Changes to the Law for Flood Disclosure and Condos Taking Effect October 1St.
With Juana Watkins
TRT: 48m 14s
Video Transcription

Juana directly addresses camera:  Good morning everyone. My name is Juana Watkins, and as I love to say, I have the honor and the pleasure of serving as the Florida Realtors® Vice President of Law and Policy and General Counsel. Thank you all so much for joining us this morning. As we talk about two very important developments out of the 2024 legislative session that will have an impact on how you do business, with your customers.

And so I want to spend a little time with you this morning talking about flood disclosures and condo changes. Two things I am sure as Floridians you hear a lot about in the news, you hear a lot about from your customers. And so hopefully today you'll hear a little bit about from me. If you attended our legal update at convention, you heard both of these topics discussed.

And so we wanted to put a little meat on the bone, if you will, today on these issues and talk about the form changes that will happen next week, for these two very, very important topics. So a couple housekeeping matters today. You will have the pleasure. Maybe I don't know of seeing me on screen and not so much a PowerPoint presentation.

We will follow up with one that will help you, as you navigate the transaction. But you also will know that next week we will be releasing forms that you will use in your transaction as you work with buyers and sellers on the transaction for, the, transactions for the condo changes and for flood disclosures.

So without further ado, let's get into these changes, flood disclosures. Let's tackle that issue first. So as Floridians we know flood, it is something that our state has, led the way on in terms of the discussion within Realtor® world on flood. And so, we know that, FEMA has its, issues and its, prerogatives as it relates to flood disclosures.

And so, one of the things that we pointed out to members recently, as we've done our legal updates with respect to this, is that, the Federal Emergency Management Agency, FEMA, designates properties, as it relates to flooding, and they have a category called severe repetitive loss property. And so oftentimes when we think about flood, we think, well, you know, what is the FEMA designation as it relates to flood.

And so that's an important starting point for the discussion. And obviously we'll talk more about the state specific now disclosures related to that. But FEMA categorizes properties as severe repetitive loss property. And what does that mean exactly in the federal world. Well, those are homes that have flooded twice with some damage totaling the value of the property, or properties which have flooded four times with at least $5,000 damage each time.

So when you start to think about your properties in your transaction and whether or not this is a flood property, as some like to refer to the property, there is obviously the FEMA designation for severe repetitive loss property. Now nationwide, there are about 45,000 of these properties across the country. And here in Florida, we have just under 10% of those.

There are 3100 or so of those properties here in Florida. And so, proportionately speaking, in Florida, we have a large number of those severe repetitive loss properties as categorized as FEMA. So, it is no surprise that the Florida Legislature has for some time now, looked at the issue of flood and flood disclosures. So the interesting thing about FEMA's approach to flood disclosure is FEMA's policy is to only share past flood history with the property owner, who holds an active flood insurance policy.

So they only share with the the actual owner of the property who holds that current flood policy. So that obviously puts buyers at a bit of a disadvantage because they are not going to be privy to the details of FEMA's categorization of that property as it relates to this severe repetitive loss property designation. And so, enter the Florida Legislature, right?

And enter state law. Here in Florida, we know that we are a, as we call it, a Johnson versus Davis State. What does that mean? Well, in Florida, for a long time, we have had the, our law of the land is a case called Johnson versus Davis, which was decided many, many years ago by the Florida Supreme Court.

And it held that, where the seller of a home knows of facts materially affecting the value of the property, which are not readily observable and are not known to the buyer, the seller has a duty to disclose them to the buyer. They must disclose those facts to the buyer. But the court did not define what readily observable meant.

And so for many, many years, you know, you've called us on the hotline. We've had these discussions with our members about what is readily observable, especially as it relates to floods, where if you go to visit the property, after a very heavy rain, you may see the accumulation of the water. But if your buyer goes on a beautiful sunny day here in Florida, the buyer may not see any accumulation of water.

And so what is readily observable may be very different to a potential buyer depending on the day that they visit the property. And so in the absence of that clarity as to what is considered readily observable, here, you know, enter the Florida legislature. Courts are split over what is readily observable. And and the matter, it, it it is difficult to even define even within the court system when you're talking about floods.

And so the legislature created House Bill 1049 as a part of the 2024 legislative session. And it was signed into law on May 24th, 2024. And, so this was this was well debated, well discussed in terms of the the right approach to take for how to go about disclosing the the presence of the potential for flood on a property.

