Columns Management

South Champlain Tower: Lessons for New York

On June 24, at approximately 1:35 a.m., the South Champlain Tower in Surf City, Florida collapsed. Approximately 139 people lost their lives, all the residents lost their personal property and homes and the entire building has been totally destroyed.

The National Institute of Standards and Technology (NIST), working with the Florida and Miami authorities, is investigating the collapse. As with Seven World Trade Center, NIST will issue a report on the loss of the South Champlain Tower. Doubtless, that report will focus on: poor design of the drainage and water-proofing of the swimming pool area; poor construction of the pool and garage areas; lack of maintenance, long- and short-term, of the pool and garage area; impacts of climate change, such as rising sea levels; other environmental factors and poor regulatory response to notices of deterioration the tower.

But while the engineers in Florida pour over the videos, rubble, reports and plans, in New York, owners, managers and tenants in residential cooperative and condominium mid- and high-rise buildings need and want answers on preventing collapses in New York buildings.

Some of the factors that contributed to the South Champlain Tower collapse are present in New York. Condo and co-op boards do not consistently or intelligently prioritize capital maintenance. There is an effort to keep maintenance low and focus on what is visible, like lobbies and hallways. However, façades, balconies, structural supports, hot water heaters, steam and water valves, electrical panels and boilers and tanks are more important overall than lobby decorations and hallway wallpaper.

As in Florida, there is no reserve requirement for co-ops and condos in New York. As a result, as with South Champlain Tower, boards of co-ops and condos often find themselves with internal disputes about spending money on maintenance. Sadly, in New York City, this issue is compounded by excessive property taxes on cooperative and condominium units. These excessive property taxes have created financial stress for buildings and unit owners trying to properly maintain their properties. New York City co-op and condo units, particularly those located in Manhattan, pay significantly more than their fair share of property tax. There needs to be a significant reduction in New York City real estate taxes for mid and high-rise co-op and condo buildings so that the boards are able to build reserve funds.

Reserve funds should be based on the building needs over a five- to seven-year period. The amount of a reserve fund needs to be established by engineering surveys and associated budgets for the building. There need to be two types of surveys: one for the mechanical systems (e.g. plumbing, electric, sprinklers, boilers, electric panels) and one for the structure and façade. These reserve funds need to be sufficient to cover the budgeted costs for these major maintenance items. Board members may want to consider decorating issues in setting reserves, but that is optional. Some estimates suggest 15% to 40% of operating costs as a reserve.

New York has more comprehensive insurance requirements than those in Florida, so buildings should be carrying adequate property insurance. Whether directors’ and officers’ insurance or general liability is adequate for New York co-ops and condos is less clear but, generally, there are requirements for unit owners to carry insurance for general liability assessments and for damage to their respective units. Unit owners should carry sufficient insurance to protect their separate interests, based on the condo or co-op documents and advice from their respective insurance brokers. Unit owners should ask about whether there is adequate insurance coverage for the building, general liability, property and directors and officers.

The most important lesson for unit owners in co-ops and condos is that boards and managing agents cannot be trusted to manage capital maintenance and property condition surveys. Unit owners must demand that boards and managing agents provide copies of the condition surveys, budgets and reserve needs. Under the New York State Condo Law, these documents must be available for inspection and copying by unit owners. Co-op unit owners are entitled to see these documents under the General Business Law. Unit owners must be vigilant; your respective lives and financial security depend on the safety of your building.

This column presents a general discussion. This column does not provide legal advice. Please consult your own attorney for specific legal advice.

Carol A. Sigmond
Greenspoon Marder LLP
590 Madison Avenue, Suite 1800
New York, NY 10022
(212) 524-5074

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