CONDOMINIUM CONSTRUCTION DEFECT CLAIMS IN DC

A Guide for Washington DC Condominiums

Newly constructed and newly converted condominiums in Washington DC (District of Columbia) often contain concealed or “latent” construction defects. Left undetected and unrepaired, defects in the construction of a condominium can cause extensive damage over time, requiring associations to assess their members substantial repair costs that could have been avoided by making timely developer warranty claims.

This article provides a general overview for resolving condominium construction defect claims in Washington DC, with a focus on how Washington DC condominium associations transitioning from developer control can proactively and successfully identify defects and resolve construction defect claims with condominium developers and builders.

Condominium Association Responsibility for Timely Evaluation of Common Element Construction

Condominium associations are charged with the responsibility of overseeing and maintaining condominium common element facilities, typically consisting of building roofs, exterior walls, foundations, lobbies, common hallways, elevators, surrounding grounds, and the common structural mechanical, electrical, and plumbing systems. Following the period of developer control, it is incumbent upon a condominium association’s first unit owner elected board of directors to evaluate the construction of the condominium common element facilities and determine whether the existing, developer-created, budget and reserve fund are adequate to cover the cost of maintaining, repairing, and ultimately replacing the condominium facilities over time.

Significantly, condominium reserves for future upkeep and replacement are budgeted based on an underlying assumption that the various condominium facilities are constructed properly and will have a normal life expectancy (e.g., 30  year roof, 45 year exterior walls, etc.). Relying on such assumptions in budgets made during the period of developer control can be costly. For example, if the leaking roof of a newly constructed condominium is found to be in need of immediate replacement due to a defect in the original construction, then a developer-created reserve budget based on a projected roof replacement in thirty (30) years is grossly insufficient.

     The Transition Deficiency Study – Identifying Construction Defects

For the above reasons, the first unit owner-elected board should make it a priority to hire a qualified engineering or architectural firm to perform an evaluation of the construction of the condominium in order to identify any construction defects so they can be brought to the developer’s attention for repair before warranties and other legal claims expire. The findings of such an evaluation are set forth in a written report commonly referred to in the community association industry as a “transition deficiency study” (also know as a “transition study,” “transition defect study,” “deficiency report,” “warranty analysis,” “construction analysis,” or “construction defect report”).

A properly performed and utilized transition deficiency study greatly reduces the risk that a condominium association’s unit owner members will unexpectedly have to pay out of pocket for the repair of construction defects and resulting damage that could have been the responsibility of the condominium developer if identified at the outset. Ideally, at the end of the transition process, all construction defects will be identified and properly corrected by the condominium developer so that the condominium association can then establish an accurate reserve fund based on common element facilities that have a normal life expectancy.

The condominium association board of directors should seek proposals for conducting a transition deficiency study upon assuming control over the governance of a condominium association from the developer. It is highly recommended that, in connection with seeking such proposals, the board also obtain a complimentary consultation with an experienced condominium construction defect attorney who can advise the board of all the applicable deadlines necessary to preserve warranty and other legal rights specific to the condominium in question. In this manner the board can ensure that the transition deficiency study is obtained in a timely manner, well within applicable warranty periods and statutes of limitations, so that any serious construction defects identified in the study will still be the developer’s legal responsibility to correct when the report is completed.

Retaining the services of a qualified consultant to inspect construction of common element facilities is important because some construction defects that occur during the original construction or conversion of a condominium are concealed behind a building’s exterior facade or may not otherwise be apparent to laypersons when unit owners purchase their homes and take control of the Association. In fact, such defects may go undiscovered for years. Left undiscovered and unrepaired, latent construction defects can result in extensive hidden building damage and unanticipated repair expenses that wreak havoc on an Association’s financial condition, requiring it to borrow money and assess unit owners. For example, the failure to properly flash windows, balcony beam penetrations, and other openings in a building envelope can cause extensive and insidious water damage within the exterior building walls of a condominium causing rotting of wood sheathing and structural framing. The damage may only come to light when mold or water stains begin to appear years later within the interior living space of units. Likewise, improper attachment of exterior stone and brick veneer can require a condominium association to assess its members for the cost of removing and replacing the entire exterior building facade. Such defects may not come to light until years after construction when pieces of stone and brick veneer begin to pull away and fall from the building.

