Updated July 2023. This article explains how DC’s new structural defect warranty laws work. It also explains how to make claims against a developer’s warranty security to fund construction defect repairs. The article incorporates amendments made by the Condominium Warranty Claims Clarification Amendment Act, effective February 23, 2023.
The District of Columbia Condominium Act contains a statutory warranty that protects condominium associations and their unit owner members from structural defects in newly constructed and newly converted condominiums. The warranty is known as the Washington DC condominium “Warranty Against Structural Defects.” The warranty is backed by a condominium developer’s bond, letter of credit, or other form of “warranty security” arrangement from which funds can be drawn upon if the developer fails to make warranty repairs.
THE WASHINGTON DC CONDOMINIUM WARRANTY AGAINST STRUCTURAL DEFECTS
Condominium developers in Washington DC are required by statute to warrant against structural defects in residential condominiums. The warranty applies to both condominium common elements and each condominium unit. It requires a developer to repair structural defects, including any resulting damage to the condominium caused by a common element structural defect. The statute creating this warranty is called the “Warranty Against Structural Defects,” contained in the District of Columbia Condominium Act (“DC Condo Act”) § 42-1903.16.
“Structural Defects” Defined
The warranty applies to “structural defects,” which are very broadly defined to include many types of construction defects. Structural defects are not just limited to defects in the supporting structure of the building. Rather, a structural defect can be any condition that:
“(A) Reduces the stability or safety of unit or common elements below standards commonly accepted in the real estate market,” or
(B) Restricts the normally intended use of all or part of the common elements of a unit and which requires repair, renovation, restoration, or replacement to serve the purpose for which it was intended.”
DC Condo Act § 42-1903.16(j)(6).
For example, a defectively constructed roof that allows water to enter residential units during rain events, damaging and weakening the interior ceiling drywall and puddling on the floor, is a “structural defect” because, among other things, a water soaked drywall ceiling will eventually deteriorate and/or collapse and thereby “reduces the stability [and/or] safety” of the unit “below standards commonly accepted in the real estate market.” Additionally, puddling water on the floor “restricts the normally intended use” of a residential unit as a living space and the roof “requires repair” to return the unit to the residential living space for which it was intended. This hypothetical roof leak is also a “structural defect” because it restricts the normally intended use of a roof which is to keep water and other elements out of the building.
Structural Defect Rebuttable Presumptions
The definition of “structural defect” is further refined by two rebuttable presumptions applicable to building code violations and occupancy of a unit prior to completion. A condition is presumed to be a “structural defect” covered by the warranty if:
(A) it involves a building code violation that results in “demonstrable harm to the health and safety of a unit owner or other persons at the property.”
(B) if units are conveyed prior to the issuance of a certificate of occupancy, if one is required, or prior to “substantial completion of condominium construction” if a certificate of occupancy is not required.
DC Condo Act § 42-1903.16(a-1)(1). In either case above, there is a rebuttable presumption that the unit or common element concerned, “falls below the standard commonly accepted in the real estate market,” and therefore constitutes a “structural defect” as defined in DC Condo Act § 42-1903.16(j)(6)(A). A rebuttable presumption means that an adjudicator of a structural defect warranty claim must presume the existence of a structural defect covered by the warranty, unless proven otherwise. The burden of proof lies with the condominium developer if it wishes to rebut this presumption.
The Structural Defect Warranty Period
The warranty period is the time within which a structural defect must exist for the District of Columbia Warranty Against Structural Defects to apply. The warranty period for structural defects in an individual unit is two years from the date the developer conveys the unit to the purchaser of the unit in question. DC Condo Act § 42-1903.16(b). The warranty period for structural defects in the common elements is also two years and will typically run from the later of: (1) the date the developer conveys the first unit in the entire condominium; or (2) the date of the completion of the common element in question. DC Condo Act § 42-1903.16(b). The date of conveyance of a deed for purposes of calculating the two-year warranty period is the date on which the deed is recorded with the District of Columbia Recorder of Deeds Office. DC Condo Act § 42-1903.16(j)(3).
Statute of Limitations on Structural Defect Warranty Claims
The statute of limitations is the time within which a legal claim must be brought in a court of law, or it will be forever barred. The District of Columbia Warranty Against Structural Defects has a five-year statute of limitations running from the commencement of the applicable warranty period in question. DC Condo Act § 42-1903.17. The warranty is breached whenever structural defects exist during the two (2) year Warranty Period. If the condominium developer is unwilling to or fails to perform its warranty obligations to repair or pay for the repair of structural defects, then a lawsuit must be filed in a court of law (e.g., the Superior Court of the District of Columbia) within the five (5) year statute of limitations period (i.e., “within 5 years after the date the applicable warranty period began”). DC Condo Act § 42-1903.17(a). If not filed within this time (and barring any applicable exceptions), the legal claim for breach of the Washington DC Warranty Against Structural Defects will be forever barred by the statute of limitations and cannot be asserted in court thereafter.