And so this was House Bill 1049, an Act Relating to Flood Disclosures in the Sale of Real Property. This is the act that we're talking about that the legislature created and what is new, what is new is, Florida Statute 689.302. And again, you will receive, information, written information about this in the form of a of slides and news articles to help you.

So don't feel like you have to write every single thing down that I'm saying we will provide you written information to help you with this. But they created Florida Statute 689.302. It requires a seller of residential property to complete and provide a flood disclosure to a buyer. Okay. And so again, we're talking about residential property here. Sellers must complete and provide a flood disclosure for buyers of residential property.

All right. So that is what we're here to talk about today. Now when must this disclosure be provided. Well, that disclosure must be provided at or before the time of the sale and purchase contract being executed. Right. So enter the role of the Realtor® and why we're having this conversation today. Because at or before the time that the contract is executed.

So we're talking the offer, the acceptance time, the seller will have we'll need to make this disclosure here. Now, this is something new. And so it has not yet made its its way into the sale and purchase contract. It's, it's so it's right now going to be a standalone addendum. So what will the seller need to disclose.

The seller is going to need to disclose whether they have filed a claim with their insurance provider relating to flood damage of the property. Obviously, if the seller has filed a complaint, claim they know that there is the potential for flood on the property, right. And this includes but is not limited to a claim with the National Insurance program.

So any insurance claim filed, the seller needs to certainly disclose that, the seller is also going to need to disclose whether they have received federal assistance for flood damage to the property. So think things like assistance from FEMA or, or some other type of federal assistance as it relates to flooding on the property. So that is part of what the seller will need to disclose.

But the question that often comes about is, okay, but you're telling me that to disclose that I received assistance for flooding, but what is what is flooding, Juana? Is that a is that a puddle? On my grass after it rained hard or or intrusion of water? Explain to me what is flooding. Well, the legislature anticipated that we might get those questions, and as a result, they gave us a definition of flooding in the new law, flooding is defined as a general or temporary condition of partial or complete inundation of the property.

Okay. So let's stop there and let's review. It is a general or temporary. So broad language here, general or temporary condition of partial or complete inundation of the property okay. And they go on to tell us that this can be caused by a number of things. The first thing is an overflow of inland or tidal waters, and it's the first potential cause of the flooding.

The next is the unusual and rapid accumulation of runoff or surface waters for from any established water source. And so you can think when you when we say establish water source, we mean things like a river or stream or a drainage ditch, ditch. Those would be the types of established water sources that could cause the unusual or rapid accumulation or runoff of surface waters.

And the other, example that they give us or, or part of the definition that they give us is sustained periods of standing water resulting from rainfall. And that's a big one here in Florida, right? So it's not just an overflow of a river or lake. It can be caused from rainfall. If that is a sustained period of standing water resulting from rainfall that resulted in a general or temporary condition of partial or complete inundation of the property.

Okay, so the rainfall is the one that we get the most questions about, and that is how the legislature defined rainfall as falling within the requirements of this flood disclosure. Okay. Now, what does this have to do with, with you, and, and your practice and how you interact with your customers? Well, as, as with any issue, this is triggering a disclosure.

And, and this is a requirement that you should be aware of. You want to make sure that you are in a position to facilitate this information, as a part of the transaction, because, again, it is going to be a required disclosure for the seller at or or before the time the execution of contract on every transaction, every transaction.

Okay. And this law takes effect on October 1st. So spread the word. How how will we facilitate this disclosure? Well, there is of course a form for that, something you have heard me say quite a bit lately. And the reason why I've been on camera so much of late, there is a form for that. The law takes effect on October 1st, but we're actually going to release this form on Monday.

On Monday, September 23rd, we're going to release the form or why are we releasing it, you know, so far in advance of the, the, the, the law taking effect because the disclosure has to be made before the contract is formed. And so we want you to give some time and some thought into, how it is you will use this form leading up to October 1st.

I don't want you to pull it down for the first time on October 1st. Knowing it, you know, to write an offer, knowing that it may take a few days for the the formation of that contract. So when you start to use it, it's up to you. Just remember that you can't wait until October 1st and then form the contract on October 3rd.

