Construction Defects

A construction defect is a condition existing due to an error made during construction. For an association to remedy the defects while still pursuing damages from the developer, Michigan attorney Stephen Guerra recommended proceeding with the repairs and documenting the conditions. “The bottom line is because the developer may be responsible for a problem does not exempt the association from its obligations and duties under the recorded documents. So if this is a common element for which the association is responsible, and it’s defective, it may take several years to conclude a suit against the developer for correction of that defect. The association cannot ignore the problem for that long and indeed has an obligation to make sure the damage does not get worse. So, once you put the developer on notice that there’s a problem that needs to be fixed, if the developer doesn’t, to the extent the association is responsible for the item under the governing documents, the association really has an obligation to move forward to take care of those things for which it’s found,” he said.

He urged that the contractors doing the work document everything they see through photographic and written evidence, which the association should preserve for a later time. “You have the added ammunition, rather than relying on estimates at the time you pursued the claim, you have actual costs and expenses, and a pictorial history of exactly what was wrong and how it was fixed,” he said. Proper evidence of the defect is very important. “Financial liability is the biggest thing and there is no liability without evidence.”

For any individual owners in an HOA, those owners with defects in the construction of their residence would typically need to pursue any defects within the confines of their own property themselves.

Guerra also noted that prior to pursuing any defect litigation, you need to obtain an evaluation from an expert in the field to determine the nature and extent of the defect.

The key is to document everything.

According to Guerra, the developer needs to be notified of a problem during the time in which the developer is still responsible. “The Michigan Condominium Act has a specified statute of limitations for bringing claims against the developer and others associated with the development and management of the project. So during the period that the developer is still subject to the statute of limitations, the association certainly is going to make demands upon the developer for everything that it believes and can show is the result of deficiencies in the developer’s or its contractor’s performance,” he said.

Guerra stated that you should notify the developer through any form of written communication. “You want to make sure it’s written so it’s traceable and it can be proven,” he said. Again, this underscores the importance of good documentation.

“They probably will claim a warranty has expired,” said Guerra, “but there are several concurrent warranties that go with the sale of property. In most cases, you have not only expressed warranties, but you have implied warranties.” Whether or not these warranties can or cannot be disclaimed would be up to the claimant’s attorney to handle.

“Even if you have an expressed warranty that has expired, (those are usually the one-year limited warranty when you buy a home), you have implied warranties of fitness, habitability, and of construction in a workmanlike manner — all of those implied warranties, which if not validly disclaimed, would run for a period of up to six years, as opposed to the one-year, limited warranty that comes with the sale.”

A claimant’s attorney needs to look at all the potential warranties and applicable provisions as to when the claims accrue (that is when the warranty period begins to run). In Michigan several limitations periods begin to run only when you know of a claim or should have known of a claim. Be aware, as well of any Statutes of Repose that may be applicable.

According to Guerra, the vast majority of judicial contests over construction litigation are eventually referred by the bench to arbitration. “It is their favorite method for trying to resolve construction disputes, primarily because there’s a lot of detail and expertise needed So it is consistently felt in Michigan that it is preferable to have construction cases arbitrated as opposed to actually tried,” he said.

However, in Michigan, associations are not required to go into arbitration. “The Michigan Condominium Act that allows arbitration by consent of the people involved. There is also a statutory provision that mandates arbitration if one or the other person chooses it — in certain situations that are involving claims against the developer, either claims by the co-owners against the developer or claims by the association against the developer. You have the unilateral ability to take certain of those claims and submit them to arbitration under certain dollar levels. For an individual it’s $2,500; for an association it’s $10,000,” he said.