They used the "Pay As You Go" with Special Levies Model.
On Thursday, June 24, 2021, Champlain Towers South, a 12-story beachfront condominium in the Miami suburb of Surfside, Surfside, Florida, collapsed. But before that, it collapsed financially.
This is the default current model in place in most Strata Corporations today. In this case, the Strata Corporation typically does not have reserve fund balances sufficient to cover expected replacement costs, and the only recourse is to schedule special levies to cover these costs on a reactive basis. Lack of information about special levies is a real problem for some strata lot owners. These costs impose an additional financial burden on owners who often have chosen condominium living for perceived reduced cost reasons. This is the riskiest of the financial models and could jeopardize the financial viability of the development if special levies cannot be raised when needed.
Public Information appears to indicate:
- The complex did not increase the CRF contributions for nearly a Decade
- Although it has $700,000 in the CRF, the Reserve Adequacy (Percent Funded)[1] was under 7%, less than most Strata Corporations in BC.
- The key to the "Pay As You Go" with Special Levies Model is that you pay the Special Levies when due. The Owners had let it get so bad and behind financially that they voted down Special Assessments between $80,000 and $200,000 per unit just before the collapse.
Preventing the Financial Failure of Your Strata
- Increase CRF contributions annually to reduce the amount of Special Levies
- Ensure your Provider produces a plan for increasing the Reserve Adequacy (Percent Funded) over the 30-projection period.
- Do not plan to use the "Pay As You Go" with Special Levies Model, as there may be consequences if you cannot get the Strata Lot Owners to agree to pay the Special Levies when due or if they are too high.
Have Strata Reserve Planning prepare an Informative Depreciation Report based on an Accurate Inspection with a Recommended Model that is Realistic and designed to support the owners' Market Value.
[1] Reserve Adequacy is the internationally accepted tool for measuring the financial health of a Strata Corporation.