Champlain Towers South Collapse: Frequency, Governance and Liability Issues

Abstract

The tragedy of the sudden collapse of the 2021 Champlain Towers condominium building in Surfside, Florida raises issues of civil liability and throws into doubt the sustainability of the current model of condominium association governance. This case study evaluates the potential causes of the collapse, and reactions of various parties including the consulting engineering company, city regulators, condominium association board, outside property manager, original builder, and unit owners themselves. By conducting a comprehensive literature review, this paper is aimed to find out the reasons, frequency and liability of building collapse, as well as the roles condominium governance, financial modeling, poverty, or statutory language play in the tragedy. Some advice for further improvements to improve board sustainability is given to original developers, contractors, engineers, and insurance carriers. The current model of condominium management has blind spots and appears to be unsustainable. One suggestion to fix the problem is to require that insurance be obtained to insure the liability of condominium associations, including for this type of tragedy. That would create a financial risk/incentive for the insurance company to ensure adequate management and upkeep. The insurance company should also set board member expertise qualifications, insurance premiums, need for outside expertise, required inspections/maintenance, and replacement reserves that are required to maintain that coverage.

Keywords:

• Building collapse
• condominium governance
• replacement reserve laws

Introduction

On June 24, 2021, most of the 136-unit 12-story Champlain Towers South condominium building in Surfside Florida (north of Miami Beach) suddenly collapsed in the middle of the night, killing almost 100 residents. About 25 people were able to escape during the building’s downfall: a lucky few heard groaning noises and/or saw large cracks suddenly appearing in the walls in the middle of the night, over a ten-minute period, and were clearheaded enough to get out in their pajamas. Despite heroic efforts by disaster response teams from several countries, no survivors were found after the first day, and the rubble pile was made more dangerous by slow simmering smoke from crushed vehicle fires in the parking garage under the structure. The remaining standing portion of the building was demolished about a week after the collapse. The rescue mission switched to recovery about two weeks later. The building collapsed pancake style, with very little room between floors. This eliminated pockets where potential survivors could last for a few days. The list of potential dead and missing shrank from 150 to 97 when double counts and missing persons were sorted out. The rubble pile was finally cleared in late July. Once the dust settled, there were a lot of unanswered questions. Figure 1 shows the physical layout of the Towers, pool deck, parking garage, and nearby projects.

Figure 1. Before & after photos of Champlain towers south (Source: Google).

We identify pertinent property management issues and use Champlain Towers as a case study to focus on these intertwined research questions that address how sustainable condo boards are: are condominium associations, or homeowner associations (HOA) ticking time bombs because they are overly democratic with an expertise barrier that is too low, do not have enough competent advisors, and operate in a political environment where their regulators too easily permit exceptions for alleged financial hardship, often to appease real estate lobbyists? We seek to draw attention to these connected problems to assure that elected residential boards function better in the future. Because we do not have access to their meeting minutes, we can’t say if the Champlain Towers South Condominium Association (CTSCA) board behavior is really that unusual or egregious, or if it is just mildly negligent. Pending litigation should help sort that out, and this is beyond the scope of our research.

The tower was governed by the Champlain Towers South Condominium Association, Inc. (a Florida non-profit corporation). There were condominium association board concerns at Champlain Towers South since at least 2015, and engineering reports as far back as 2018 that the building had some structural issues that could be serious. The pool deck and parking garage showed concrete spalling and an exposed rebar was visible (New York Times, 2021). But concrete deterioration and maintenance are expected in a 40-year-old waterfront building in south Florida. The state is notorious for sinkholes, and the potential effects of hurricanes and the general pounding of salt and wind, even without the acute effects of storms, is well known. According to popular news articles, the engineering consultant’s report had some “language” about potential issues (AP NEWS, 2021), but was it a clear and present danger? Further, a city official seemed to downplay the severity and urgency of the report in a public meeting in front of the condo association in early 2019 (Tampa Bay Times, 2021a). In May 2021 just a month before the building collapsed, a pool servicing firm showed some clearly serious degradation in concrete integrity, but it was not located directly under the part of the building that collapsed. Meanwhile Champlain Towers North, a twin building built by the same developer a block away, seemed to not suffer any symptoms of concrete failure, although it was evacuated as a precaution and an engineering study is underway. Further, a quick, preliminary look at condominium prices in the area does not seem to reflect any price drops consistent with general safety concerns.¹

After examining the frequency of building collapses in general and residential towers, in particular, to identify and potentially eliminate other potentially liable parties concerning the collapse of this tower, the focus of this paper moves to the governance structure of the condominium association. Elected CTSCA board members in recent years had some strong differences of opinion as to how urgently the building repairs should be undertaken. Some board members reportedly resigned over it. The scope of recommended repairs included pool, façade, pavers, building entrance, structural repairs” and “planter landscaping, garage, etc. The price tag for recommended repairs rose from $8 million in 2019 to $15+ million in 2021 (Associated Press, 2021a), an unsustainably small amount. This is a large amount that would have to be spread over all unit owners, depending on their percentage of ownership (usually based on square feet of the unit) in the association. It would cost a typical unit owner about $100,000, or about 15% of the unit value.

Whether or not this collapse was a result of chronic deferred maintenance or was the condominium association balking because of the uncertainty around the urgency of or the need for repairs is controversial. There is always an obvious potential for conflict of interest between the desire of an elected board to do what may be best for the association without angering its individual unit owners. How do lay leaders of non-profit organizations address complex financial decisions, especially when there is pressure to defer unnecessary expenses until later?