Condominium Conversions and Structural Defect Warranties
The Warranty against structural defects applies to both newly constructed condominiums and older buildings (e.g., apartment buildings) that are newly converted into condominiums (“condominium conversions”). However, if a condominium developer offers the condominium conversion for sale in “as-is” condition, then the developer’s warranty will only apply to structural defects in relation to the components it installs or the work it performs in converting the existing building into a condominium, unless a more extensive warranty is provided in writing. DC Condo Act § 42-1903.16(c).
How to Apply the Warranty Period & Statue of Limitations
Structural defects covered by the Washington DC condominium Warranty Against Structural Defects are typically caused by defective construction (e.g., poor workmanship or use of faulty materials) that occurs when the condominium is being constructed. These construction defects are often concealed behind building exteriors and may cause increasing damage over time. Sometimes these defects are “latent,” meaning they remain unnoticed until they finally manifest themselves months or years after purchase in the form of property damage such as water entry into the condominium building. Any hidden structural defect caused by defective workmanship in the original construction will, by definition, exist at the beginning of and, therefore, within the two (2) year warranty period. Even if the structural defects are not discovered until after the two (2) year warranty period has expired, a lawsuit can still be brought for breach of warranty if it can be shown that: (1) the structural defect existed within the two (2) year warranty period, and (2) suit is filed within the five (5) year statute of limitations.
Identifying & Preserving Defect Claims
All condominium associations in Washington DC should have a construction transition deficiency study performed as soon as possible after the period of developer control ends (i.e., the date when residential unit owners take majority control over the condominium board of directors). See “Developer Transition for Washington DC Condominiums” for an overview of the transition process in the District of Columbia. The purpose of the transition deficiency study is to identify, in a written report, any construction defects, including latent or otherwise “yet-to-be-discovered” construction defects, so that they can be brought to the developer’s attention in a timely manner while warranty claims and other non-warranty claims for construction defects are still enforceable. Depending on the circumstances, the statute of limitations periods for non-warranty claims may be much shorter than the five (5) year statute of limitations applicable to the Warranty Against Structural Defects. See article “Resolving Condominium Construction Defect Claims in Washington DC” for an article discussing other non-warranty legal claims. An association should consult with a condominium attorney experienced in handling construction defect claims to develop a timeline for completing its transition deficiency report and presenting it to the developer in a manner that preserves as many legal claims as possible.
Court Enforcement of the Warranty: Damages, Attorney Fees and Costs
If the developer refuses to properly repair a structural defect covered by the warranty, a condominium association or unit owner may file a lawsuit in a court of law (e.g., the Superior Court of the District of Columbia) to enforce the warranty and seek a damages award for breach of the structural defect warranty. This would include the cost of repairing the structural defects and resulting damage caused by the structural defects. DC Condo Act § 42-1903.16(a-1)(2). Additionally, “attorney fees and costs” may be awarded to an association or unit owner who pursues a successful breach of warranty claim in a court of law. DC Condo Act § 42-1903.16(e)(7)(H).
If the Superior Court of the District of Columbia issues an order awarding monetary damages against a condominium developer for breach of the Warranty Against Structural Defects, a request may be made to the Mayor of the District of Columbia to release the developer’s warranty security funds to be applied toward the monetary damages award. DC Condo Act § 42-1903.16(e-1)(4).
THE STRUCTURAL DEFECT WARRANTY SECURITY CLAIM PROGRAM ADMINISTERED BY THE DISTRICT OF COLUMBIA
Condominium Developer’s Warranty Security
A condominium developer in Washington DC is required to post a bond, letter of credit or other form of security acceptable to the Mayor of the District of Columbia (“Mayor” or “Mayor’s Office”) that can be drawn upon, if necessary, to satisfy costs that arise from the developer’s failure or inability to fulfill its warranty obligations to repair structural defects (the “warranty security”). DC Condo Act § 42-1903.16(e)(1)(A) and (j)(7). The warranty security must be posted with (i.e., delivered to) the Mayor’s Office and must name the Mayor as beneficiary in an amount equal to 10% of the estimated construction or conversion costs. DC Condo Act § 42-1903.16(e)(1)(A). The warranty security must be “automatically renewable” and may only expire with permission by the Mayor. DC Condo Act § 42-1903.16(e)(1)(C).
