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The Surfside Condo Collapse: Lessons for New York

By Adam Leitman Bailey and John M. Desiderio

The disastrous condo collapse in Surfside, Florida of the 40-year-old Champlain Towers South condominium tower should set off alarm bells in New York City, wherein it is estimated there presently are more than 1 million buildings, many of which are more than 100 years old, including several in Manhattan that were converted to cooperative apartment buildings in the 1970s and 1980s, in addition to the hundreds of high-rise condominium buildings built more recently, in the 1990s and 2000s, primarily in Manhattan, Brooklyn and Queens.

New York Laws

Overall, New York has a much better governance system of the exterior (and a few interior items) of tall buildings than does Florida. At the same time, although we will not have buildings collapsing into the ocean, we do have major potential problems that need to be addressed. Since 1980, New York City, unlike Florida, has had laws in place requiring mandatory inspection and repair of building facades. The latest iteration of the law, the Façade Inspection and Safety Program (FISP) (formerly known as Local Law 1), RCNY § 103-04 (“Periodic Inspection of Exterior Walls and Appurtenances of Buildings”) was recently updated in February 2020, to include additional inspection items, increased levels of inspection and more comprehensive documentation. The law requires that all buildings in New York City higher than six stories have all of their exterior walls and appurtenances (including, among other things, fire escapes, exterior fixtures, ladders to rooftops, parapets, copings, balcony and terrace enclosures, greenhouses and solariums, and any other equipment attached to or protruding from the façade) inspected in five-year cycles. The current cycle 9 (2-21-20 to 2-21-25) requires that all buildings be inspected, on a staggered schedule, in one of three sub-cycles: 2020–2022, 2021–2023, and 2022–2024. Inspections must be conducted by Qualified Exterior Wall Inspectors (QEWI) with at least seven years of relevant experience to be qualified.

However, while FISP scaffolds or other observation platforms are a routine fact of life on the streets of New York, there is currently no law, in either New York City or anywhere else in New York state, that mandates inspection and repair of the interior structural elements of any building whatever its size. FISP provides no assurance that the type of structural defects that led to the Champlain Towers collapse will be detected unless the structural elements of all buildings are subject to regular routine inspection. Indeed, the mandatory evacuation of a 70-year-old three-story building, a few blocks away from the Champlain Tower site, one month after the headline-grabbing event,[1] evidences the need for mandated, comprehensive and regularly scheduled inspections of both interior and exterior structural elements of buildings of all sizes. The FISP law needs to be expanded to cover major components and the ability to identify interior of buildings as well as their exteriors.

Considerations Regarding Building Structural Integrity and Repairs

In the meantime, in the absence of mandated governmental requirements for interior structural inspections (other than for elevators, boilers and gas piping, which are subject to regularly scheduled inspections) building owners (including both commercial and private landlords, cooperative apartment corporations and condominium boards) must themselves assume the burden and responsibility of implementing the prudential actions necessary to ensure the continuing structural stability of their buildings.

However, the cost of maintaining and repairing interior structural building elements, for both old and new structures, can be daunting. Nevertheless, landlords (whether commercial or residential, including cooperatives and condominiums), as a matter of prudent management, and/or pursuant to any applicable statutory or contractual lease obligations, need to maintain sufficient reserve funds to address capital repairs, improvements and replacements required for their existing tenants’ health and safety.

Similarly, sponsors seeking to convert buildings with residential tenants to condominium ownership must comply with New York City’s Reserve Fund Law,[2] which mandates that they provide sufficient funds to create the reserves that will be necessary for capital repairs, improvements and health and safety items required in the future operation of the condominium. The law requires that sponsor-created reserve funds be at least equal to a statutorily calculated minimum of no less than 3% of the total price that was offered to tenants in occupancy prior to the effective date of the conversion plan regardless of the number of sales made. This law should be expanded to all cooperatives and condominiums and not only buildings converting to condominium, as too many buildings do not carry enough reserves or refuse to spend money to repair buildings, putting its residents in danger.