This research sets forth the record of available data on building collapses and peer-reviewed literature on the subject, covering the frequency of building collapses and collective residential governance issues. To set up the potential liability part of this paper, we introduce the project collapse timeline, and then explore who is potentially responsible for the collapse, or more likely which entities share responsibility. Finally, we provide policy recommendations for condominium board governance.

Frequency of Building Collapses Literature Review

The causes of building collapse include natural and human factors. We collect data from around the world due to the somewhat limited frequency of collapsed buildings (about one every two weeks). Most of the literature analyzes the causes of building collapses by studying building failure cases from the perspective of technology and engineering (Jones et al., 2016; Lee, 2014; Němec et al., 2018; Peraza, 2017). The reasons for building collapse are numerous and physical reasons include: earthquake, flooding, bombing, explosions, fire, heavy rain or wind, structural failure caused by poor workmanship and substandard materials of the original build, errors in design and construction, elevator failure, excessive water in the soil beneath the building, soil erosion and landslides, water penetration and corrosion of the reinforcing steel, and weak foundations (Beitel & Iwankiw, 2005; Cuoco et al., 1992; Hadipriono, 1985; Li & Li 2006; Opara, 2007). Some human factors include: a lack of a maintenance culture (Opara, 2007), insufficient control and monitoring (Ede, 2013), and limitations on engineers (Khandekar, 2013). These articles also present different measures to prevent building failures. Table 1 and Figure 2 summarize the literature on building collapses around the world.

Figure 2. Graph of time and types of building collapsed in year 1980–2021.

Table 1. Time and types of building collapsed in year 1980–2021.

Time span				Type of structures that collapsed
	Bridges	Towers	Institutional	Commercial	Residential	Other	Dams	Religious	Stages	Total
1980–1989	10	10	5	1	2	4	3	0	0	35
1991–2000	6	9	4	3	4	3	1	1	0	31
2000–2009	36	32	10	8	7	6	7	0	2	108
2010–2021*	22	9	17	22	20	8	0	5	4	87
Total	74	60	36	34	33	21	11	6	6	281

Note: Other includes chimney, escalator, crane, bonfire, hangar, scaffold, tunnel, telescope, etc. *: Includes 2 extra years.

Source: Wikipedia.

Evidence of Building Collapses

The earliest recorded structural failures and collapses can be traced back to 226 BC, a statue named Colossus of Rhodes, which was erected in the city of Rhodes by Chares of Lindos in 280 BC. It collapsed during the earthquake of 226 BC, although parts of it were preserved.² Many more structures have collapsed since, and we discuss these in two tranches: we summarize almost 300 collapsed structures since 1980 and then hone in on 33 residential multifamily buildings that fell down.

Although building collapses are not uncommon throughout the history of human development, buildings and other fixed human-made structures that collapsed between 226 BC to 1980 were mainly structures such as amphitheaters, towers, churches, bridges, dams, schools and other public uses structures, such as the well-publicized 1981 Hyatt Catwalk Collapse in Kansas City.

Only after 1980, when high-rise buildings were popular, there have been more and more cases of residential and commercial building collapses. There were 281 building collapses between 1980 and 2021, which were sorted by time and building types, as shown in Table 1, in both tabular and graph formats.

The last forty years witnessed a dramatic increase in building collapses. The number climbed to a peak during 2000–2009, with a downward trend after that. Collapses of bridges, followed by towers (including cell towers) were dominant in the 2000–2009 period. Trends in the collapse of commercial and residential properties (of most interests to us here) grew to their highest level in the most recent period.

Residential Building Collapses

Among these 281 cases of building and structure collapses (1980–2021), we found 33 representative multistory residential buildings and made a detailed analysis of their age, location relative to seawater, governance, stories, construction type, casualties, reasons for the collapse, etc. this amounts to a building collapse about every two weeks, a rare but hardly unexpected event.

The average age of the buildings was 21.7 years. Among them 8 were located in the US, 4 in India, 3 in Nigeria, and 2 in China, Colombia, Russia, and Taiwan, and a single reported collapse in other Asian, South American and European Countries. Reinforced concrete was used in 60% of these modern residential buildings, and 18% were constructed with a combination of reinforced concrete, bricks or/or wood.

According to the self-reported investigation of these accidents on Wikipedia, faulty construction or design was the most common reason for the collapse of the building, followed by explosion/fire, negligence, water problems/flood, lax government oversight, illegal improvements and natural disasters such as earthquakes.

Since the current case of Champlain Towers South is in south Florida near the Atlantic Ocean, we are also interested in whether these buildings were near seawater, with its potentially corrosive effects on steel rebar in concrete: 45% of the 33 collapsed residential buildings were located in near potentially corrosive sea water, with another 24% near fresh water.

Concerning building management and governance, where buildings were privately owned by multiple owners, autonomous owner committees were typical. Single owners (apartments where tenants are renting) professionally manage their building themselves, without a lay board of occupants. While in some Asian countries, it is common that buildings are managed by developers or construction companies (investors), we found that in Russia and Nigeria, properties may be managed by the government. Properties managed by residents are relatively popular in western countries, including the US (Dansadau & Abdullahi, 2012). Other buildings were either under the administration of builders, developers, investors or even the government (such as North Korea). Figure 3 shows these results. Note that failure of maintenance was not cited as a cause in any of these collapsed structures.

Figure 3. Cause of 33 residential building collapses since 1980. Note: some collapses may have more than one reason stated.

To summarize, the factors potentially affecting the construction, management and avoiding the collapse of high-rise residential buildings are numerous. We have included, in Appendix A, a chart on the complexity of factors affecting high-rise building maintenance decisions.