If the developer fails to correct structural defects in the common elements or individual units, a condominium association or unit owner (“claimant”) can make a structural defect warranty security claim with the District of Columbia asking it to secure and release funds from the developer’s warranty security to be used to pay the cost of repairing the structural defects and other permissible damages. DC Condo Act § 42-1903.16(e)(7)(F) and (e-1)(2). See “How and When to Make a Claim Against the Developer’s Warranty Security,” below.
Bonds & Letters of Credit
Condominium developers typically satisfy their warranty security obligation by purchasing a bond or letter of credit. Generally, a bond is issued by an insurance company and a “letter of credit” is issued by a financial institution. These legal documents require the insurance company or financial institution to pay the Mayor or her/his designee if the developer fails to fulfill its obligation to repair covered structural defects under the District of Columbia Warranty Against Structural Defects. Should payment be required, the bond or letter of credit will typically require payment to be made to the Mayor within 30 days, but only up to the amount of the warranty security (i.e., “10% of the estimated hard construction and conversion costs”). In short, bond letter of credit is an alternative, but limited source of funds backed by an insurance company or financial institution that serves as security for the developer’s fulfillment of its warranty obligations.
Developer’s Warranty Security Posting Deadline
The warranty security must be posted with the Mayor’s Office at the time the Mayor issues “a condominium registration order.” DC Condo Act § 42-1903.16(e)(1)(A). A condominium registration order is an approval of a developer’s application to create a condominium within the District of Columbia. The application is known as an “application for condominium registration.” See, DC Condo Act § 42-1904.03.
Calculation of Developer’s Warranty Security Amount
The warranty security amount equals 10% of the estimated cost to construct the proposed condominium as calculated from the time the developer files its application for condominium registration. DC Condo Act § 42-1903.16(e)(1)(A) and (e)(1)(D). A developer must estimate this amount because construction has not yet commenced when the application is filed. However, a “ballpark figure” or “back of the napkin” estimate is not sufficient. Instead, a condominium developer’s estimate must be based on costs prevailing “at the time of filing the application for condominium registration” and must be “determined according to industry standards for estimating construction costs.” DC Condo Act § 42-1903.16(e)(1)(D).
A condominium developer must post additional warranty security if its actual condominium construction costs measured from “substantial completion” exceeded its estimated cost by more than ten percent (10%). DC Condo Act § 42-1903.16(e)(1)(D). In such a case, the additional amount of warranty security to be posted with the Mayor is “10% of the difference between the estimated construction costs and the actual construction costs as of the date of substantial completion. DC Condo Act § 42-1903.16(e)(1)(D).
Verification of Warranty Security Amount By Sworn Statement
A condominium developer must submit a sworn statement supporting the amount of the warranty security it posts in favor of the Mayor. The sworn statement must attest to “the cost estimates for conversion [or] construction work proposed, including the costs of materials and labor at the time of filing the application for condominium registration.” DC Condo Act § 42-1903.16(e)(2). The sworn statement should verify that these costs were “determined according to industry standards for estimating construction costs” as required by DC Condo Act § 42-1903.16(e)(1)(D) and include any other pertinent facts to verify the method of calculation.
If it turns out that the developer’s actual costs of construct exceed by more than10% the estimated amount on which the posted warranty security is based, the developer must provide a second sworn statement to support the additional warranty security amount that must be posted under DC Condo Act § 42-1903.16(e)(1)(D). The second sworn statement should contain the actual construction costs incurred at the time of “substantial completion of the condominium” so that the additional amount of warranty security required can be verified by the Mayor’s Office.
Warranty Security Disclosure Requirements
A condominium developer must provide a copy of the warranty security to each unit owner and the board of directors of the condominium association. DC Condo Act § 42-1903.16(h)(1) and (2). Additionally, the Mayor’s Office is required to maintain an online, searchable record available to the public identifying the warranty security amount and the form of warranty security (e.g., letter of credit, bond, etc.) being held for each condominium project. DC Condo Act § 42-1903.16(e)(6). Copy of a warranty security could also be obtained by making a freedom of information act request
Penalties for Misrepresenting Costs of Construction
The Condominium Warranty Claims Clarification Amendment Act of 2022 [D.C. Law 24-262], effective February 23, 2023, creates legal penalties for misrepresenting the cost of construction or conversion in connection with calculating the amount of the warranty security. A condominium developer who materially misrepresents its estimated construction costs in connection with posting its warranty security is subject to being fined by the District of Columbia Attorney General. DC Code § 42–1904.17(a)(3). Moreover, the Mayor may suspend a condominium developer or its officers and directors from participating in creating selling condominiums or if the Mayor finds they were involved in making “untrue statements of material fact,” in connection with the estimated or actual condominium construction costs to substantiate the developer’s warranty security. DC Code § 42–1904.17(c)(1)(B)(iii)(I) and (II).
