It’s Hurricane Season. Do You Know the New Rules on Flood Insurance?

Hurricane season is here. All co-op and condo boards — and especially those whose buildings are located in or near flood zones — need to be aware that the insurance landscape is changing right alongside the Earth’s climate.

The newest change is Section 231-b of the New York State Real Property Law, which now requires that all residential leases  — including co-op proprietary leases, co-op and condo subleases, and rental leases — must notify the shareholder, lessee or tenant of the premise’s previous flood history and current flood risk. Under the law, “floods” are defined as inundations from a natural event such as a hurricane, heavy rainfall, coastal storm surge or river overflow. The law does not apply to flooding caused by burst pipes, bathtub overflows or other internal events.

Under the new law, the notice must explain any damage that resulted from a flood and whether the leased premises are located within a Federal Emergency Management Agency (FEMA) floodplain, a Special Flood Hazard Area and/or a Moderate Risk Flood Hazard Area. In order to ascertain if the leased premises fall within one of these categories, consult FEMA’s current Flood Insurance Rate Maps by clicking here. Additionally, the law requires a notice to shareholders, subletters and tenants about the availability of flood insurance and the limitations of certain ordinary policies.

The notice must mention any flooding “that the lessor knows or reasonably should know has occurred to such premises.” Which opens a can of worms. “It’s left open to interpret what’s ‘reasonable,’” says Jason Schiciano, co-president at Levitt-Fuirst insurance brokerage. “And it’s almost preposterous that the law has been written without parameters about the time frame. Boards are going to have to decide what is a ‘reasonable’ look-back time. Hurricane Sandy hit 11 years ago. Does that have to be mentioned? That’s going to be key to the language in the notice.”

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In 2021, FEMA introduced Risk Rating 2.0, a new pricing system designed to bring flood insurance premiums in line with a property’s actual risk. Flood insurance is a big — and growing — business. Premiums nationwide rose from $3.3 billion to $4.1 billion between 2016 and 2022, a 24% increase, according to the Insurance Information Institute. In that time, the premiums written by private insurance carriers rose from 12% to 32% of the total, as private carriers sensed opportunity in the rise of federal National Flood Insurance Program premiums.

“Also at play are policy holders who have opted to add flood insurance to their package policy, either because they were unaware of the coverage in the past or didn’t want to spend the money on it,” Schiciano says. “Given the catastrophic weather all over the country, a lot of people have asked their brokers about adding flood coverage.” 

Some brokers are advising that since it is required by law, the notice on flood history and future risk can be added to a co-op’s proprietary lease without the approval of a supermajority of shareholders. Boards are advised to consult their attorney. A sample notice form can be found by clicking here.

In a related development, state Assembly member Ed Braunstein (D-Queens) has introduced a bill that would exempt co-ops from Section 231-b of the RPL — and any future legislation intended for landlords and their rental tenants, but not for co-op boards and their shareholders. Marc Schneider, managing partner at the law firm Schneider Buchel, helped draft the bill, AO7330, which, he says, would correct a recurring error.

“This law on flood insurance, like the Housing Stability and Tenant Protection Act of 2019, was not intended to affect co-ops,” Schneider says. “AO7330 will enable co-ops to stop suffering the unintended consequences of these laws.”

Until that bill is signed by the governor, co-op and condo boards must comply with the new law.