Governance of Condo Associations and Management

The condominium ownership structure is a substantial and growing part of the housing market. Approximately 25 percent of the U.S. housing inventory exists in planned or managed residential communities, generally referred to as common interest ownership communities with some form of the community association. The Community Associations Institute likewise estimates that there are 350,000 established community associations in the U.S. representing 30 million housing units and 75 million homeowners. Community associations are also a growing trend in Europe, Australia, and the Middle East (Foundation for Community Association Research, 2020).

Human factors such as laws, costs of construction vs. market demand/price, negligence of the elected board of directors that manage condominium associations, under-involvement of condominium unit owners, engineers' negligence, unauthorized renovation, irresponsible supervision and control, violations of building regulations, illegal building extensions and lax government oversight appear to be important factors in building collapses. On the margin, association governance is supposed to deal with all the facts and make decisions in real-time: thus, we focus on the role condominium associations play in the collapses of buildings, where possible.

There are always some condominium unit owners who just don’t take any notice, aren’t interested, and avoid participation in association governance and building maintenance. They simply pay the required assessments and ignore the association unless they have a specific complaint impacting them personally.

Florida Statutes on Condominium Management

Funding is also a key factor in building governance. Some of the buildings constructed during the original condominium boom (between 1980 and 1990) are now due for major repairs and replacement projects. As part of the financial crunch, owners now face the fact that Florida (and many other states) require condominium associations to fully fund a separate reserve account to save for capital expenditures and deferred maintenance (§718.112(2)(f), Fla. Stat. (2021)). This requires condominium associations to plan out, sometimes decades ahead, and know what repairs may be required (and their anticipated costs). Doing so avoids “shock” assessments and permits ongoing maintenance costs to be factored into the market value of a unit. Thus, condominium associations must put aside a sum from their annual budgets as a reserve fund or plan to get a loan or both.

The budgets of most condominium associations are made up of monthly assessments paid by unit owners, which can range from a few hundred to a few thousand dollars, depending on the level of services provided. When problems arise, condominium associations can quickly face financial distress if owners have not been proactively saving for repairs. Unfortunately, a substantial number of condominium association reserve funds are likely uncapitalized. Often the monthly assessments are set low by the developer, as a sales tool – the developer will be long gone (and likely beyond any applicable statute of limitation) by the time any major maintenance is required. Later when unit owners take control of the association, elected board members are hesitant to increase regular assessments—or even impose manageable special assessments—to ensure that the association is fulling funding its reserve requirements. Thus, when these buildings/communities encounter unexpected or ignored costs, the board scrambles to find the money to pay for these expenses. They might suddenly increase regular association assessments, or worse, seek inefficient solutions such as imposing huge special assessments or taking on external funding such as a loan. Most Florida condominium association governing documents permit the board to borrow money to finance capital expenditures or required extraordinary maintenance costs (CNN News, 2020). External funding typically requires some collateral, a healthy financial statement, and evidence of regular payment of assessments with very few exceptions.

According to a report: Reserve Studies & Reserve Management published by the Foundation for Community Association Research (FCAR), community associations should conduct regular reserve studies to assist community leaders in determining the appropriate reserves needed to fund replacement costs and the most useful funding mechanism for their reserves (Foundation for Community Association Research, 2020). In Florida, like many other states, reserve studies are not required by law, although they may be required by the association’s governing documents. Reserve studies are a helpful planning tool, especially for condominium boards that are not made up of engineers, construction experts, or lawyers, that provide an in-depth analysis of the condominium association’s common elements that will require maintenance and capital expenditures over the life of the building. Reserve studies include a physical inspection and analysis of the association’s building and the financial planning required to meet all potential future costs. It is recommended that all condominium associations have their reserve studies updated on a frequency that allows for the reserve components and funding plan to be adjusted in the best interests of the association or in accordance with local statutes. Associations should review the reserve study periodically to ensure the information presented is accurate and updated. Since association boards are not well served to prepare their own reserve study, one of the most important responsibilities of any board member and manager is the hiring of vendors and business partners for the community, including a reserve specialist. In both new and established associations, the reserve study provides valuable information for the overall budgeting process. Reserve assessments are to be used for predictable repair and replacement projects. It seems like a good idea for some level of government to be involved to require and/or confirm the reserve study is adequate and buildings properly maintained, like how the Federal EPA requires cities to maintain and upgrade sewer systems to prevent environmental damage.

Florida state law is also a factor. Based on The Florida Condominium Act, the government needs to tighten laws on condominium financial planning when it comes to future repairs and maintenance. Current law allows condominium associations to waive the requirement to set aside reserves. The 1991 Florida State Legislature addressed that a developer-controlled association may vote to waive the reserves for the first two years of the operation of the association. Thereafter, waiver or reduction requires approval of a majority of non-developer voting interests present at a duly called meeting of the association (Pollakoff, 1991). Called the “kick the can down the road” provision by one attorney, Section 718.112 of the Florida Condominium Act allows condominium associations to waive the rule that their boards set aside adequate cash reserves to pay for needed building improvements. All it takes is a simple majority vote of the condominium unit owners who show up at a condominium association meeting to postpone the need for expensive set-asides. One wonders if, going forward, condominium projects with abundant reserves and well-documented maintenance studies will be demanded by buyers, thereby increasing property values. In essence, even though the unit owners are paying higher monthly assessments (something that generally reduces values), here the opposite is true and condominium buyers will seek well-managed units in a fully funded association.³

The deadly collapse of Champlain Towers South in Surfside has brought this loophole in Florida law to the attention of lawyers, condominium management companies, realtors, insurance companies, and consumer advocates. But amid reports that the Champlain Towers South had just over $777,000 in reserves to pay for what was estimated by inspectors as a $16.2 million repair bill (discussed in more detail later), and concerns raised by structural engineers about the upkeep of the building, questions have emerged about whether the legal loophole is allowing maintenance to be dangerously deferred, especially in the state’s most aging high rises (Tampa Bay Times, 2021b).