Prohibition Against Conveying Units Until Warranty Security Posted
A condominium developer is prohibited from conveying a condominium unit to a purchaser until the warranty security has been properly posted in accordance with the requirements discussed above. DC Condo Act § 42-1903.16(e)(1)(E).
Withholding The Warranty Security Amount at Closing On a Unit
A condominium developer that attempts to sell a unit a to a purchaser without having posted its warranty security will have its purchase proceeds collected by the escrow agent for the sale prior to closing as a ” warranty security payment” and delivered it “to the Mayor on the settlement date.” DC Condo Act § 42-1903.16(a)(1)(B). If the developer refuses to cooperate, the closing could not proceed. Title companies should request proof of posting of the warranty security prior to closing. The developer is required to provide a copy of the warranty security to the purchaser of the unit at least seven days prior to the closing, DC Condo Act § 42-1903.16(h)(1), which can be verified with the online warranty security database maintained by the Mayor’s Office pursuant to DC Condo Act § 42-1903.16(e)(6).
How and When to Make a Claim Against the Developer’s Warranty Security
Where to Make a Claim
The term “Mayor” means “the Mayor of the District of Columbia, or his or her designated agent.” DC Code § 2–502. The Warranty Security Claim Program is administered for the Mayor by the agency known as the Rental Conversion and Sales Division of the District of Columbia Department of Housing and Community Development’s Housing Regulation Administration (“RCSD”). Structural defect claims made against a condominium developer’s warranty security (“structural defect warranty security claims”) are filed with and handled by RCSD. The contact information for RCSD is set forth below:
Government of the District of Columbia
D.C. Department of Housing and Community Development
Housing Regulation Administration
Rental Conversion and Sale Division
1800 Martin Luther King, Jr. Avenue, S.E.
Washington, D.C. 20020
Phone: (202)-442-4407 or 4373
Fax: (202) 645-5870
Email: dhcd.casd@dc.gov
Website: https://dhcd.dc.gov/service/conversion-and-sales
According to RCSD’s publication “How to File a Condominium Structural Defect Warranty Claim,” a claimant should file its structural defect warranty security claim via email at dhcd.casd@dc.gov. An email sent to this address will generate an automatic reply confirming of receipt of the claim. Note that RCSD sometimes refers to itself as the “Conversion and Sales Division” or “CASD”, hence its email address. See “Conversions and Sales Division” Website.
New Rules to be Adopted by Mayor’s Office
As of the date of this article, the method of filing a claim with RCSD discussed above is subject to change. The Condominium Warranty Claims Clarification Amendment Act of 2022 [D.C. Law 24-262], effective February 23, 2023, requires the Mayor to implement new proposed rules governing structural defect claims by August 22, 2023. DC Condo Act § 42-1903.16(g)(1A)(A). Thereafter the proposed rules will be subject to a 60-day public review and comment period, followed by a 45-day period during which the proposed rules will be subject to approval or disapproval by the Council of the District of Columbia. DC Condo Act § 42-1903.16(g)(1A)(B). In the interim, we recommend sending both an email and a hardcopy by certified mail, return receipt requested for additional proof that the claim was received.
Prior Notice to Condominium Developer of Intent to File Claim
A condominium association or unit owner claimant must give the condominium developer 30 days prior written notice of its intent to file a structural defect warranty security claim with the Mayor. This notice must be in writing and sent via certified mail, return receipt requested. During this 30-day period the condominium developer has an “opportunity to respond” to the condominium association or unit owner making the claim. DC Condo Act § 42-1903.16(e)(7)(A).
Time for Filing a Structural Defect Claim with RCSD
If unresolved after giving 30 days prior notice, a condominium association or unit owner claimant may file a structural defect claim with RCSD. A copy of the claim must also be sent to the condominium developer via certified mail, return receipt requested on the filing date. DC Condo Act 42-1903.16(e)(7)(B).
Developer’s Response to Claim
A condominium developer must file a written response to the claimant’s structural defect warranty security claim. The developer’s response must be filed with RCSD 30 days after its receipt of the claim. The developer must also send a copy to the claimant by certified mail, return receipt requested. DC Condo Act § 42-1903.16(e)(7)(C).