Because technically, the seller needs to have have kind of made that disclosure prior to the formation of that contract. So I encourage you to start using it a few days in advance to ensure timely compliance with the October 1st effective date of the statute. Now, the form number is going to be form FD1. So look for that in Form Simplicity.

If you are a Form Simplicity user and and what you will see in the form is it will be a, a check box approach. Right. And it will ask you those critical questions that the legislature requires be answered. So it will ask the seller. Seller, have you ever filed a complaint? Excuse me, a, claim for, insurance because of a flood.

Have you ever received financial assistance because of a flood? And then, on the form, we actually designed it to provide that definition of flood so that your seller and the buyer, quite frankly, understand what is meant from a Florida Statutes perspective of the definition of flood. All right. So that is what you should come to expect in terms of flood disclosures.

Now, I didn't mention this at the beginning. And what has happened in all of our recent, webinars is, you will have, members of our senior legal team on this webinar if you have additional questions about flood before our transition to the condo discussion, which will take a little bit more time, because we know that the condo changes are there are a lot, but, they are here.

They are online. Please submit your questions in the chat. So that they can answer those for you. And again, so that we can collect those questions to develop future resources for you. So please submit those questions about flood as I transition now to condo changes. We're going to spend a little bit of time there because I think we need to review condo 1.0 and 2.0 before we talk about condo 3.0 and the forms that we will be releasing because of condo 3.0.

So let's go back down memory lane for condos, because every single year for the last several legislative sessions, there has been a condo bill. And I'd venture to say that there are probably some folks on this webinar who may not have been licensed when we had condo 1.0 or condo 2.0, and that's good. I'm glad you're here with us today, because you're going to go down memory lane with us so that I can kind of help you understand how we got here.

So the first version of our condo law changes obviously came about because of the absolute tragedy that was the collapse of the Champlain Towers. We all remember the the just the horrific tragedy that that was, and our hearts still go out to all of those, who lost, lives and, and homes and suffered so much because of that horrific tragedy and because it is the responsibility of the legislature, of our lawmakers to protect the health, safety and welfare of Floridians.

They obviously acted very quickly to try to address some of the root causes for the collapse of those towers. And so in May of 2026, excuse me, May 26th of 2022, the legislature signed into law Senate Bill 4D, which was a part of a special session that they had, and they they passed that law to address major condo reform.

And, it was definitely a sweeping, comprehensive change to condo law as we knew it here in Florida. We'll talk about that in just a second. But then came what we call the glitch bill. We soon came to to know as we started to work through Senate Bill 4D that it was going to require some changes.

It was comprehensive, it was sweeping, but it was also passed very quickly. And so we we realized as a state that we were going to have to make some changes, clarify some issues. So then the very next year, Senate Bill 164 was passed and signed into law, on June 9th, 2023. And so we had what we call condo 1.0 and condo 2.0.

And so let's review a little bit of that.

Out of that, there were many changes, but out of the changes, four from 1.0 and 2.0, there was the creation of first two new reports out of 1.0 and then subsequently a third additional report out of condo 2.0. Those reports are very important, because those reports created new disclosure requirements for condominium associations. They dealt with a number of very critical issues.

The first was a report called the Milestone Inspection Report. This report was about the adequacy of the structural requirements and components of a condo building. And and these components dealt with the life and safety components of the association and the buildings, that it governed. The next report was the Structural Integrity Reserve, study report. We call that the SIRS report.

And that study dealt with how, the reserves were used to fund, major repairs and, replacement, cost of some of the, the common, requirements and elements of the condominium and then condo 2.0 created a third report, which was something called the turnover inspection report, which was a report that, that developers would be required to provide to association when they turned over control of the report to the association.

So that's from a from a reporting requirement. Those are the three big reports that we saw that, were created by these new regulations. And the the significance of the reports was that buyers of certain condos were now entitled to these reports. And so as a result of that, over the last couple of years, you have seen changes to our condo addendum to the CRSP, rider to the FAR Bar contract to try to facilitate disclosure of critical information that was required as a result of these statutory changes.

So I want to, by way of review, talk a little bit about these requirements because I think it's very important. And why is that? It is very important because these reports, the deadlines created by condo 1.0 and 2.0, that that deadline is rapidly approaching December 31st, 2024 is when those reports have to be, completed or, there is now some ability for associations to receive a little bit more time, if they are under contract to have those reports done, by the appropriate professionals.

