By Sydney Shaw
Whether it’s a building full of leaky windows, a widespread mold problem or a constantly flooded parking lot, sometimes construction errors made by developers can result in issues for unit owners. A homeowner or condominium association will need to decide whether it might be worth pursuing a construction defect claim.
According to Elliotte Quinn, an attorney with The Steinberg Law Firm in Charleston, South Carolina, the first step in the process is awareness. A board must know an issue exists before it can act to have it repaired.
“Generally, one of the main ways associations become aware is that a homeowner reaches out and says, ‘Hey, I’ve got this going on, this window leaks, this roof leaks,’ something along those lines. And then further investigation can reveal that actually, it’s something much larger,” Quinn said. “The people who are living there day in and day out are the ones who are most familiar with what’s going on.”
He recalled one particular homeowner who spotted some discoloration along the baseboard in one room of their home. It turned out there had been damage occurring inside the wall for years, completely unnoticed.
Many construction defect claims begin this way — to an untrained eye the issue is hard to pin down, but an expert can identify a major problem. Mold might be due to an HVAC issue, Quinn said. A pothole might be due to standing water that degraded the asphalt because the road wasn’t constructed properly in the first place.
Community managers can be the ones who bring a defect to light, as well, Quinn said. If they are repeatedly repairing the a similar issue on multiple units, that’s a red flag.
“Why do we keep having to fix the same thing over and over? Maybe it’s not just a maintenance issue. Maybe it’s because it wasn’t built right to begin with,” Quinn said.
Most construction defect attorneys are willing to discuss these details with associations at no cost to the association to see if there might be a larger issue worth pursuing.
Quinn said he is always happy to have a quick call to discuss whether a building issue sounds like something worth looking into further, and if it is something worth looking into, he is happy to visit the building to take a look. “It’s always better to check and see if you may be able to pass the costs of repairing a construction mistake off to those who are responsible for the mistake rather than the association continuing to pay.”
At least in South Carolina, homeowner associations have a legal duty to pursue construction defect claims. In fact, failing to do so could result in residents suing board members personally. That might sound scary, but Quinn said there’s a positive flip side.
“I think this also gives some comfort to board members,” Quinn said. “If your members want to say, ‘Why are we involved in construction litigation? We don’t want to do this, this is going to take a long time,’ or whatever concern or complaint they have, this provides the board with a reason to tell members why the association has to pursue claims.” The board can explain that the law requires them to pursue claims and they have no choice.
So, who actually brings the claim — the homeowner association or the owner? That depends on the nature of the defect, Quinn said. If the defects only exist in the exterior of a condo building, for example, it might just be the association who brings the claim. But if those exterior defects are causing leaks inside individual units, then both the board and the homeowner might need to be involved in the suit, Quinn said.
Construction defect cases can be quite complex, Quinn said. They often include dozens of defendants, experts and insurance companies, which is why homeowner associations should retain an attorney who focuses on handling construction defect claims.
“Construction defect lawyers are very familiar with heading out to a building and watching an expert cut into it and take things apart,” Quinn said. “‘What is causing this problem? How was this done wrong? How would it have been done correctly?’ Your counsel who’s going to handle a construction defect claim needs to know these things.”
When selecting an attorney, the other issue to keep in mind is cost.
“If you’re going to pay somebody by the hour, and you’re going to pay all the experts as their costs come, the suit could get very expensive — into the hundreds of thousands of dollars,” Quinn said. “But there are other ways to handle this.”
Construction defect cases are often handled through a contingency fee arrangement where the association does not have to pay anything out-of-pocket. This method leaves the association with minimal risk. Quinn says that’s how his firm handles cases. He gets paid from any recovery obtained from winning the case. His firm pays experts involved in the case from the recovery earnings, as well.
“If we lose, that’s our risk. We’re out those costs,” Quinn said. “If you’ve got an attorney who says ‘I’m willing to take on all the risks,’ that gives you a pretty good indication of what they think about your case. If the attorney is telling you, ‘No, I want you to pay me by the hour, and I want you to pay all the expert expenses up front,’ I think that also tells you something about what they think about your case.”
So what’s the endgame when suing for construction defects? Quinn said it isn’t to try to get a court to tell the original builder that they have to return to fix the issues. The goal is ultimately to obtain the amount of money needed for the association to make the repairs themselves, or pay another vendor to do the job.
“I wouldn’t want the builder who did it wrong in the first place to come back and fix it and not be getting paid this time,” Quinn said. “They didn’t know how to do it right the first time when they were getting paid, and now they’re not even getting paid. They have every incentive to cut corners.”
Some states have a Notice and Opportunity to Repair statute, which means the association must at least notify the developer of its intention to make repairs, Quinn said. At that point, the developer can offer money to resolve the claims, offer repairs to resolve the claims, or just deny the claim entirely. The board has final say in who ultimately makes the repairs, though.
Quinn also pointed out that an association can utilize the earnings how it sees fit. “If the association thinks it’s worth doing extra repairs today, saving some money for the future, or doing all the repairs, the association has all these options,” Quinn said. “The association can pick whatever contractor the association thinks would be best, whichever one they think would be most cost effective.”
Don’t assume your association’s claims aren’t worth pursuing just because time has passed or a builder has gone out of business, Quinn said. Different states do have different statutes of repose, he said, which might put a limit on the amount of time you can wait to file a construction defect claim.
“But the trick with the statute of repose is that it does not bar gross negligence claims,” Quinn said about South Carolina’s statute of repose for construction claims. Unlike the statute of limitations, which Quinn says bars any claim made after the limitations period ends, he said he regularly files claims outside of the statute of repose but he has to “show gross negligence instead of just negligence.”
And even if the original developer has gone out of business, an association might still have a shot at recovering money to make repairs.
“The subcontractors probably all had insurance. Lots of them are probably still around,” Quinn said. “Usually, construction defect lawyers can find different people who can pay for the recovery.”
He also stressed the importance of knowing what is and isn’t covered by insurance policies. That will determine who may have insurance to pay for the claims, and what specific damage claims are worth pursuing in the first place.
Perhaps the most important thing a homeowner association should keep in mind is to not inadvertently destroy evidence in a construction defect lawsuit before it even begins.
“If you noticed this issue, please, please don’t repair it and then contact [an attorney],” Quinn said. “It is very difficult to pursue a case when basically all the evidence of what was done wrong no longer exists because you’ve repaired it.”
There are a lot of moving pieces when it comes to construction defect claims, and it’s understandable if a board member feels confused or overwhelmed by the process.
“This can get complex,” Quinn said. When in doubt, call an attorney who specializes in construction defects to ask for their advice and perspective on the issue.