Mayor’s Decision on Structural Defect Claim
After receiving the claim and the developer’s response, RCSD will decide “whether the claim of structural defects is a perfected claim.” DC Condo Act § 42-1903.16(e)(7)(D)(i). If the structural defect claim is determined to be “perfected,” RCSD must then determine the cost to repair or replace the structural defects to be paid from the developer’s warranty security posted with the Mayor. DC Condo Act § 42-1903.16(e)(7)(E).
Perfecting a Claim
A claimant’s structural defect warranty security claim becomes a “perfected claim” when it establishes “that a structural defect exists,” and it “contains all the information and supporting proof required by the Warranty Against Structural Defects statute or “other applicable law or regulation.” DC Condo Act § 42-1903.16(j)(5). The warranty statue provides the definition of a “structural defect” (discussed above) and the RCSD provides guidelines as to what referenced “information and supporting proof” it requires.
New Rules to be Adopted for Perfecting a Claim
RCSD, on behalf of the Mayor, has published a list of the information and supporting proof it requires in order for a structural defect warranty claim to be deemed “perfected.” See RCSD publication, “How to File a Condominium Structural Defect Warranty Claim.” However, as noted above, the Mayor’s Office is in the process of implementing new proposed rules governing structural defect claims under the Warranty Claims Clarification Amendment Act of 2022 [D.C. Law 24-262]. See DC Condo Act § 42-1903.16(g)(1A)(A). Is anticipated that these new rules will provide updated guidance on how to how to “perfect” a claim.
Recently, RCSD advised our firm, that a “Claimant must provide” the following information “to perfect a claim” against the developer’s warranty security:
“(1) a formal letter filing a claim against the warranty security within the statutory warranty period and requesting the Mayor to review the claim and issue a determination.
(2) Documentation, prepared by a qualified expert, providing their opinion, that a building component is structurally defective as defined by the Condominium Act.
(3) copies of correspondence between the Association or Unit Owner and Declarant establishing the Declarant’s failure or refusal to repair, replace, or renovate, the structurally defect[ive] building components along with proof of delivery of notice of the claim to the Declarant via certified mail.
(4) a cost estimate for the repair, replacement or renovation of the structurally defective building components.”
Until RCSD has established rules for perfecting a claim that have been adopted by the Council of the District of Columbia, it is prudent to follow these guidelines if possible, including filing within the 2-year warranty period. One can also attempt to confirm in writing with RCSD as to what it is currently requiring to “perfect a claim” pending the adoption of its proposed rules.
Second Bite at the Apple in Perfecting a Claim
An initial determination by RCSD that a structural defect claim is “not perfected” is not fatal to a structural defect claim. Rather, a condominium association or unit owner claimant may refile its structural defect warranty security claim “based on additional or different information” in a subsequent effort to perfect a structural defect claim. DC Condo Act § 42-1903.16(e)(7)(D)(ii).
Awarding Warranty Security Funds To The Claimant
Upon deciding that the structural defect claim is a “perfected claim,” the RCSD, on behalf of the Mayor, must next decide “the cost to repair or replace the structural defects that must be paid from the [developer’s] warranty security posted with the Mayor.” This determination must be “based on the materials provided in the claim.” DC Condo Act § 42-1903.16(e)(7)(E). Thereafter, the condominium developer and the condominium association or unit owner claimant must complete all forms required by the Mayor to release the necessary funds, after which the Mayor is required to release the funds to the claimant within 30 calendar days. DC Condo Act § 42-1903.16(e)(7)(F).
What Else can be included the Mayor’s award?
Resulting Damages
In addition to awarding the cost to repair or replace the structural defects, the Mayor must also award the cost of repairing “damage to a unit or a portion of the common elements” caused by or resulting from the structural defect. DC Condo Act § 42-1903.16(a-1)(2). This is important because sometimes construction defects, such a defectively installed roof or improper flashing of windows, can cause substantial property damage to a condominium building and its residential units.
Costs
Costs arising out of a claim may also be awarded. Specifically, the Mayor must approve the release of funds from the developer’s warranty security “to satisfy any costs” that arise from a condominium developer’s failure to satisfy the requirements of the Warranty Against Structural Defects as provided in: (i) a written agreement between the claimant and the developer; (ii) an order of the Mayor; (iii) an order of the Office of Administrative Hearings in the event the Mayor’s decision is appealed (discussed below); or (iv) an order of a court, if the claimant files a lawsuit to enforce its structural defect warranty claim. DC Condo Act § 42-1903.16(e-1)(1)-(4).