Nevertheless, aside from normal maintenance costs, which either rent, maintenance payments or common charges are expected to cover, the potential costs, which could be incurred in repairing the kind of structural damage that would cause a similar Champlain Towers-like disaster, are formidable and most likely would be well in excess of whatever amount of reserve funds a building’s management is likely to accrue, even over several years. This is especially true of buildings with residents and board members who have fixed incomes and are reluctant to assess unit owners for the kind of sums necessary to do any extraordinary structural repairs. It is reported that the Champlain Towers president had told residents in April, when there was only $700,000 in the building’s reserve fund, that the building was in desperate need of repair and that $15 million in assessments were needed for the work that was required.[3]

Apparently, there was unit owner resistance to any assessment of that size at Champlain Towers, and such resistance to assessments of any size is often found in any number of condos and co-ops in New York City. Bylaws often include provisions requiring a 66 2/3 (or higher) percentage of owners or shareholders to approve costs for necessary repairs or renovations above specified limited amounts. The Champlain Tower experience should spur condo and co-op boards to revisit their bylaws and consider amending them to be less restrictive. There should be minimum approval required when there is evidence certified by independent engineers and architects that more than “Band-Aid” repairs are necessary to protect the structural integrity of the building. Moreover, assessments are likely to be less burdensome at the early stages of a detectible structural defect than later when, after the situation has been left to fester for several years, the defective condition has reached a critical level.

It is therefore incumbent on building owners to seek ways of accumulating the reserve funds needed to address the kind of extraordinary structural repairs without which a Champlain Towers-like disaster could occur. However, in the event that the likely causes of such a tragedy go undetected and the unthinkable does occur, building owners need to be prepared for the aftermath and have protection, not only against the property losses and damages that they will suffer, but also respecting the personal and property damages for which they could be held liable by their residents and other third parties. The actions building owners should implement are similar to those prudential steps that many building owners have taken in the aftermath of terrorist acts, catastrophic hurricanes, and other severe weather events.[4].

Litigation Considerations in Building Disaster Cases

In any litigation arising from a Champlain Towers-like disaster, a court is likely to consider all of the above factors in assessing the various liability issues that will affect the owners and lessees of the real estate (landowners as individuals and ground lessors, landlords, cooperative apartment corporations and incorporated condominiums), officers of landlords, board members of cooperative apartment corporations and condominiums, officers and property managers of managing agencies, contractors who constructed the building, architects and engineers who designed or certified the project, building inspectors who signed-off on the project and all of the respective insurance companies of each of them.

The primary liability issues for each potential plaintiff and defendant will be the foreseeability of the event and what actions the particular party defendant, third-party defendant or cross-claim defendant did or failed to do when apprised of evidence of the structural defects that likely caused the resulting building disaster. Such issues are not unlike those the court examined in connection with the duties of the owners of buildings and the duties of other defendants involved in the 1993 World Trade Center terrorist bombing.[5] In addition, New York’s Multiple Dwelling Law § 78 (Repairs) mandates that “[e]very multiple dwelling, including its roof or roofs, and every part thereof and the lot upon which it is situated, shall be kept in good repair,” and that the “owner shall be responsible for compliance with the provisions of this section, but the tenant also shall be liable if a violation is caused by his own willful act, assistance or negligence . . . .”

A Case Illustrating the Various Liabilities

The case of Fitzgerald v. 667 Hotel Corp.[6] provides a useful example of how the liabilities of the various parties involved in a building collapse are likely to be determined by the courts. This also, most likely, would determine the liabilities of the parties’ respective insurance carriers. In 667 Hotel Corp., 43 consolidated actions arose out of the collapse on August 3, 1973 of the Broadway Central Hotel, located at 673 Broadway – a building constructed in the 1850s, which had undergone various alterations over the years. Four persons were killed in the wreckage, many others injured and a number of businesses incurred substantial property damage. The defendants were, among others, the owners of the building, the net lessee, the mortgagee, a tenant who was having structural renovation done on its portion of the premises, and the contractor the tenant employed for that purpose. The City of New York was also named as a defendant, as the Department of Buildings had been made aware of the hazardous state of the building and had failed to act to cause the defect to be remedied or the building to be vacated.