Having a qualified engineering or architectural consultant conduct a timely transition deficiency study also satisfies a condominium association’s fiduciary responsibility to effectively make common element warranty claims before they expire. Instead of board members complaining piecemeal to the developer about “problems” as they arise, the transition deficiency study provides a useful and comprehensive list of construction defects prepared by a construction expert, citing specific violations of building codes, approved plans and specifications, and other applicable industry standards. The condominium association’s attorney can then present the study to the developer to be utilized as the basis for good faith discussions toward a resolution of construction defect disputes. When construction defects are identified early in this manner, before they can cause serious damage to the building, the repair expense is substantially less, making it easier to negotiate an amicable resolution with the developer.

What Condominium Associations Need to Know About Resolving Construction Defect Claims

In order to make informed decisions about how to successfully negotiate and resolve construction defect disputes with developers, a condominium association board of directors must have answers to the questions listed below. Without answers to these questions, condominium associations often wave legal rights or obtaining inadequate repairs.

• What are the available legal claims for construction defects that can be asserted by the condominium association?
• When does the statute of limitations expire as to each of these legal claims?
• How can these legal claims be preserved so they do not expire during negotiations for repairs and/or monetary compensation?
• How can an association negotiate in a manner that ensures developer accountability for proper, comprehensive repairs?

These questions are addressed below. However, the answers will always be different for every condominium depending on many factors, including the specific legal terms of documents pertaining to the condominium (e.g., governing documents and sales contracts), the nature of construction defects at issue and when they were discovered, the common element completion dates, the original unit owner settlement dates, etc.

Construction Defect Legal Claims that can be Asserted by Condominium Associations

A condominium association in Washington DC has the legal authority to assert construction defect legal claims in its own name and on behalf of its unit owner members in a representative capacity with regard to construction defects affecting the condominium. District of Columbia Condominium Act (“DC Condo Act’) § 42-1903.08(a)(4). As a practical matter, it is the continuing ability of a condominium association to assert these legal claims that motivates condominium developers and builders to repair construction defects.

Below is an overview of some construction defect legal claims that can be asserted in the District of Columbia by condominium associations against condominium developers, contractors and/or their officers, members, and employees. In the event it should ever become necessary to litigate, each of these legal claims will have its own legal strengths and weaknesses. Some legal claims may cover certain construction defects or afford monetary damages that others claims do not. Therefore, it behooves the association to make sure it does not waive any viable legal claims while negotiating with a developer because it is the ability to assert claims that enables an association to bargain from a position of strength, thereby increasing the likelihood of a favorable resolution without litigation.

The DC Statutory Warranty Against Structural Defects

There is a statutory warranty in the District of Columbia that protects condominium associations and their unit owner members from structural defects in newly constructed and newly converted condominiums. DC Condo Act § 42-1903.16(b). If a condominium developer refuses or is unable to fulfill its warranty obligations to repair structural defects, a condominium association can bring a breach of warranty claim for damages in the Superior Court for the District of Columbia and can also make a structural defect warranty security with the Mayor of the District of Columbia to release the condominium developer’s bond or letter of credit required to be posted as security for the fulfillment of its warranty obligations. DC Condo Act § 42-1903.16(e).

There is a five-year statute of limitations for breach of warranty claims brought in the Superior Court and a five-year deadline for filing an administrative claim with the Mayor against the developer’s security. However, the security posted with the Mayor is generally subject to reduction and release following a two-year warranty period. For details on how to apply the warranty period and statute of limitations and a detailed discussion of the warranty itself, see article by condominium construction defect lawyer Nicholas D. Cowie entitled: “The Condominium Warranty Against Structural Defects in Washington D.C.”