The term “costs” is not defined so a claimant could potentially seek any costs incurred in connection with bringing the claim. For example, attorney’s fees should be awarded to a claimant from the developer’s warranty security funds if awarded by court order. Specifically, if a court of law issues an order awarding attorney fees to a claimant in a lawsuit for breach of the Warranty Against Structural Defects under DC Condo Act § 42-1903.16(e)(7)(H) (authorizing a court to award “reasonable attorney fees” to “the prevailing party”), then the claimant can argue that the Mayor should release warranty security funds to cover the amount of attorney’s fees specified in the court’s order as “costs” under DC Condo Act § 42-1903.16(e-1)(4) (requiring the Mayor to approve the release of funds from the developer’s warranty security to satisfy “any costs” that arise from a developer’s breach of the structural defect warranty pursuant to an order of a court)
Deadline for Filing Structural Defect Warranty Security Claims
Five-Year Statutory Deadline
Recent amendments to the structural defect warranty statutes clarify that a claimant has up to five years after the date the warranty period began to file an administrative structural defect claim against the developer’s warranty security under the Warranty Security Claim Program administered by the Mayor’s Office. See DC Condo Act 42-1903.17(a), stating that the 5-year statute of limitations for filing a lawsuit also applies to “non-judicial, regulatory or administrative proceedings”. This language was added by the Warranty Claims Clarification Amendment Act of 2022 [D.C. Law 24-262], effective February 23, 2023. For a condominium association, the 2-year warranty period typically begins on the date the condominium developer first conveys a unit to a residential unit owner. See “The Structural Defect Warranty Period” above. Thus, after the 2-year warranty period expires, there is still three years left on the 5-year statute of limitations to bring an administrative structural defect warranty security claim.
New Rules to Address Apparent Conflict with Existing Two-Year RCSD Guidelines
At the time of writing this article, the five-year period for bringing an administrative claim is in conflict with existing RCSD policy published on its website. According to the publication “How to File a Condominium Structural Defect Warranty Claim,” RCSD’s will only hear structural defect warranty security claims if filed within the two-year warranty period. However, as noted above, the Mayor’s Office is in the process of implementing new proposed rules that govern structural defect claims under the Warranty Claims Clarification Amendment Act of 2022 [D.C. Law 24-262]. See DC Condo Act § 42-1903.16(g)(1A)(A). These new rules should address this apparent conflict.
Until RCSD resolves this conflict, it would be prudent to file a structural defect warranty claim within the 2-year warranty period if possible. Another reason to file within the two-year period is the fact that a condominium developer can begin reducing the amount of the warranty security held by the Mayor’s Office starting two years after the warranty period begins. See “Reduction of the Warranty Security Amount After 2 Years” below. The availability of the warranty security funds to a claimant serves as a strong incentive for condominium developer’s to make repairs.
Reduction of the Warranty Security Amount After 2 Years
Reason To Bring Claim Within 2 Years
Although a claimant may have up to five-years to file a structural defect warranty security claim, if a claimant waits too long there may not be any warranty security funds left to make a claim against. This is because the developer can begin reducing the amount of its warranty security two years after its conveyance of the first condominium unit. DC Condo Act § 42-1903.16(e)(3)(A). However, the developer’s right to reduce or released its warranty security terminates once an administrative claim has been filed with RSCD. DC Condo Act § 42-1903.16(e)(8). Filing a lawsuit for breach of the Warranty Against Structural Defects has the same effect. Once suit is filed, the Mayor may not release or reduce the security funds until a decision is rendered by the court. DC Condo Act § 42-1903.16(e)(7)(H).
Thus, it will usually be advantageous for a condominium association to file a structural defect warranty security claim within two-years. This requires having an engineering consultant identify construction defects early on so can be brought to attention of the developer 30 days before the two-year period ends. This timing will ensure that the maximum warranty security funds will be available to satisfy structural warranty claims.
Reduction Rules
Assuming there are no pending structural defect warranty security claims, a condominium developer can reduce the amount of the warranty security posted with the Mayor’s Office in pro rata segments, beginning two years after the conveyance of each unit based on the residential unit’s percentage interest. DC Condo Act § 42-1903.16(e)(3)(A). However, the developer cannot reduce the warranty security by more than 50% until one year after developer’s control over the association board of directors is transferred to the residential unit owners (“transfer of control”). DC Condo Act § 42-1903.16(e)(3)(A).
Under these rules it is possible that within two years and a day from the date of the first conveyance of a unit, the entire warranty security could be reduced by 100%. For example, in a 10-unit condominium, if 5 (or 50%) of the units were first conveyed on the same date, then at the end of two years the developer may lawfully reduce the warranty security by 50%. Further adding to this example, if the remaining 5 units were conveyed a day after the original 5, and if transfer of control occurs within a year of the first conveyances, then at the end of two years and one day the developer may lawfully seek reduction of its warranty security by 100% thereby releasing the warranty security in its entirety.