Condominium documents in the US (including Florida) are typically complex, lengthy, and non-negotiable, making it difficult for owners to engage properly with the relevant legal framework. Certain states require summaries, but they may not be adequate to enable buyers to understand potential long-term costs and risks.

Literature on Collective Building Management Issues

There is a close relationship between the level of the residents’ participation in condominium associations and their satisfaction. The mediation effect of agency costs between the lay members of community organizations and their leadership, as well as issues between the owners and the professional management agents, is significant (Yip, Chang & Hung, 2007). Residential corporate bodies (HOAs) can be more effectively supported in the governance and management, customer relationships, service quality and customer satisfaction (Levy, Perkins & Ge, 2022). In other markets where high-rise residential buildings are common (i.e. Hong Kong) ‘non-private’ nature of condominium ownership is in conflict with the fundamentally individualistic interpretation of home ownership, management and maintenance (Yip & Forrest, 2002).

Research on the problem of maintenance and replacement reserves in Hong Kong suggests that in managing expected major repairs unit owners should rely on external building professionals to control both the cost and quality of the repair work (Yip & Poon, 2018). In terms of payment strategies, sinking funds represent the preferred approach to financing common property expenditures, and special levies are the least preferred approach (Arkcoll et al., 2013). A well-functioning legal background is important to focus on the management and repair of common parts of apartment buildings (Lujanen, 2010; Puustinen & Lysnar, 2014). Table 2 summarizes the literature on this topic.

Table 2. Literature summary of condominium associations and regulation of condominium associations.

Author	Title	Where	Year & source	Findings
City Business Guest Perspective	Insurance for condominium associations, post-Surfside	Insurance for HOA in Louisiana	2021, New Orleans City Business	HOAs should consider obtaining coverage for the full replacement value of the insured property and general liability insurance.
Lippert, Randy K.	Chicago’s “deconversion” waves and the fragility of condominium associations	Condo as sociations in Chicago	2021, Condominium Governance and Law in Global Urban Context	Condominium associations need be regulated by government. There is escalated involvement of street offices, residents’ committees, and even the local communist party branches in the formation and operations of an HOA.
Hyde, Leighton J.	Rethinking Roth: Why the Florida Legislature Should Empower Local Governments to Regulate Condominium Conversions	Condo associations in Florida	2012, Stetson L. Rev.	The legislature should expressly permit Florida municipalities to enact further regulations and treat the conversion of buildings to condominiums as a subdivision.
Baum, Christopher	The Benefits of Alternative Dispute Resolution in Common Interests Development Disputes	Condo associations in the US	2010, John's L. Rev.	“ADR” is an important solution in common interest developments.
Pollakoff, Gary A.	The Florida Condominium Act	Condo associations in Florida	1991, Nova L. Rev.	Association may vote to waive the reserves
Kennedy, E., & Imbriani, M. D.	Rights of tenants in condominium and homeowner association communities	HOA in New Jersey	1996, the New Jersey Lawyer	HOAs must be aware of restrictions that may govern the leasing of units and the use of the property generally.
Sterk, Stewart E.	Maintaining Condominiums and Homeowner Associations: How Much of a Priority	HOA in the US	2018, Ind. LJ 93	Legislatures should accord lien priority to associations and lenders should be educated.
Korngold, Gerald	Cutting Municipal Services During Fiscal Crisis: Lessons from the Denial of Services to Condominium and Homeowner Association Owners	HOA owners in the US	2012, NYUJ Legis. & Pub. Pol'y	HOA service denials are impermissible on constitutional and statutory grounds.
Yip, N.M. & Poon, S.Y.	Major repair work: Whose responsibility?	Hong Kong, China	2018, Multi-Owned Property in the AsiaPacific Region: Rights, Restrictions and Responsibilities	Since major repair works necessitates strata title owners to rely on building professionals in controlling both the cost and quality of the works, employing an external professional to monitor the agents’ behaviour can be a solution.
Arkcoll, K., Guilding, C., Lamminamki, D., McManus, L., & Warnken, J.	Funding common property expenditure in multi‐owned housing schemes	Australia	2013, Property Management	Sinking funds represent the preferred approach to financing common property expenditure in MOH schemes and special levies are the least preferred approach.

In China, HOAs have been under the direct supervision of a residents committee, since 2016. HOAs enjoy less self-administrative autonomy, and municipal governments can craft specific regulations for the formation and operation of HOAs. For example, they can set benchmark fees for property management services, and regulate how they use maintenance funds. With these arrangements in place, the autonomy enjoyed by HOA is limited.⁴ As unpleasant as these restrictions may be to American condominium associations, having qualified municipal employee outsiders who keep the associations focused on funding replacement reserves may be a policy worth considering. In China, there are also arrangements for new buildings where owners pay a reserve fund capitalization fee upfront.⁵