Extensive renovations had been done to the building by the net lessee. In January 1973, the president of the net lessee called the attention of the managing engineer of the building to cracks that were extending through the interior bearing wall and buckling the frames of the double doors going through it. The lessee’s own contractor and architect, who inspected the cracks, concluded that the cracking was a structural danger. The chief building inspector for the Borough of Manhattan then personally inspected the premises on January 29, 1973. He agreed that the bulging of the exterior wall and the diagonal crack through the weight-bearing wall was a serious defect in the bearing wall and that an architect or engineer should take immediate remedial action. He opined that the building was not in imminent danger of collapse, but that, if the condition were not remedied, it would gradually become more dangerous. However, the inspector failed to observe that the crack extended all the way up to the eighth floor. He did not issue any violation respecting the crack in the weight-bearing wall and made no personal effort to follow up. A violation was issued only for the bulging front façade and made no mention of the cracked weight-bearing wall. A consulting architect proposed several plans for correcting the bulge and crack in the front wall, but the lessees of the hotel opted for the cheapest solution. Nevertheless, no plan had been approved by the Department of Buildings by the date of the collapse.

At trial, the Kings County borough superintendent of the Department of Buildings testified that the failure of the city building inspectors to write a comprehensive building order on the day the bearing wall cracks were observed, and to have made no explicit mention of it in the violation order, was a departure from proper procedure. As a result, a hazardous building violation was not issued and a court order was not obtained for immediate vacating of the building and repair within 10 days. By July, the conditions were observably worsening and, on August 3, the need for an immediate building evacuation was clear, as there was pressure on the sprinklers, cracking sounds within the building and rumbling noises that continued until 5:10 p.m. when there was an explosive sound, the lights went out, the sprinklers broke and the building collapsed.

The Supreme Court held the owners of the building 25% liable, the net lessee 45% liable and the City of New York 30% liable. Although the premises were under a net lease, the owners had a right to enter and inspect the premises and make repairs, and the court held them liable (citing Appell v. Muller[7]), for failing in the duties imposed upon them under Multiple Dwelling Law § 78. The net lessee, 667 Hotel Corporation, was held liable because  simply retaining an architect after the building inspection did not satisfy its duties. No repairs were undertaken, and such plans as were filed with the building department, even if they had been implemented, would not have prevented the collapse. The mortgagee defendant was not held liable because it never became a mortgagee in possession, nor assumed possession or control over the premises, and, therefore, never assumed any obligation under Multiple Dwelling Law § 78 for the necessary repairs that were required. The court held the city liable for “its total lack of action in the face of danger” that would have prevented the collapse, and its failure “[gave] rise to tort recovery.” On appeal the Appellate Division affirmed, but modified the judgment, holding that the city was entitled to be indemnified by the owners. However, the Court of Appeals held that the city should not have been held liable, explaining that “in the absence of some special relationship creating a duty to exercise care for the benefit of particular individuals, liability may not be imposed on a municipality for failure to enforce a statute or regulation . . . even though [the building inspectors] knew of the dangerous structural conditions in the building.”[8]

Insurance Issues

Cases against insurance carriers by property owners are determined primarily by the language of the insurance contracts. In Rector St. Food Enters., Ltd. v. Fire & Cas. Ins. Co. of Connecticut,[9] the subject policy specifically defined its additional collapse coverage for collapse with respect to buildings as meaning “an abrupt falling down or caving in” and provided that “[a] building that is standing is not considered to be in a state of collapse even if it shows evidence of cracking, bulging, sagging, leaning, settling, shrinkage or expansion.” The court held that, although the building was demolished by its owner after the city declared an immediate emergency and “even though the building required demolition, the event resulting in the loss was not covered by the provision of defendant insurer’s policy insuring against loss attributable to ‘abrupt’ collapse.”[10]