So I want to talk to you a little bit about what those reports are, because many of you have heard on the news, you've heard from your customers who are listing their condos that it is causing very large special assessments and that undoubtedly is something that you are facing in the marketplace. So, really quickly here, these milestone inspection reports, why are they so significant?

Well, these are visual inspections that are done by, professionals. Or maybe even a team of professionals. These are Florida engineers or architects acting as registered design professionals in charge. And with all work they are excuse me. And charged with all work and reports signed and sealed by the appropriate qualified team member. So it can be an architectural or an engineer or a team of professionals.

But the the report is ultimately signed off on by the appropriate qualified team member. Now associations and any owner, or of any portion of the building which is not subject to the condo ownership, must arrange for these inspections and absorb the cost of, ensuring for the compliance. Associations are responsible for the cost attributed to the buildings which the association is responsible to maintain per its governing documents. So, these are very, very important reports and very costly reports. And the milestone inspection report comes about in two phases. Phase one is mandatory. It is a visual inspection for life, safety and adequacy of all of these structural components of the condominium building. And so this is what the legislature requires, needs to be done by the 31st or needs to be under contract to be done.

Now, there is a second phase. If during phase one, if substantial deterioration is noted, further testing, would be conducted and it must be conducted if that substantial deterioration standard has been met in phase one and the recommendations, for the repairs, will be noted in that phase two, part of the milestone inspection report. So, you know, here, here is why you are hearing from your customers that, you know, I'm subject to all of these, major repair requirements.

And it is getting costly for my association because these reports are expensive and they are noting the damage that needs to be done to some of these older buildings. Now, here's once the report is done, the inspector, the person who who performed this report will provide a copy of that milestone inspection report and a summary of that milestone respect inspection report to the Association and to the building official and the jurisdiction over that condominium.

So it will be summarized, given to the Association and given to the local building official. And this must be done again by December 31st. So we are rapidly approaching that time. Condo 2.0 wrote in a little bit of, grace period, because they came to to learn that there were not enough architects and engineers in this state to do the necessary reports.

And so 2.0 says, except that if this association, you know, is under contract, or if the association is noticed by a local enforcement agency, then that there may be additional time frames that apply. But the general deadline is December 31st, 2024. Just remember that. The notice, related to the milestone inspection report will also go to the owners, of any portion of the building, which is not subject to condo ownership.

All right. So, that is kind of where we are with the milestone inspection report. So by way of review, just remember that they will do the report. They will receive a summary of the report and the summary of the report is what your buyer will be entitled to. So keep that in mind because it's going to be different from the next one we're about to talk about.

And it's important because a lot of times buyers will confuse the two and they'll think, oh, I'm entitled to a copy of the milestone inspection report. The buyer for the milestone inspection report is only entitled to the summary of the report, and the forms that we have put forth will outline that distinction. All right. Now moving on to the next report that we're going to talk about.

Let's talk about the Structural Integrity Reserve study report, which is the SIRS, as you hear it referred to often in the marketplace. Now, not all associations have to obtain a SIRS, but if an association, existed on or before July 1st, 2022. But they are going to have to have this SIRS performed. And the interesting thing about this, SIRS, is again, we're looking at a deadline of December 31st, 2024.

Accept. So let's look at the difference between the SIRS and the Milestone Inspection Report. This is a study of reserve funds required for future major repairs and replacements. Okay. So we're talking about here the financial impact of the future replacement, of these major repairs. And that's, that's significant because this covers major components to the, the condo.

The legislature defined this for us. The roof, primary structural members, load bearing walls, plumbing, electrical, fireproofing, waterproofing, windows, things like that. They they gave us a category and they defined it for us. And items were deferred maintenance expense exceed $10,000. So these are major components here. The SIRS will include the estimated remaining useful life, and the estimated replacement costs of deferred maintenance expenses.

Okay. So that is that is how the legislature views the SIRS compared to the Milestone Inspection Report. So really, when you are hearing on the news that I got hit with a really big special assessment, it is because the SIRS is dealing with the replacement, the repair costs for these major components of the condominium association. All right. And so buyers are also going to be entitled to this information.