Governance of Condo Association Boards

It is critical for the survival of vertical residential condominiums that the condominium association board members have directors’ and officers’ liability insurance (in addition to property insurance) and that such insurance is the limit of claims against such board members. Without that assurance, no one would reasonably serve on a Board—as their assets would be at risk. Even claims for intentional or willful incorrect decisions, which may not be covered, should be provided insurance (or statutory protection) otherwise the plaintiff’s bar will allege intentional or willful acts to get at the assets of board members. Florida’s condominiums would be very attractive for these claims as board members are often retired with significant retirement assets. Therefore, the Florida legislature must pass laws and regulations to provide immunity from lawsuits to board members.⁶

While above we discussed the need for municipal inspections, those inspections are only as good as the inspector. And there is the little economic risk when a City performs a poor inspection—the City may be protected by sovereign immunity.⁷ Conversely, insurance companies are in the best position to review and price risk. Insurance companies, as a condition for providing coverage, can inspect a property, demand certain repairs and upgrades, and take steps necessary to limit potential issues and claims. As insurance companies have the latest risk in the event of a collapse, the insurance market may be the best place to regulate and ensure the maintenance of vertical residential condominium buildings. Ensuring a competitive and robust insurance market exists to provide such coverage is critical to maintaining the vertical residential condominium concept. Without these protections, vertical residential structures may lose significant value and be forced to sell units to a single owner who will have an adequate economic incentive to maintain and protect their investment, likely as residential rental units. Further, the motivation of single unit owners is personal rather than collective: Single owners can sell their units and get out and do not necessarily have a long-term interest in the project. Conversely, apartment owners do, potentially making this single ownership structure less likely to defer maintenance.

Timeline for Champlain Towers South

Figure 4 shows the timeline for the life and death of Champlain Towers South from the time it was planned and built in 1979 through its sudden collapse in late June of 2021, with a few more litigation-related items soon thereafter. 16 items are listed, including significant engineering reports about visible defects.

Figure 4. Timeline for the life and death of Champlain towers south (Burr, 2021).

This timeline and underlying events are analyzed to determine what went wrong, and which potential causes of building collapse can be eliminated. Nothing notable was observed for the first 35 years of the building’s life but starting in 2015 issues related to structural problems and deferred maintenance were evident. During 2018–2019 the engineering reports, review by the City of Surfside and condominium association activity was intense and sometimes confrontational. At a minimum, the condominium association waited 4 years to satisfactorily act on repairs to the structure. Had a reserve study been completed when the developer turned over control to the condominium association—and that reserve study was timely updated over the years—the association could have gradually saved enough money for building maintenance and major capital expenditures.

Still later: according to the Wall Street Journal from shortly after November 11, 2021, surviving residents and victims’ families of the Champlain Towers South condo collapse have sued the developers of a nearby luxury condo project (Eighty Seven Park) alleging that vibration from the construction destabilized the Champlain Towers South building and led to its collapse (Kusisto, 2021).

Plaintiffs allege the development team behind undertook excavation and site work dangerously close to Champlain Towers South. Pending litigation has been filed. Former residents of Surfside, Florida. the collapsed condominium has filed a consolidated amended class action complaint against the building’s condominium association. Plaintiffs allege that the Champlain Towers South Condominium Association breached its duty by neglecting to maintain, repair, and replace the building’s common elements and portions of condominium units that provided structural support to the building. By failing to keep the building in a safe condition and warning residents of unreasonable risks of harm, the association as a result caused the condominium collapse, which killed 98 people and led to the destruction of all 136 units. The lawsuit states the condominium association had the duty to maintain the building in a safe condition and in good working order. “Despite the obvious duties required by Florida law, and this admitted duty of care by the Association’s Declaration and other governing documents, Defendant, through their own reckless and negligent conduct, caused a catastrophic deadly collapse of Champlain Towers South in Surfside,” the complaint alleges. On May 12, 2022, a tentative settlement, valued at $997 million, was reached with the families of victims of the Surfside condominium collapse (CNN News, 2015). Of this amount, $83 million addressed property claims.

Liability Legal Hurdles to Chasing Responsible Parties

Florida law like many states has a statute of limitations and statute of repose to bring claims. In Florida, claims for breach of contract are governed by a five (5) year statute of limitations. Even with the “discovery rule” (which permits the statute of limitations to be tolled in certain instances), many states, including Florida have a Statute of Repose that prohibits claims against the original contractor, architect and developer after ten (10) years (Fla. Stat. § 95.11(3)(c)).

That only leaves claims against parties who exercised discretion or authority over the building during the last five to ten years – the time period to bring suit. In Florida contract claims must be brought within five (5) years, tort claims for negligence within four (4) years and claims against a professional for design and/or engineering malpractice within two (2) years. With the exception of breach of contract claims, all of the tort and professional negligence claims are likely covered by insurance.

Modeling CTS Condo Board Decision Behavior

Jumping to the analysis of observed structural issues, Morabito Consultants, who performed the structural field survey of Champlain Tower in October 2018, provided the Champlain Towers South Condominium Association with detailed findings and recommendations (such as "abundant cracking and spalling" in concrete columns and walls, "exposed, deteriorating rebar" and failing waterproofing beneath the pool deck and entrance drive that was causing "major structural damage.") nearly three years ago regarding the structural repairs that were needed on the building to ensure the safety of the residents and the public," a Morabito spokesman said in a statement to CNN (Associated Press, 2021b). Morabito Consultants said that they did their job by "providing the condominium association with an estimate of the probable costs to make the extensive and necessary repairs. Among other things, our report detailed significant cracks and breaks in the concrete, which required repairs to ensure the safety of the residents and the public."⁸

The board of the Champlain Towers South condominium association commissioned the report to comply with a “40-year-old building” recertification requirement. Only two Florida counties, including Miami-Dade County where the complex is located, have these recertification requirements (Jerry, 2021).