Negligent Construction

Condominium developers and their building contractors and subcontractors, and in some cases their officers, members and employees, can be held liable for negligently constructing or converting a condominium building. A negligent construction claim usually arises out of the use of improper construction methods that deviate from applicable building codes, approved plans and specifications, manufacturer’s instructions and other industry standards. Use of faulty or defective materials, failure to supervise, failure to inspect and defective design can be a basis for a negligent construction claim. Washington DC has adopted a version of the so-called “economic loss rule” as a defense to a negligence claim where a party seeks the cost of repairing a construction defect. However, that rule does not apply where both parties are in a “special relationship,” where the defect creates “risk of death or personal injury,” or where the damages resulting from the negligence do not fall within “the defined definition of economic loss.” Moreover, DC courts appear open to considering other exceptions to the economic loss rule adopted by courts of other jurisdictions. The statute of limitations for a negligent construction claim resulting in property damages and repair costs is three years. Code of the district of Columbia (“DC Code”) § 12-301. Under the discovery rule, as adopted in Washington DC, the three-year statute of limitations on a negligent claim runs from the date when a claimant actually knows, or by the exercise of reasonable diligence should know, of the injury, its cause-in-fact, and some evidence of wrongdoing (hereinafter referred to as “discovery”).

Breach of Contract and Common Law Implied Warranties

The District of Columbia recognizes a legal claim for breach of express contractual promises, such as a promise in a contract of sale to deliver a condominium constructed in accordance with plans and specifications and building codes. The District of Columbia also recognizes a legal claim for breach of implied common law contractual warranties, such as the “implied warranty of good faith and fair dealing.” A party may be liable for breach of the implied covenant of good faith and fair dealing when it evades or defeats the spirit of the contract in connection with its performance or enforcement, such as where one party fails to perform unfinished work or promised repairs. The statute of limitations for a breach of contract claim is three years, DC Code § 12-301(7), and runs from the date of discovery of the breach under the “discovery rule.”

Violation of the Consumer Protection Procedures Act

The District of Columbia Consumer Protection Procedures Act (“CPPA”) creates a private cause of action which can be asserted by a condominium association on behalf of its unit owner members who are deceived or otherwise misled in connection with the purchase of a condominium from the condominium developer. CPPA § 28-3905 and DC Condo Act § 42-1903.08(a)(4). The CPPA defines various unlawful trade practices that can include misrepresentations about the quality of construction, a failure to disclose material facts regarding problems with the condominium common elements, and other conduct which is misleading to consumers of condominiums. CPPA § 28-3904. Unlike other legal claims discussed herein, a condominium developer who engages in such unlawful trade practices can be held liable for treble damages as well as the claimant’s reasonable attorney’s fees. CPPA §28-30905(k)(2). A claim under the CPPA has a 3-year statute of limitations under DC Code §12-301(8), which runs from the date of discovery under the “discovery rule.” For an in-depth discussion of the District of Columbia Consumer Protection Procedures Act, See Recovering Attorneys Fees, Litigation Expenses and Treble Damages in DC Condominium Construction Defect Cases, by Nicholas D Cowie.

Negligent Misrepresentation and Fraud

Negligent misrepresentation and fraud are common law legal claims that provide a remedy when a defendant, including a condominium developer, makes a false representation or omits a fact when there is a duty to disclose. The difference between negligent misrepresentation and fraud is that negligent misrepresentation does not require an intent to deceive on the part of the defendant in making the representation. Rather, the representation can be based on careless/reckless behavior, such as making untrue statements to unit owners about the condominium without knowledge as to whether or not they are true or not. In the case of both fraud and negligent misrepresentation, the untrue statements or misleading omission must be material and reasonably relied upon by the Plaintiff in taking action, such as entering into a contract of sale and obtaining long-term financing based on a representation that the building was constructed in accordance with the plans and specifications approved by the District of Columbia. The statute of limitations for a negligent misrepresentation or fraud claim related to the quality or condition of construction is three years from the date of discovery under the discovery rule.

Strict Liability

Washington DC recognizes the product liability legal theory of “strict liability in tort.” Under this theory liability may be imposed without a showing of negligence in cases where components or systems in newly constructed condominiums sold to the public are defective and unreasonably dangerous and cause injury and damage to condominium purchasers. For example, where a construction defect causes mold growth that creates hazardous air quality resulting in personal injury and loss of use of a condominium unit due to inhabitability. Strict liability claims are also subject to the economic loss rule (discussed above) and have a three-year statute of limitations running from the date of discovery under the “discovery rule.”

