Using Tolling Agreements to Safeguard Condominium and HOA Construction Defect Claims and Facilitate Developer Negotiations by COWIE LAW GROUP - Condominium and HOA Construction Defect Lawyers and Attorneys in in Maryland and Washington DC Using Tolling Agreements in in Maryland and Washington DC to Facilitate Developer Negotiations & Safeguard Condominium and HOA Construction Defect Claims

Summary: Why do Condos need Tolling Agreements?

Tolling Agreements can and should be used by Condos and HOAs to Facilitate Developer Negotiations in Maryland and Washington DC

Benefits:

– avoid litigation

– facilitate developer negotiations

– preserve condo construction defect claims
– a useful tool to resolve defect claims

See details below.

Introduction: Tolling Agreements & Condo Construction Defect Resolution

When construction defects are discovered in newly constructed communities, condominium associations and homeowners associations (“HOAs”) in Maryland and Washington DC face the challenge of preserving their rights and pursuing warranties and other legal remedies. If timely action is not taken, legal rights will expire under the statute of limitations. If this happens, the association will find its self-responsible for repairing the developer’s construction defects and may even be liable to its unit owner members for failing to timely file lawsuit.

Although time is of the essence, when it comes asserting construction defect claims, litigation is typically not the preferred first step, especially when associations seek to negotiate repairs or a monetary settlement with the condominium or HOA developer. In these circumstances, the tolling agreement serves as a valuable tool, allowing parties to extend the statute of limitations time limit for filing a lawsuit and creating an environment conducive to negotiations, while still preserving association legal claims.

Understanding Tolling Agreements & Statute of Limitations

Construction defect legal claims, such as breach of warranty and negligent construction, have an expiration date. A lawsuit asserting these legal claims must be filed in a court of law within the period known as the “statute of limitations” or the claims are forever barred. Tolling agreements are contractual arrangements that temporarily suspend or extend the statute of limitations time limit within which a lawsuit must be filed. By entering into a tolling agreement, the parties involved agree to extend the time within which legal claims can be pursued against each other.

In the context of condominium and HOA construction defect claims, this extension allows associations to continue negotiations with developers and builders while safeguarding and preserving their legal rights. By tolling the statute of limitations, the legal clock stops running, thereby removing the need for filing a lawsuit that would otherwise be necessary to preserve association legal claims. This provides a “breathing space” to engage in constructive discussions and explore a comprehensive resolution of the construction defect dispute. If the construction defect dispute is not resolved, and a lawsuit is filed, a court will enforce the agreed extension of time when calculating the statute of limitations as it applies to any party to the tolling agreement.

Thus, when it comes to condominium and HOA construction defect disputes, tolling agreements have emerged as a crucial tool for Maryland and Washington DC condominium associations and HOAs to protect their legal rights and gain the necessary time to ensure proper resolution of their claims.

Time is of the Essence

Construction defects can cause significant financial and structural challenges for condominiums and HOAs, requiring extensive repairs and potentially affecting the safety and livability of the properties. Defects from the original construction can remain hidden beneath roofs and behind exterior walls for years before they manifest themselves. Thus, it becomes imperative for new Maryland and Washington DC condominium associations and HOA’s to hire their own independent engineering consultant to evaluate the common areas as soon as the homeowners take control of the association from the developer. What may seem “normal” to the average homeowner, may signal a serious underlying defect in the original construction to the eyes of an experienced professional engineer. Obtaining an engineering evaluation and comprehensive deficiency report, allows the homeowner-controlled association to identify any construction defect issues so they can be brought to the attention of the developer and builder in a timely manner, before warranties and other legal claims expire.

Unfortunately, engaging in negotiations with developers and builders can be a time-consuming process that is typically delayed until after control of the association transfers from developer to homeowners the first annual meeting. By the time control of the association changes hands, the statute of limitations may pose a time challenge for condominiums and HOAs involved in negotiations with the developer. Ironically, even when parties’ are engaged in productive negotiations, the failure to file a lawsuit within the statute of limitations will cause an association’s claims to be legally barred. Some homeowner controlled associations think they don’t need a tolling agreement because negotiations with the developer or declarant are going “smoothly,” only to find out that the developer walks away from the table, leaving them with claims that are barred by the expiration of the statute of limitations.

Condominium association have a duty to timely investigate and pursue recovery from the developer for common element construction defects. This duty includes filing suit if necessary to prevent the association’s legal claims from becoming barred under the statute of limitations. Failing to comply with this duty he can result in the association being held legally liable to its members. See, Greenstein v. Council of Unit Owners of Avalon Court Six Condominium, 201 Md. App. 186 (2011). See also article, Sue or be Sued? Condo Association Liability to Members for Failing to Take Legal Action Against Developer for Construction Defects . Thus, tolling agreements to preserve the association’s legal claims should never be overlooked, even when the parties are negotiating. It is prudent to get a tolling agreement in place hence the responsible parties before negotiations start.