Private Resolution of Structural Defect Warranty Security Claims
Condominium developers and associations or unit owner claimants may, and often do, negotiate their own private agreement to resolve a structural defect warranty claim, before RCSD renders a determination on behalf of the Mayor. Private settlements are encouraged as they conserve administrative resources and expense. Indeed, the parties to negotiations can request that the Mayor delay deciding a structural defect warranty security claim if productive negotiations are ongoing. If a private negotiated resolution is reached, the Mayor’s Office is required to release the funds pursuant to a written agreement between the condominium developer and the association or unit owner claimant, if approved by the Mayor. DC Condo Act § 42-1903.16(e-1)(1).
Appeal of Mayor’s Determination Regarding Structural Defect Claims
A condominium developer or claimant may appeal the Mayor’s determination regarding a structural defect claim to the Office of Administrative Hearings (“OAH”). The appeal must be filed within 30 calendar days of the Mayor’s final determination. DC Condo Act § 42-1903.16(e)(7)(G). Once an appeal is filed with OAH, any award made by the Mayor regarding the developer’s warranty security is suspended pending OAH’s issuance of an order regarding the appeal, which will supersede any decision by the Mayor. DC Condo Act § 42-1903.16(e)(7)(G). In the event OAH rules in favor of a claimant on a structural defect warranty claim, the Mayor must release developer’s warranty security funds to the claimant in an amount determined by OAH in its order. DC Condo Act § 42-1903.16 (e-1)(3).
The Mayor is permitted to wait 30 days prior to releasing any warranty security funds following its final determination. DC Condo Act § 42-1903.16(e)(7)(F). Presumably, the Mayor will typically wait the full 30 days to allow the time for an OAH appeal to expire before releasing any warranty security funds pursuant to a final determination in favor of the claimant.
SIMULTANEOUS PROCEEDINGS: LAWSUIT AND ADMINISTRATIVE CLAIM
Rules Regarding Simultaneous Proceedings:
Claimants have two legal avenues to enforce a breach of the Warranty Against Structural Defects in the District of Columbia: (1) file a lawsuit in a court of law (e.g., the District of Columbia Superior Court); and (2) file an administrative claim with the Mayor’s Office. These two types of proceedings are not mutually exclusive and can be brought simultaneously subject to the following rules:
(i) The fact that a claimant has already filed an administrative claim with the Mayor, does not precluded the subsequent filing of a lawsuit in a court of law to judicially enforce its structural defect warranty claim. DC Condo Act § 42–1903.17(b).
(ii) If a claimant files a lawsuit with the court before making an administrative claim, it must notify the Mayor. Once a lawsuit for breach of the warranty is filed, the warranty security posted with the Mayor’s Office cannot be reduced or released until a decision is rendered by the court. DC Condo Act § 42-1903.16(e)(7)(H).
(iii) If a claimant files a lawsuit with the court after making an administrative claim, any decision already made by the Mayor regarding the claim against the developer’s warranty security is stayed (i.e., put on hold) until the breach of warranty claim is resolved by the court. DC Condo Act § 42–1903.17(b)
Reasons for Simultaneous Proceedings:
Below are some reasons why a condominium association or unit owner might wish to file a lawsuit instead of, or in addition to, making an administrative warranty security claim with the Mayor:
(i) In an administrative claim the amount of money that can be awarded is limited to the amount of the warranty security, which can never be greater than 10% of the cost of construction or conversion.
(ii) In an administrative claim an award is funded by the warranty security posted in the name of the Mayor’s Office. There is no need to try and force the developer to pay. The warranty security funds are backed by a financial institution in the case of a letter of credit and an insurance company in case of a bond. As a result, funds can be released to a condominium association or unit owner claimant within 30 days of the Mayor’s award, assuming no appeal.
(iii) In a lawsuit the damages for structural defects are not limited to 10% of the cost of construction or conversion. Instead, a court can award the claimant as much damages as it can legally prove a trial.
(iv) In a lawsuit that includes a claim for breach of the structural defect warranty, a court may award the claimant who prevails its reasonable attorney fees. DC Condo Act § 42-1903.16(e)(7)(H).
(v) In a lawsuit, a claimant can pursue multiple legal claims in addition to the Warranty Against Structural Defects. For example, common-law implied warranties, breach of contract, negligent construction, negligent misrepresentation, strict liability, and violation of the Consumer Protection Procedures Act. There are a number of advantages to asserting these other legal claims alongside the claim for breach of the Warranty Against Structural Defects, such as:
(A) these other legal claims are not limited to “structural defects” as defined in the DC Condo Act § 42-1902.16(j)(6) but can apply to any type of construction defects. With claims for structural defects there will often be a dispute over whether a particular construction defect is a covered “structural defect.” These arguments can be rendered essential moot in a lawsuit that includes other legal claims that apply to all types of construction defects.