In 2008 the state of Florida briefly required regular structural integrity inspections of condominium buildings over three stories. The statute, however, was repealed two years later when some associations complained about the high costs of the inspections. No Florida state law requires condominium associations to establish reserve funds for emergency repairs. This spirit of hands-off regulation has left it to condominium association boards to identify and manage risks and decide whether and how to respond. This case provides evidence that this was obviously short-sighted. The members of these boards are volunteer residents elected by fellow residents. Board members are not required to have financial, management, engineering, or planning expertise or training. The legislature did create a trust fund, underwritten primarily by fees assessed on associations, to help implement Florida’s condominium laws and regulations. The government division responsible for managing the trust considers educating condominium board members as one of the trust’s purposes. Yet since 2008, the Florida state legislature reportedly has diverted approximately $65 million, or nearly 40 percent, of the trust’s funds into the state’s general fund, undermining its original purpose and diverting funds from the helping support condominium associations.

Regarding the potential negligence of the condominium association, Dawn Lehman, a professor of structural engineering at the University of Washington said: “the corrosion on the bottom of that column is astronomical. That amount of corrosion should have been obvious and documented as part of the 40-year inspection that was ongoing when the building in Surfside collapsed on June 24, 2021. If there is that amount of corrosion, this should have been fixed.”⁹ Condominium boards often don't have to look far to see what could happen if they push off maintenance for too long and most states and municipalities don't do much to regulate condominium associations.

Condominium association elected boards are not insurers, but, like insurers, they manage risk for the mutual benefit of all whom they represent. They make decisions about how much to spend on landscaping, paint, and pool furniture, but also about inspections, maintenance, repairs, and a host of factors relevant to the safety of the buildings. In Florida and many other states, the decisions of these boards are not subject to external review. In fact they are essentially unregulated—which is appropriate for picking pool furniture but not for decisions affecting the structural integrity of high-rise buildings.¹⁰

Bylaws of the Champlain Towers South Condominium Association permitted a simple majority of the voting power in attendance at a duly called meeting where a quorum was present (at least 40% of the voting interests either in person or by proxy) to waive any reserve requirement in an annual budget. An Independent budget review warned the CTSCA that financial reserves were critically underfunded (only had 6.9% of the recommended level of money to complete repair and replacement projects) in the face of urgently needed structural repairs a little over a year before the building collapsed (National Public Radio, 2021).

Based on the timeline and facts collected above, we provide a model of HOA decision-making focusing on the connection between unfunded reserves and building conditions, as shown in Figure 5. In this conceptual schematic, the blue line on the left axis represents critical structural building condition, shown in percent, which focuses on the concrete below (including the attached pool deck) and building envelope above that is holding up the building. This conceptual schematic is based in part on rules of thumb,¹¹ and partly on the facts of the case regarding contemporaneous building reserve requirements. The red line is outstanding building repair and maintenance reserve needs, in dollars, shown on the right-hand axis, and is based on data gleaned from articles obtained in the popular press.

Thus, in the absence of adequately budgeted building reserve funds, the model demonstrates that turning back the decision to do nothing (defer addressing the problem) gets harder as time goes by as the length of lines between the blue line (deferred maintenance) and 100% critical building condition at points A, B and C get longer. At point A the critical building condition is still about (an illustrative figure of) 85%, and the budget to return the building to safe condition is only $1 million at this juncture. At Point B, we are at 80% of the building’s critical structural condition, the reserve budget deficit has grown exponentially to $5 million. At point C, close to imminent collapse, the deficit is now huge, estimated at $15 million. Apparently at the point of no return. Indeed, in the end, the condo board had funded only 7% of the required money.

Figure 5. Conceptual schematic of decision process on deferred maintenance.

Potentially Responsible Parties-Liability

Table 3 Contains a Summary of Potential Causes of the Building Collapse and Likely Responsibility. For the Sake of Brevity, we Cull Available Public Press on the Event and Can Largely Rule out Several Potential Contributing Factors, Such as Sink Holes, Serious Builder Mistakes, and Poor Original Design. Thus, we Only Discuss Factors Likely to Be Related to Human Error, Especially How the Clear Reported Physical Defects Such as Decaying Concrete Were Addressed (or Not), as the Situation Deteriorated to the Point of Absolute Failure. The Key is the Intertwined Information Stream Set before the Condominium Board from 2015 to 2021.

Table 3. Potential causes of the collapse of champlain towers south.

Potential source	Probable cause?	Evidence	Possibility responsible or liable
Sink hole/foundation	No	Possible 1990s, no recent mention	Very small
Poor construction/engineering	No	Twin buildings one block north apparently not at risk	Very small
Architects	No	Twin buildings one block north apparently not at risk	Very small
Sea water corrosion	Yes	Engineering report 2018	Large
Builder negligence	No	Met standards at time (1980)	Very small
Engineering on-going reports	Yes	Defects mentioned. Strong enough wording?	Small-Moderate
Condominium board decisions	Yes	Delayed repairs, did not retain outside timely financial expertise	large
Condominium unit owners	Yes	Inattentive owners; electing unqualified board members	Moderate large
City of surfside	Yes	Said at public meeting in 2020 fixing building defects was not urgent	Moderate
Florida state/governing law	Yes	Allowed unqualified members to serve and slack in financial repairs decisions, allowed loophole in replacement reserve funding	Small moderate
Nearby building owner & contractor	No	Allegedly new construction created vibration and caused final collapse	Very small

Conclusions and Policy Recommendations

This exploratory research has looked at how the Champlain Towers South condominium association board absorbed and processed information about the building’s physical condition leading up to the sudden collapse of the building in June 2021. We present a conceptual schematic model of how the CTS Condo Association decision-makers chose to address (or ignore) two main factors: the condition of the tower’s critical building infrastructure, and the number of deferred reserve funds to cure the problem. The case raises issues of liability and throws into doubt the sustainability of the current model of condominium association governance in particular with respect to the financial management of replacement reserves. We argue that the law and governance structure for condominium associations needs to be made more sustainable and changed to reflect the potential for lay members to make poor decisions (e.g., deferral) about financial and physical risks associated with deferred maintenance.