Benefits of Tolling Agreements

The primary benefit of tolling agreements is that they provide condominiums and HOAs, as well as developers and builder, more time to fully investigate and assess the extent of construction defects and come to an agreement, without the association having to file a lawsuit just to prevent its claims from being legally barred. This added time allows for thorough inspections and expert evaluations necessary for all parties to make informed decisions about reaching a settlement of their construction defect dispute. Builders and developers also benefit because they do not have to incur the time and expense of defending against a lawsuit that would otherwise be filed in the absence of a tolling agreement. Moreover, from the the developer’s perspective, it is easier to sell units in the community when there is no lawsuit with the association that needs to be disclosed to prospective purchasers.

Tolling agreements also have the benefit of creating a conducive environment for cooperative negotiations between the parties involved. With the statute of limitations suspended, there is less urgency to file lawsuits immediately, fostering an atmosphere of collaboration and facilitating potential resolution outside of court. Tolling agreements allow an association and it’s legal counsel to focus on reaching a negotiated settlement instead of devoting time resources toward taking the steps and expense necessary to prepare and file lawsuit. This approach often leads to more efficient and cost-effective outcomes for all parties.

Tolling Agreement Termination

Many tolling agreements are written with a provision that allows either party to terminate the tolling agreement at ant time upon prior written notice. This way, if negotiations prove unproductive, the tolling agreement can be ended by any party. Other tolling agreements only suspend the statute of limitations for a specified period of time. This latter type of tolling agreement is typically more expensive for the parties because they have to pay their attorneys to extend the agreement, sometimes multiple times, if negotiations are to continue.

Conclusion:

In short, a tolling agreement provides a “time out” from the statue limitation’s enabling parties to resolve their legal claims without engaging litigation that would otherwise be necessary to preserve those claims. The parties to a tolling agreement can dedicate time to meaningful discussions, explore repair options, and seek fair resolutions, all without immediately resorting to litigation.

When a developer, declarant or builder agrees to enter into a tolling agreement with a condominium association or HOA, it is a sign that they are willing to negotiate in good faith in an attempt to resolve the construction defect dispute.

Consult with an MD or DC Condo / HOA Construction Defect Attorney

Consulting with a knowledgeable Maryland or Washington DC condominium / HOA construction defect law attorney is crucial to ensure the effective implementation of tolling agreements and to safeguard condominium association and HOA interests. A condominium or HOA construction defect attorney can also advise the association on the steps that it should be taking to properly identify and negotiate the resolution of construction defect claims before construction defect warranties expire.

At Cowie Law Group, P.C., our team of experienced condominium and HOA lawyers and construction law attorneys understand the nuances of Washington, D.C., and Maryland construction law and how it applies to the specialized area of condominiums an HOAs. We provide invaluable guidance and representation to our clients, ensuring their legal claims are effectively preserved and protected.

If your association wishes to discuss its rights and obligations relative to construction defects in a newly constructed condominium or HOA community, or finds itself involved in a construction dispute in the Washington, D.C. or Maryland area, contact us to request a free consultation with our knowledgeable attorneys.

Note on Statute of Limitations Exceptions

A tolling agreement acts as a voluntary an exception to the statute of limitations among the parties to the agreement. Should be mentioned that there are other exceptions to the statute of limitations that are imposed by law. For example, one such exception that often applies to condominiums, and HOA’s is the “adverse domination doctrine, under which the statute of limitations may be tolled as to a legal claims a DC condominium association has against a condominium declarant arising during the period of developer control. See article, Statute of Limitations on DC Condo Legal Claims Tolled During Period of Developer Control.

Special Note for Structural Defect Warranty Security Claims Administered by the District of Columbia

In Washington DC a condominium association experiencing construction defects that the declarant developer has refused to repair can assert a claim under the “Structural Defect Warranty Security Claim Program” administered by the Mayor of the District of Columbia Department through its agency known as the the Rental Conversion and Sales Division of the District of Columbia Department of Housing and Community Development’s Housing Regulation Administration (“RCSD”). For an article discussing the structural defect warranty and the DHCD security claim program, see The Washington DC Condominium Warranty Again Structural Defects. Without written confirmation from DHCD that it will honor such an agreement, it is not recommended that a tolling agreement be relied upon to extend the time for filing a claim with the RCSD under its “Structural Defect Warranty Security Claim Program.” However, a condominium association in negotiations with the condominium declarant can file a claim with the RCSD and request the claim be held in abeyance pending the outcome of negotiations.

An administrative claim filed with the RSCD against the declarants ” warranty security” under the Structural Defect Warranty Security Claim Program, should be distinguished from a claim filed in a court of law for breach of the statutory warranty against structural defects. For an article discussing difference, see The Washington DC Condominium Warranty Again Structural Defects.