a specialist in Real Estate Law. She has practiced law in Naples for more than 15 years and limits her practice to the law of community associations, real estate and title insurance, representing sellers, purchasers, associations and developers. Wiseman is also a member of the Naples City Council. This article is not intended as specific legal advice to anyone and is based upon principles subject to change from time to time. Those persons interested in subjects discussed in this article should consult competent legal counsel.