Although natural environmental factors such as long-term saltwater corrosion of concrete are likely the main contributing physical factor that led to the collapse of this building, decisions about the maintenance of this and related factors run throughout the life of the building. Non-natural environments such as legal, social, economic, and political environments also affect the design, construction, and use of full life cycle buildings.

However, the human factors behind the building are worth thinking about. These human factors also run through the life of the building, such as the lack of government supervision before construction, potential flaws in construction law, design flaws, poor construction quality and quality defects during construction. These are probably not a factor in the collapse of Champlain Towers South, and in any case, are past any liability statute of limitations.

However, maintenance management after delivery is a key important factor, which includes delayed maintenance, lack of inspection, negligence of condominium association boards, misconduct of unit owners (improper use, unauthorized transformation, etc.) as well as negligence of government (license issuing in violation of regulations, lax supervision, etc.), and in this case, lack of proper budgeting and timely approval of a replacement reserve fund.

Of course, the investigation, liability investigation, compensation, experience summary and improvement of laws and regulations after the accident are also very important, which can be used for reference to avoid similar accidents.

Since the current model of condominium management as evidenced by Champlain Towers South has blind spots and appears to be unsustainable in this case, what governance alternatives exist? The key may be insurance: working through financial markets to increase the price of unsuitable behavior until condominium governance is unsustainable.

State Law and Replacement Reserve Waivers

Florida’s condominium act is stronger than most states, yet we are unaware of state law of this type that does not allow a waiver of replacement reserves. This should change. Part of the problem is embedded in the voting power of the condominium association: allowing a simple majority to waive prescribed reserves is too lax. A super majority is better, or perhaps waiving replacement reserves should not be allowed at all. At Champlain Towers, the and stay financially secure, according to a March 2020 report from Association Reserves, a company that analyzes housing association finances (CNN News, 2020). This shortfall did not occur overnight: according to the timeline, there were already complaints about this issue in 2015. Our recommendations follow below.

Local Government Role

Local government representatives often interact with property owners. In this case, a representative of the City of Surfside attended public meetings and offered an assessment of the level of risk. However, US local governments can always claim sovereign immunity, which can shield them from liability under most circumstances. Still, some level of local government involvement in assuring replacement reserves is suggested, especially if the previous building management has proved to not be up to the task.

Reserve Requirements

Eliminate the ability for condominium association members to completely waive an annual reserve requirement or consider requiring a super majority, even 75% of the voting interest, to approve such a drastic waiver. This can be done by amending state condominium acts to fix the current loophole.

For new buildings, have a required set aside for loss reserves of 2–3%, or some other number derived from expected repair costs. For ongoing buildings, have each new owner contribute formulaically into a reserve fund when they buy into the unit. It would be better to require that every buyer be informed about the actual amount of reserves set aside for building repairs for, say, a 5-year period, and further informed about capital projects that are anticipated, and the basis for this budgeting. Additionally, state condominium acts can consider requiring condominium associations to have regular reserve studies done by qualified professionals.

Expertise Required to Serve on Condominium Boards

There should be a minimum experience requirement to serve on a decision-making board, at least for buildings above a minimum number of units. This might include legal, construction, or real estate experience, to be set by state law. If local members do not meet it, outside members should be sought that meet the experience criteria and paid on an hourly basis at market rates. An added bonus is that outside members would not make decisions based on their lack of cash flow to fund timely replacement reserves. Another option would be to require a qualified government representative (with building, architectural and/or engineering credentials) to have a voting role on board replacement reserve decisions.

We also advocate having an outside professional make reserve fund and operational decisions on behalf of the HOA (Lee et al., 1998; Yip, Chang & Hung, 2007; Yip & Poon 2018; Puustinen & Lysnar, 2014).

Ownership Structure

Risk remains when a vote requires members to increase general assessments or issue a special assessment, and members cannot afford such increased assessment and vote based on their personal finances, rather than on what is best for the building. To avoid this, one option would be to convert the building ownership structure to an apartment or Co-Op, so only the controlling Board can make assessment decisions, without owner voting driving financial decisions. Putting resident non-owners on the board may also provide some better perspectives. However, there is no guarantee this structure would be more advantageous because the pool of members for the COOP board is the same. However, it could give a chance for a strong executive director of the COOP to achieve more responsible results if people are not so concerned with their personal out-of-pocket expenses.

Insurance

Builders get insurance against defects for a specified period subject to a statute of limitations or repose 7–10 years. Condominium associations, face two ongoing challenges: obtaining insurance on the common assets of the buildings is doable, and is usually predicated on adequate maintenance, an appraisal, and other typical real estate factors.