And so as a part of the form changes, we have updated the forms to facilitate this disclosure to the buyers and letting them know that they are entitled to this. But unlike the milestone inspection report where they only get the summary, on the SIRS, they are entitled to a copy of the SIRS if it exists. Okay. If it has been completed, then they are entitled to it.

And as we get closer and closer to the December 31st date, then yes, more and more SIRS are going to be available for these buyers. So let's look at what's happening. Now that, you know, that's kind of the the review. That's that condo 1.0. Condo 2.0. We updated the condo rider and the condo addendum to the CRSP after condo 1.0 and condo 2.0.

So again, for the third consecutive legislative session, the legislature changed the condo laws. We refer to this one now as condo 3.0. So this is the fairly new information that I want to impart to you. There actually were two bills, out of this legislative session. That was House Bill 1021 and Senate Bill 154. House Bill 1021 is going to take effect on July 1st, 2024.

Again, don't feel like you need to write all this down. We are going to put out articles. We will put out a set of slides that you can use in your office training, your board training for your own personal needs, whatever you need to do, in order to train on these issues. So, don't don't worry about that, but we're going to focus on House Bill 1021, that that took effect on July 1st, 2024.

The important part about that is this was a really large piece of legislation. And it provided multiple updates. It it made updates to the Milestones Inspection Report and the SIRS information. It made updates to the bylaws and the official records of the associations. Made some update to non developer disclosures. So it was a really large piece of information.

The milestone inspection reports House Bill 1021 Florida Statutes 553 .889, subsection four, amended the the law the previous condo versions to now exempt four family dwellings with three or fewer habitable stories above grounds from the milestone inspection report requirement. That was a big topic of discussion. How many stories is a three stories high or is it, you know, three stories or fewer?

How many stories does it have to have, Juana? So, they clarified that it is now going to exempt four family dwelling units with three or fewer habitable stories, above ground from the milestone inspection report. It was previously two family or three family dwelling units. So they're still focused on stories, but four family dwelling units are now exempt, as well as two family and three family dwelling units.

What else did it do? A timeline was created. Remember I said that when it with respect to the timing of all of these issues, timing became really important because, there were a lot of difficulties with complying with some of these issues. So with respect to the Structural Integrity Reserve study, a timeline was created within 45 days after receiving the Structural Integrity Reserve study.

The association must distribute copies of the report or a notice that the report is available for in spark, an inspection or copying. Okay. But you have to give them a written request. If you're the unit owner. So, that was important because it said it had to give it. It just didn't really say when they had to give it.

So within 45 days, and within 45 days after receiving the SIRS, the association must provide the DBPR with the report. Okay, so it puts some time frames on the association to perform, based on, the receipt of the structural integrity Reserve study. Also some changes to the bylaw provisions. If a residential condo has ten or more units, then the board must meet at least once a quarter and at least four times a year.

And this is residential condos. I want to emphasize that at least once a quarter and at least four times a year. All right. So making sure that the board is coming together to conduct the business of the association as is required by the law, the the legislature clarified some issues with respect to official records. The legislature decided that official record website threshold reduced to condominiums with 25 units or more.

So they reduced that threshold. They also specified, must have a website and comply with all requirements for condominiums of 150 units. That was important and will apply to a greater number of associations effective January 1st, 2026. So we're seeing a lot more accountability in terms of the website and the records that the associations have to have on their websites.

No later than January 1st, 2026. So this push to make more information available to the unit owners on the, official website of the condominium. And then, one big component that, you will see, is they changed some of the terminology and this is going to impact you. So Florida statute 718 .503, subsection two. It used to use the terminology year end financial information to describe the type of financial information that buyers were required to, or entitled to receive as a part of the the official records.

They've updated that language and replaced the term year end financial information to annual financial statement and annual budget. Maybe not everybody does it year end. Maybe some people do it, you know, on a different type of calendar system. And so because of that, here's here's the next takeaway for forms, the contract rider that Florida Realtors® publishes in as a part of the joint Realtor® committee, as well as the CRSP addendum to the contract rider has been updated.

So earlier in the presentation, we talked about the flood disclosure form that will be released next week. The other form that will be released is an amended condominium rider for the FAR Bar contract, an amended addendum to the CRSP contract for condominiums. All right. This is how this impacts you. So the the first change to that form that you will see next week is the replacement of the term “year end financial information” with annual financial statement and annual budget.