In contrast, in Hudson 500 LLC v. Tower Ins. Co. of New York,[11] the policy did not expressly require that there be an “abrupt falling down or caving in.” The carrier nevertheless contended that the insured did not suffer a compensable “collapse,” as that term was used in the policy “because no part of the building ever fell down.” Nevertheless, the court held that the term “collapse” “does not require the total destruction of the building, but, rather, only a substantial impairment of the structural integrity of a building,” citing Royal Indemity Company v. Grunberg,[12] and noting that “where a collapse has occurred, the fact that cracking and bulging also occur should not prevent coverage for collapse since it would be hard to imagine a collapse that did not include some cracking or bulging of walls.”[13]

In D’Agostino Excavators, Inc. v. Globe Indemnity Company,[14] where an insured excavator sought to recover from its liability carrier, because of a judgment against the excavator for damages to walls and structure following negligent operation of insured’s bulldozer, the court held that the policy rider was limited to coverage for collapse or injury to any building structure directly due solely to excavation or filling or backfilling and did not include injury due to impact between the insured’s bulldozer and the affected property.

In Burack v. Tower Insurance Company of New York,[15] the court held that genuine issues of fact existed as to whether the insured’s building collapsed because of the shifting of earth by actions of third parties on the adjoining property’s construction site, which would fall within the policy’s exclusion provisions, and not because of the movement of earth from natural phenomena, which was the hazard covered by the policy.

These cases show that property owners need to scrutinize the exclusion provisions of the policies they purchase to ensure that they are covered for conditions that may lead to collapses, so as to be able to recover the cost of repairing such conditions before an “abrupt falling down or caving in” actually occurs.

Conclusion

The above discussion shows that the Champlain Towers building disaster clearly raises issues for New York property owners and lessees because of the many buildings of advanced age within the five boroughs. Although many protections are in place in New York, the additional protections proposed would greatly fortify our state. It is also important, therefore, that all parties subject to potential liabilities that could arise from either complete or partial building collapses take prudential action to maintain their buildings “in good repair” and to obtain insurance policies that will provide the coverage required for all possible forms of structural building defects, to ensure that there will be sufficient funding available to remedy hazardous conditions before they reach critical stages and to protect against the liabilities that will follow if a disaster that could have been avoided should ever occur.

Adam Leitman Bailey is the founding partner of Adam Leitman Bailey, P.C., and John M. Desiderio is the chair of the firm’s real estate litigation group.


[1] https://www.wsj.com/articles/another-surfside-fla-condo-is-evacuated-after-building-deemed-unsafe-11626895331.

[2] Local Law 70 of 1982, Title 26, Chapter 8 of the New York City Administrative Code, 26-701 et seq.

[3] Alex Leary, Miami-Area Condo Collapse Sparks Calls for Tighter Laws, Wall St. J., July 10, 2021,  https://www.wsj.com/articles/miami-area-condo-collapse-sparks-calls-for-tighter-laws-11625922002.

[4] See Adam Leitman Bailey and John M. Desiderio, Preparing Practitioners for the Next Disasterhttps://www.alblawfirm.com/articles/preparing-practitioners.

[5] See, In re World Trade Center Bombing Litig., 3 Misc. 3d 440 (Sup. Ct., N.Y. Co. 2004).

[6] 103 Misc. 2d 89 (Sup. Ct., N.Y. Co. 1980), aff’d sub nom., Worth Distributors, Inc. v. Latham, 88 A.D.2d 814 (1st Dep’t 1982), aff’d as modified, 59 N.Y.2d 231 (1983).

[7]  262 N.Y. 278 (1933).

[8] Worth Distributors, Inc., 59 N.Y.2d at 237.

[9] 35 A.D.3d 177 (1st Dep’t 2006).

[10] Id. at 178.

[11] 22 Misc. 3d 878 (Sup. Ct., N.Y. Co. 2008)

[12] 155 A.D.2d 187, 189 (3d Dep’t 1990).

[13] Hudson 500LLC, 22 Misc. 3d at 885.

[14] 7 A.D.2d 483 (1st Dep’t 1959).

[15] 12 A.D.3d 167 (1st Dep’t 2004).

 

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