However, there is also board member insurance. Not wanting uninsured risk, without not for-profit board member liability insurance, board members would likely refuse to serve. In a newly aware environment, obtaining a policy is possible, but conditions must be strengthened, to include:

• The building must have periodic inspections by qualified outside engineering firms;

• Assure adequate reserve. Enact supermajority voting percentages to reduce the possibility of underfunded replacement reserves;

• Require outside reserve experts on a continual basis. Assist with budgeting for reserves among owners, or borrowing money from outside; and

• Notify individual borrowers and their lenders when loss reserves fall below a tripwire amount. If there is no individual debt on a unit, notify the property tax authority and building inspector.

Without insurance, condominium association board members would be vulnerable personally to board decisions: and without those protections and insurance, no rational member would serve on a condominium association board. This could threaten the sustainability of the current condominium form of ownership for vertical construction. Thus, the building reserve problem can be regulated by the insurance process, rather than by the government.

One option would be to provide immunity from (retrospectively) poor decisions by board members, probably by state law. This could cover breach of duty and but would exclude claims for bad faith. The possibility of criminal penalties, outside of bad faith and fraud, would discourage anyone from volunteering to be a director. Our review shows it is unclear if state laws that give enough immunity to protect board members from lawsuits. However, if this type of immunity provides a perverse incentive for bad behavior, it could be a moral hazard. However, it appears that many condominium associations already have trouble meeting a quorum of active members necessary to take action at all, so a more stringent policy could further reduce the pool of active participants. These and related policies for condominium associations have already been introduced in Louisiana, especially for Insurance for condominium associations, post-Surfside (New Orleans CityBusiness).¹²

One final note on board and property liability insurance: We contacted a knowledgeable broker familiar with the residential condominium market, and he said that although everyone in that part of the insurance world was talking about Champlain Towers collapse, there was no substantial change in policy rates or underwriting standards as a result of the incident (Kevin Milligan, 2021).¹³

In terms of future research, scholars should focus on the decision process behind HOA board decisions, especially related to risk, insurance, and engineering. A database of the collapsed building could be maintained, and reasons for failures illuminated. Incidence of building failures could be tied to government regulations, and best practices shared to avoid future reoccurrences of this type of tragedy.

To conclude, the high visibility of the collapse of Chaplain Towers South collapse means time is running out to come up with solutions to prevent this type of condominium management lapse from happening again. As the next generation of high-rise buildings near saltwater ages, condominium associations better get their act together, or the sustainability of the condominium ownership model is in doubt.

Notes

1 You’d expect prices of condos in Surfside Florida to drop after the building collapse, but preliminary trends show just the opposite. Based on admittedly limited data, according to Zillow, house sales prices have strengthened, where the general spot market for housing in the same zip code (33154) was stable or slightly down since the end of June 2021. Perhaps taking 136 units off the local waterfront condo market had a bigger updraft to prices than fear of another building collapse. There are many factors at play, so all we can conclude is that there is no strong price effect evident.

2 http://data.perseus.org/citations/urn:cts:greekLit:tlg0099.tlg001.perseus-grc1:14.2.5

3 There is a reason original developers/builders of condos and time shares alike, all underfund reserves to the minimum required, because higher assessments reduce the pool of interested/viable buyers and the impact of lower reserves would only be felt in the future. Unfortunately, it is common human behavior, to put off today what you can do tomorrow even if it might kill you.

4 Until only a few years ago, homeowner assemblies were denied status as a legal entity. This meant they were, among other restrictions, unable to open a bank account. Such limitations have since been relaxed, for example, in Beijing, where homeowner assemblies are now allowed to manage their own funds account (Beijing Property Management Regulation 2019, Clause 78).

5 China’s reserve fund practices may be a generalizable best practice model. When condos are originally sold, the buyers and the developer sign a maintenance reserve fund agreement where the buyer sets aside a construction maintenance management fund of 2-3% of the purchase price. These accumulated funds belong to all owners and is not included in developer proceeds of the sale. Before the establishment of the owners' committee, the maintenance fund is supervised by the local district property management department on behalf of the HOA. After the HOA is established, the HOA opens a maintenance fund in a local Municipal Commercial Development Bank, and funds dedicated to the overhaul, renewal and technical transformation of the common parts of the residences and the common infrastructure network equipment after the warranty period expires (http://www.yjcf360.com/licaijj/775176.htm). Under this plan, there should be no ongoing assessment for repairs. Alternatively (as in Shenzhen, China) the HOA obtains control of collects special maintenance funds on the day of sale, and owners need to pay routine maintenance funds in the monthly property fee, which will be collected by an outside property management company (https://www.huxiu.com/article/392509.html).

6 On the other hand, board members acting in that capacity are likely protected by the business judgment rule. It would be a moral hazard, and against sound public policy to give board members with bad judgment or intentions immunity based on the argument that they might have high net worth or because no other unit owners would want to serve.

7 Either way, the subject of government sovereign immunity issues is beyond the scope of this paper.

8 https://www.cnn.com/2021/07/01/us/surfside-engineering-morabito-lawsuit/index.html

9 https://www.cbs58.com/news/report-evidence-of-extensive-corrosion-in-collapsed-condo, Report: Evidence of extensive corrosion in collapsed condo, by Associated Press, Aug 26, 2021

10 https://www.theregreview.org/2021/07/19/jerry-collapse-champlain-towers-south-regulatory-failure/

11 For example, in a recent case study in Cleveland, a partly built concrete high-rise building abandoned to the elements for 7 years required about the same cost to stabilize as it did to originally construct, so it lost half its value over that time (Ziegler 2021).

12 https://neworleanscitybusiness.com/blog/2021/08/04/

13 https://www.mcgowaninsurance.com/people/kevin-milligan/

Appendix A.

The complexity of factors affecting high rise building maintenance decisions

.