That's the next thing you'll see. All right easy change. Not all that substantive but certainly more appropriate in terms of the various ways that condominiums refer to their financial documents. All right.

The other big change at, the condo 3.0 bill was a change to Florida statutes 718 .407, subsection five. So for those I'm going to say that again, for those of you who feel like me, like I'm going to write it down any way Juana, even though you said we'll follow up in writing, it is a change to Florida statute 718 .407, subsection five.

This is a situation where a condominium is created within a larger portion of a building. So think about these situations. We call them, you know, condotel right, where you have a big hotel and, you know, multiple buildings. And then one of the buildings inside is a condominium. You know, it's a mixed property of hotel and condominium condotel.

Right? You've seen those structures. You're all familiar with them. Well, the legislature created a new disclosure requirement, for every contract for the sale of a unit in a condominium that is created within the portion of a building, or multiple parcel building, such as a condtel. So, a condominium within a larger building, there is a brand new disclosure requirement.

It looks and feels just like the condominium disclosure requirements that you see already in the rider and the addendum, the rider to the FAR Bar in the addendum to the CRSP. So we have added that language to the existing rider and the addendum. All right. Next week we will release that form. We want you to know why we were adding that language.

So for those of you who deal with condotels, you now have a new disclosure in the form. If you do not deal with condotels, you will understand, that it is it's language that is just simply made for that purpose. When does the condotels language take effect? October 1st, 2024. And, so this is why we are bringing you this form next week.

Unlike the flood disclosure form, where you, probably need to start using it a couple of days in advance, you know, just you probably don't really need to give it that much lead time in the condotel, situation. Just make sure for every condo, contract that you write, after, or on October 1st forward, that you are using the new updated rider to the CRSP, rider to the FAR Bar contract. An addendum to the CRSP. All right. Now.

The one thing I do want to tell you that, you should stay tuned for is probably condo 4.0. If if you follow the news, if you go to CLEs, if you go to CEs on condos, you probably know that there are likely to be more changes. I'm going to tell you about these forms. What I've told you about every other form that you've heard me talk about recently.

If you see that the changes that we've made don't necessarily fit or meet all of the requirements that you need in terms of condo changes, please let us know. Send us the information because, we hear a lot of stories even now about the condo market, the shifting market. Do not hesitate to let us know whether or not there are additional resources needed, because condo 4.0 is apparently a real thing.

Now, with that said, I am coming up on my time. I will let you know, just again, from a housekeeping perspective, the takeaway today is there are two new areas of disclosure. So let's review flood and condos. Two of the most important issues facing real estate here in Florida, both with major changes as a result of the Florida legislative session that ended in the spring. Flood disclosure.

Every residential transaction sellers are going to need to make these disclosures. We have 230,000 plus members. I'm, I don't think we have 230,000 people on this call, which means we need your help. We need to make sure members understand that these transactions, starting October 1st, sellers need to make these disclosures. We obviously will work on incorporating flood disclosures into contract forms and all of those things.

But like we often do as a result of legislative session changes, this form has started as a standalone addendum, and I want to check the Form Simplicity usage on October 15th and see that the usage is through the roof. For the flood disclosure form, because I want to see that all of our members have gotten the message loud and clear that this flood disclosure is a required disclosure form for residential transactions in the state of Florida, and just like you all are incredible intelligence officers and getting information back to us on what is happening in the market, I am going to deputize you and ask that all of you go out and help share the message on this flood disclosure change that's taking effect on October 1st. So I need you. Similarly, condo changes, these disclosures, will be incorporated into the form. So certainly it'll it'll be a lot easier for us to ensure that members are getting the required language in front of buyers and sellers for condominium transactions. But again, intelligence officers, we know that there is a lot happening in the condo market.

So we look forward to hearing from all of you as we enter into condo 4.0 season. On how it is that we can better help your buyers and sellers. And you with condominium transactions in the future. So, today I was solo. I did not have with me, the, fantastic leadership team at Florida Realtors®. I spoke with President Gia before I came on today.

I spoke with CEO Margy Grant before I came on today. They both are excited about, moving forward with these forms. They are thankful for you taking your time today to join us on this webinar. And, we we thank you as you move forward and helping your customers continue to realize the American dream. So have a wonderful day.

And thank you for joining us on this webinar.