(B) some of these other legal claims allow a claimant seek damages for developer misrepresentations about the quality, condition, or extent of construction.
(C) these other legal claims are not limited to the condominium developer but can be brought against other entities involved in the development, marketing and construction of the condominium, such as affiliated developer entities, general contractors, construction, managers, architects, and others responsible for the defective construction.
CLAIM RESTRICTION CLAUSES IN CONDO DOCUMENTS PROHIBITED
Condominium developers are prohibited from creating bylaws or other condominium documents containing provisions that make it difficult for a condominium association or a unit owner to assert a structural defect warranty claim. DC Condo Act § 42-1903.16(e)(9). Some condominium developers create condominium documents that contain dispute resolution procedures and other requirements that must be satisfied by the association before it can pursue a structural defect or other legal claim. These procedures and requirements often serve as roadblocks that make it burdensome to pursue structural defect warranty claim. Such provisions are now prohibited if they “restrict or hinder” a condominium association or unit owners right to assert a structural defect warranty claim in a court of law or in an administrative proceeding before the Mayor’s Office. DC Condo Act § 42-1903.16(e)(9).
CONSULTATION WITH AN EXPERIENCED CONDOMINIUM CONSTRUCTION LAW ATTORNEY
Representing condominiums in construction defect disputes is a highly complex area of law. A board of directors transitioning from developer control should seek free consultation early on with an experienced condominium construction defect attorney who can accurately advise the board: (1) when the statute of limitations expires as to the many different claims applicable to the condominium association and its unit owner members; (2) how to properly preserve those claims; (3) the importance of obtaining a timely transition deficiency report to identify construction defect before warranties and other legal rights expire; and (4) how to negotiate proper, comprehensive and long-lasting repairs.
NOTE ABOUT TERMINOLOGY
The term “developer” is used in this article to describe the person or entity that created the condominium association. “Developer” is the terminology commonly used for this purpose. The District of Columbia Condominium Act, however, refers to the developer as a “declarant” because it is the person or entity that files the condominium declaration, a legal document necessary to create a condominium.
The terms “condominium association” is used in this article to describe the organization or entity that governs the affairs of the condominium in accordance with the condominium bylaws and declaration, and whose members consist of all condominium unit owners. Condominium association is the terminology commonly used for this purpose. However, the District of Columbia Condominium Act refers to a condominium association as a “unit owners’ association.”
The terms “board of directors” of a condominium association are used to refer to the administrative entity made up of board members that have authority under the condominium bylaws and declaration to act on behalf of the condominium association. The District of Columbia Condominium Act refers to a board of directors as the “executive board.”
The terms “substantial completion” refers to substantial completion of the condominium as certified by the condominium developer’s project architect. The date of substantial completion of the condominium is the “substantial completion date certified by the condominium project architect.” This is the precise terminology used in the Warranty Against Structural Defects at DC Condo Act § 42-1903.16(a-1)(B), (e-1)(D) and (e-1)(E)(2).
The terms “transfer of control” over the condominium association means the date when a majority (51% or more) of the board of directors of the condominium is composed of residential unit owners other than the developer or its appointees or successors. See DC Condo Act § 42-1903.16(e)10).
The terms “period of developer control” over the condominium association refers to the period of time prior to when the developer transfers majority control over the board of directors to the residential unit owners.
LEGAL CONSULTATION & LEGAL ADVICE
The information provided in this article should not be considered legal advice applicable to any particular case involving condominium construction defects, including a case concerning the Washington DC Condominium Warranty Against Structural Defects. Each case is unique and deserves individual analysis. DC condominium associations should seek out a complementary consultation from a condominium law firm experienced in construction defect law, such as Cowie Law Group, P.C. This consultation should occur as soon as possible after unit owners take control of the association from the condominium developer, or as soon as possible after a transition committee has been established. Our firm can answer board member (or transition committee member) questions and lay out a timeline for identifying construction defects before warranty rights expire, as well as a strategy to ensure that timely claims are made and preserved, and proper repairs are performed so as to protect the condominium association’s legal rights and the common ownership interests of its unit owner members.
DISTRICT OF COLUMBIA CONDOMINIUM LAWYERS
WASHINGTON DC CONSTRUCTION DEFECT ATTORNEYS
410-327-3800 | 202-670-6289 | 301-830-8315
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