The Eligibility of Buildings for Replacement under Code 44 of Federal Regulations 206.226 (d)(1)
Property Owners who experience a disaster with their building, for example a fire or windstorm damage, most often face the tough decision to build new or to repair. If the building does not conform with current FEMA regulations, for example elevation in coastal areas, the building is considered to be “grandfathered” in and the repairs are limited to a certain amount, in most cases 50%.
The following article is taken from FEMA’s website and can be found under Guidance No. 4511.61 E:
“A facility is considered repairable when disaster damages do not exceed 50% of the cost of replacing a facility to its predisaster condition, and it is feasible to repair the facility so that it can perform the function for which it was being used as well as it did immediately prior to the disaster.”
The Guidance: “Disaster damage”* in the §206.226(d)(l) determination of eligibility for a replacement facility shall include only costs for the repair of damage, and not the costs of any triggered or mandatory upgrading of the facility beyond the repair of the damaged elements (even though these upgrade costs may be eligible for FEMA funding.) Thus, the determination of eligibility of a facility for replacement will be calculated by the following fraction: The cost of repair of the disaster damage* (repair of the damaged components only, using present day materials and methods) divided by the cost of replacement of the facility** with a facility of equivalent capacity, using current codes for new construction. If this calculation is greater than 50%, then replacement is considered to give a better return on the taxpayers’ investment, and is thus eligible for FEMA funding under §206.226(d)(l).
Justification: If seismic upgrade costs were to be included in the calculation towards the determination of 50% damage, then older buildings with even small amounts of damage can be found to exceed the 50% cost threshold because of the comparatively high cost of code triggers, seismic upgrading, etc. The FEMA regulation is based on the finding that when a facility is so severely damaged by a disaster that, not including code triggered upgrades, the cost to repair the damage exceeds 50% of the cost of a new building, it is often justifiable and reasonable to replace the building. When code triggered upgrade costs are included together with the costs of the repairs to the damaged elements, however, erroneous decisions to fund new buildings to replace structurally sound and lightly damaged existing facilities are likely to result.
The rationale for this interpretation is that the repair of “disaster damage” does not improve or add value to a given building, whereas code upgrading does improve and extend the useful life of a building. Since such code-required upgrade work brings the safety of an existing building up to current standards, the Stafford Act and its implementing regulations did not intend that the Federal Government be obligated to provide further funds to replace such a building entirely. This interpretation of the “50% rule” does not in any way change the current practice on the determination of costs eligible for FEMA funding. In cases where the FEMA eligible work is limited to the repair of the existing facility, FEMA funding shall continue to include not only the damage repair, but also mandatory code upgrades, if there are any. In cases where a new building has been determined to be eligible, the costs for demolition, site work, and related soft costs, etc., will continue to be eligible, as is current practice.
The following provides some examples to illustrate eligible cost determinations.
|1.When damage repair does not
exceed 50% of the
No upgrade trigger is pulled.
|Repair of eligible damage* only.|
|2.Damage repair does not exceed 50%
of replacement cost**.
Whole building upgrade is triggered
by an “applicable code or standard,”
the total of the two items is greater
than 50% but less
than 100% of replacement cost**.
|Repair of eligible damage*plus
mandatory upgrade cost.
|3.Damage repair* does not exceed 50%
of the replacement cost**.
Whole building upgrade is triggered,
the total of the two items is estimated to
be greater than 100% of replacement cost**.
|Repair of eligible damage*plus
the total eligible costs capped at the replacement cost **.
|4.Damage repair exceeds 50% of the
|The building’s fullreplacement cost**
(but no more than its
* ” Damage repair ” in these examples includes repair of damaged components only. The cost shall include all the work necessary to return the building to its pre-disaster condition utilizing modern materials and methods for the repairs. The calculation shall not include the costs of any triggered or mandatory upgrading of the facility, site work, or applicable soft costs (even though these costs may be eligible for FEMA funding.)
** ” Replacement cost ” is replacement of the same size or designed capacity and function building to all applicable codes. The calculation shall not include the costs of demolition, site work, and applicable soft costs (even though these costs may be eligible for FEMA funding).
If you are in the situation to replace or repair your building, you should work with a knowledgeable contractor who is familiar with rehabbing a damaged building. Furthermore, you should cooperate with your local building official, who will guide you through the process.
To establish the basis from which your contractor can work, it is necessary to order an appraisal which will determine the depreciated market value of the structure before the damage occurred. When hiring an appraiser for this kind of assignment, make sure the appraiser has some construction background and good knowledge about local construction prices. In some cases it might be necessary to appraise of blueprints; make sure your appraiser is able to do just that.
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