Misleading Statement in Public Offering Statement 

The District of Columbia Condominium Act creates a private cause of action against a condominium developer who makes a false or misleading statement in a Public Offering Statement (“POS”) or omits a material fact with respect to the portion of the POS that he or she prepared or caused to be prepared. DC Condo Act § 42-1904.02(d). Each person who purchases a condominium in the District of Columbia must be provided with a POS that contains information prescribed by the District of Columbia Condominium Act at § 42-1904.04. For example, the POS must, among other things, “fully and accurately” … “disclose” … “the characteristics of the condominium and the units therein offered,” including “all unusual and material circumstances or features affecting the condominium.” DC Condo Act § 42-1904.04(a). In order to recover for a cause of action based on misleading statements in a POS, a condominium association must demonstrate that two or more unit owners sustained damages to their interest in the common elements as a result of the misleading statements in question. A claim under § 42-1904.04(d) of the DC Condo Act has a three-year statute of limitations from the date of discovery under DC Code § 12-301(8).

Tolling Agreements – Preserving Condominium Association Legal Claims

The legal claims discussed above are of limited duration and will expire if not brought in a court of law by filing a lawsuit within the applicable “statute of limitations.” The statute of limitations is the time period within which a legal claim must be brought in a court of law or it shall be forever barred. In general, there are two ways to stop the statute of limitations from running on a party’s legal claims: (1) file a lawsuit asserting those legal claims in court before the statute of limitations expires; or (2) have the responsible parties sign a tolling agreement before the statute of limitations expires.

A tolling agreement is a private contract that courts will enforce under which the parties agree that the statute of limitations time period will stop running, or be “tolled,” while they attempt to negotiate a resolution of their dispute. However, the statute of limitations will only stop as to those parties who agree to “toll” the running of the statute of limitations. A tolling agreement does not affect claims against any person or entity who does not agree to toll the statute of limitations. Likewise, when filing a lawsuit, the statute of limitations is only tolled as to the persons or entities against whom the suit is filed. For a more detailed explanation of tolling agreements, see article by condominium construction defect attorney Nicholas D. Cowie entitled: “Tolling Agreements: Use Them to Preserve Association Claims During Construction Defect Negotiations.”

Before negotiating serious construction defects claims with developers, builders, and other responsible parties, an association should first obtain a tolling agreement to preserve its legal claims and prevent them from becoming time-barred by the statute of limitations while it attempts to reach an amicable resolution. A tolling agreement allows a condominium association to focus on negotiations without having to be concerned about filing a law suit in order to prevent those claims from becoming time-barred by the expiration of the statute of limitations. A tolling agreement preserves the condominium’s bargaining power and benefits both the developer and the association by giving them a “time-out” so that they can resolve their claims without litigation.

It is important to retain experienced legal counsel to draft a tolling agreement. In our law firm’s review of cases, we find that many attorneys representing condominiums enter into tolling agreements fail to include important construction defect legal claims and responsible parties. As a result, the statute of limitations continues to run and even expires on these important legal rights during negotiations. Although a condominium association can agree to enter into a limited tolling agreement, attorneys unfamiliar with construction defect litigation on behalf of condominiums often do not understand and thus do not explain to their association clients what legal rights they are giving up and what the alternatives are. As a result, associations are unable to make informed decisions about excluding legal rights in a tolling agreement until it is too late.

Legal Obligation to Pursue Timely Construction Defect Claims

A Maryland appellate court has held that a condominium association can be sued by its unit owner members for failing to timely investigate and bring a lawsuit against the condominium developer for construction and design defects causing water leaks into the condominium buildings. See, Greenstein v. Council of Unit Owners of Avalon Court Six Condominium, 201 Md. App 186 (2011) (“Greenstein”).

