Construction Defects

A construction defect is a constructed item with a condition that deviates from the accepted architectural plans, building codes, and/or industry standards. One example would be walls that are missing vapor barriers.

The first thing an association should do if a construction defect is found is to evaluate whether it creates an immediate risk and determine if it is in fact a defect, Miske advised. This is done by contacting an expert for a professional opinion. The next steps would be to determine the full nature of the deviation, the cost associated with its repair, and whether or not any consequential damages exist or will later result because of it.

Once the defect has been fully assessed, it may then be necessary to contact the developer. The developer should be contacted and advised of the problem if the association believes the developer may be able to remedy it, and if it is in the best interest of the community for the developer to do so. Giving notice provides the developer with a chance to fix the defect, or at least witness the defect firsthand. “This is important so as to avoid any argument by the developer of spoliation of evidence—fixing or changing something without giving the developer or at fault party the opportunity to inspect the alleged defect,” Miske said. Notice is often given through certified mail, or however stated in the sales contract. Almost all states have a statute of limitation outlining at what point an association may be unable to recover from the developer or at fault party. Miske explained, “But this period may be adjusted based on when the defect was or should have been discovered. These types of issues, especially if they are large in scale or costly to remedy, likely require an attorney experienced in construction defect litigation to represent the association.”

Defects found in any of the common property elements are to be handled by the association, and they are generally determined to be either the responsibility of the association or the developer. “If the defect is exclusively found in a particular unit or home, then such a dispute may not involve the association, but rather be something that the developer and particular member need to resolve based on the association documents and their sale documents. Members would generally have both express and implied warranties as possible means of recovery,” Miske said. Implied warranties generally last much longer than the period of any express warranty.

An association has the fiduciary responsibility to maintain, repair and protect the common elements of the community, even if some are found to have been built incorrectly. Emergency repairs, especially where the safety or health of its residents are involved, must be made quickly. Miske elaborated, “At the same time, these emergency repairs should be well documented and the alleged at fault party, if there is one, should be notified as soon as possible of the defect and be offered the opportunity to be present for the repair to avoid the spoliation of evidence defense mentioned earlier.” He continued, “The association will need to make decisions based on a number of competing factors, including: (1) obtaining bids to make the correction; (2) providing notice to any allegedly responsible party; (3) making the repairs so that the defect does not cause additional damages (the association’s duty to mitigate its damages); and (4) the need to keep its residents safe.”

Allowing defects to worsen could both breach the association’s fiduciary duty and increase the amount of damages that need to be recovered. If the developer outright refuses to fix the defect, then the association will have to act to the extent that it is responsible for the defect. “As part of the negotiations with any developer or responsible party, an association needs to be mindful of the fact that most construction defect lawsuits will take at least three years to fully resolve,” Miske noted.

According to Miske, the key to any construction lawsuit and the recovery of damages is to document everything. The association should give prior notice to the contractors and/or developer if it hopes to recover the full amount of the cost of repairing the defect. Again, giving notice through certified mail or written means goes back to the importance of proper documentation. Giving notice allows the developer to view the defect firsthand before it is fixed, not necessarily to make repairs. The association could pay its expert to photograph the defect so as to provide more detailed and accurate reports, otherwise, the contractor fixing the defect should be required to provide these items. Regardless, Miske recommended that the repair should be thoroughly documented throughout the entire process.

Often, a developer will claim that a warranty has expired and that the alleged defect is really a maintenance issue, or that the statute of limitations has expired. “Although these defenses may be true, an association should have an experienced construction defect litigation attorney look into all potential means of recovery, including implied warranties and insurance policies,” Miske advised.

Arbitration in construction defect claims may or may not be mandatory and varies by state. Though it may not be mandatory, it is allowed if all parties involved in the claim agree to arbitration. The arbitration process is similar to that of a court proceeding, except without a jury. Arbitration is also a way for many businesses to try to reduce its losses, its time in litigation, and the attorney fees of the litigation, so it is often a developer’s preferred method for resolving a claim. Miske said it is becoming increasingly popular for developers to mandate arbitration, instead of litigation, in the association’s declaration or bylaws. Arbitration is usually more expeditious in obtaining a result, he noted, but can be just as expensive as litigation, since the arbitrator(s) is generally also paid.