Although courts within the District of Columbia have not addressed this precise issue, they often look to Maryland case law for precedent in such cases. In Greenstein, the condominium association complained about building water leak problems for many years. Ultimately, the association filed a lawsuit against the developer of the condominium when it failed to make effective repairs to stop the leaking. The court dismissed the condominium association’s suit because it was filed after the statute of limitations had expired. The association then assessed the unit owners for the cost of repairing the developer’s construction defects that cause the water leaks. In response to the assessment, some unit owners sued the association for negligence in failing to bring a timely lawsuit. The Maryland Court of Special Appeals held that the unit owners’ lawsuit against the condominium association could go forward because the association had a duty to timely pursue recovery from the developer on behalf of unit owners for damage to the common elements caused by the developer’s negligence, breach of contract, and other applicable law. Greenstein 201 MD App at 205.

It is important to note that the condominium association in Greenstein could have avoided these legal problems and liability had it been cognizant of the pending expiration of the statute of limitations or had it entered into a tolling agreement when it first began negotiating with the developer.

A Condominium Association Must Understand the Statute of Limitations from the Outset in order to make Informed Decisions

In order to ensure that it makes timely decisions about when to obtain a transition study and when to enter into a tolling agreement and/or file suit, a condominium association must first know when the statute of limitations expires as to the legal claims that it can assert. Without that information, associations are likely to unknowingly waive their legal claims. Determining when the statute of limitations expires is an extremely complex task in the case of condominium construction defect claims. Due consideration must be given to the numerous unit owner members, each of whom has legal claims relative to the common elements that can often be asserted on their behalf by the condominium association. In each case, different legal claims will have different statute of limitations periods that commence, or “accrue,” at different times, and those periods can vary as to the defect in question, the unit owner involved, and the time of discovery. In our firm’s review of cases handled by other attorneys over the years, we have often found that attorneys represent condominium associations in negotiations with developers over construction defect claims without ever analyzing, understanding, or even advising to the association when the statute of limitations expires as to the many different legal claims that the association can assert in its own name or on behalf of its unit owner members. Without this information, the associations often unknowingly allow, the statute of limitations to expire, resulting in the association losing its bargaining power in the negotiations, or its lawsuit being dismissed as time-barred if one is ever filed.

Negotiating Proper Repair of Construction Defects

Most construction defect disputes between condominium associations and developers are resolved or settled amicably without the need for litigation. Unfortunately, in many such cases, the negotiated repairs ultimately prove ineffective and fail to address underlying pervasive problems. This typically occurs when condominium associations simply accept whatever repairs are offered by the developer without involving their construction consultants to ensure that a proper repair is being offered and without documenting agreements to ensure accountability as to the method and scope of repair.

Condominium associations should be careful about accepting verbal offers from developers and builders to make unspecified “repairs” in response to complaints about construction problems. The informal nature of such an agreement may be appropriate in some circumstances, however, in most cases, problems will arise when the developer’s definition of “repair” differs from that required by code, contract, or industry standard. For example, when a developer agrees, informally, to repair a window or roof leak, the “repair” as far as the developer is concerned may consist of merely sending out a worker with a caulk gun to seal gaps that should have been protected with a solid flashing material during the original construction. Caulk is generally not an appropriate substitute for flashing. In this example, caulk is a temporary and inappropriate fix that may actually conceal the underlying absence of flashing until the caulking seal breaks or is bypassed by water infiltration at another location and the leak reappears six months later. This example demonstrates the need for written clarity, as well as the opportunity to seek the assistance of the association’s construction expert.

A condominium association does not have to accept whatever undefined repair the developer is offering. Instead, it should request a detailed description, preferably in writing, of the proposed repair being offered by the developer. The developer’s proposed repair can then be evaluated by a construction consultant working for the condominium. The consultant can review the applicable construction drawings and field conditions and advise the association whether the repair is reasonable and appropriate to address the underlying construction defect. If not, the consultant can suggest alternative repair approaches, request additional information, or suggest modifications to the developer’s repair proposal. In some cases, additional joint invasive inspections may be proposed to determine the appropriate repair and/or the extent, or “scope,” of repairs needed throughout the community. In this manner, the association can make decisions informed by its own construction consultant’s expertise rather than accepting whatever the developer is offering without understanding the appropriateness and effectiveness of the repair being offered.

All repairs negotiated in this manner should be documented so as to avoid misunderstanding and create an objective standard by which the repair can be judged. If the repair should fail the association has a written reference by which to judge whether the repair was performed properly as agreed.

This framework for negotiating the method and scope of repair promotes accountability and finality. It can be employed on a larger scale when a condominium association is negotiating repair of multiple defects discovered during a transition deficiency study. Each repair agreed upon by the parties can be specified in writing and become part of an agreement under which the developer agrees to perform specified repairs pursuant to a specific method and at all the specific locations where the defect exists in accordance with construction standards agreed to by the parties and their construction consultants. These written understandings can then be incorporated into a larger repair agreement that can also provide for future repair related activities and contingencies, such as resolution of disputes over repairs by third parties, unforeseen conditions discovered during repairs, provisions for having the association’s consultant inspect and approve the developer’s repair work, reimbursement of construction defect related expenses incurred by the condominium association, including consultant inspection fees, attorney’s fees, and defect evaluation and repair fees.

Conclusion – Early Consultation with Qualified Legal Counsel is Key to Making Informed Decisions Relative to Construction Defect Resolution

Representing condominium associations in construction defect claims is an extremely complex area of law. Legal counsel well versed in representing condominiums on a day-to-day basis often lack expertise and experience necessary to protect the interests of a condominium association when it comes to construction defect resolution. There are myriad of pitfalls beyond the scope of this article that are routinely overlooked by attorneys who lack the knowledge and experienced that comes with years of representing condominiums in construction defect litigation. These oversights result in the loss or serious compromise of association legal claims, unnecessary expense, loss of bargaining power, unfavorable settlements, or even dismissal of an associations case if litigation ensues.

In our practice, we often come across the same group of attorneys who represent condominium developers and builders in construction defect disputes. They are well versed in condominium construction defect law and they know which attorneys have a track record of successfully representing condominiums in construction defect litigation. Developer’s attorneys will invariably “run circles” around condominium legal counsel who lack construction defect litigation experience. There is no substitute for years of experience resolving construction defect disputes on behalf of condominiums, including negotiating and drafting repair agreements and litigating actual construction defect claims on behalf of condominium associations in case where settlement is not possible. It is for this reason that many condominium associations do not use their general counsel for construction defect matters. Instead, they consult with and retain separate counsel with expertise in the very specialized field of representing condominiums in construction defect disputes with condominium developers and builders.

The most important step a transitioning association can take toward successfully identifying and amicably resolving construction defect claims is to seek an early, complementary consultation from an attorney with substantial experience in representing condominiums in construction defect matters. Such a consultation, tailored to the community in question, will provide an association with a road map and a timeline for proceeding each step of the way so that it can make informed decisions about protecting its warranties and other legal rights in a timely manner, before they expire. Preserving these claims, will greatly increase the chances of successfully resolving construction defect disputes without the need for litigation.

NOTE ABOUT TERMINOLOGY:

The term “developer” is used in this article to describe the person or entity that creates the condominium association. Although “developer” is the terminology commonly used for this purpose, the District of Columbia Condominium Act refers to a developer as a “declarant” because it is the person or entity that files the condominium declaration necessary to create a condominium.

The term “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. Although “condominium association” is the terminology commonly used for this purpose, the District of Columbia Condominium Act refers to a condominium association as a “unit owners’ association.”

The term “board of directors” is 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 an “executive board.”

NOTE ABOUT AUTHOR:

Nicholas D Cowie is a partner in the law firm of Cowie Law Group, P.C. and is licensed in Maryland and Washington DC (District of Columbia). Mr. Cowie has been continuously resolving construction defect disputes on behalf of condominium associations for over 29 years. He has been involved in some of the major litigation that has shaped the condominium construction defect law in Maryland. Mr. Cowie has served as adjunct law school professor of construction law and drafted legislation enacted into law that protects and preserves the rights of condominium associations, homeowners associations, and their members in construction defect disputes. The law firm of Cowie Law Group, P.C. consists of attorneys who are versed and experienced in both construction law and condominium law, and who are known for representing condominiums in construction defect claims, financial disputes, developer collection and allocation of unit owner assessments and fees, and other developer contractual and legal obligations occurring prior to transition.

CONDOMINIUM CONSTRUCTION DEFECT ATTORNEYS

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