TURNOVER OF A CONDOMINIUM ASSOCIATION : ADDRESSING POSSIBLE CLAIMS AGAINST POTENTIALLY LIABLE PARTIES FOR CONSTRUCTION DEFECTS AND DEFICIENCIES

By Salvatore Scro, Esq. Board Certified Construction in Construction Law

When advising a condominium association board on steps to consider upon turnover of the control of the association from the developer to the owners when they believe that they have construction defects and deficiencies, Tannenbaum Scro Lemole & Kleinberg know it is important that the Association have a basic and concise summary of the issues and expectations they may face. This would include pre-suit investigation, warranties and warranty periods, pre-suit notice, statute of limitations, causes of action, possible defenses, and damages, among other things. This article is addressing turnover specifically with regard to handling potential construction defect claims.

Many associations choose to begin their investigation into potential defects and how to repair them by engaging a contractor to investigate the defective conditions. This is okay but it is not the best way to start for several reasons and therefore, probably a waste of money. This recommendation is usually short-sighted only for purposes of complying with F.S. Chapter 558 and 718.301(7). A contractor cannot serve as the best expert in a construction defect case. The contractor cannot testify as to architectural design and structural design aspects. In the real world, most engineers at the request of the construction defect attorney that may retain them will walk a site at no charge to see if engaging their services is worth it (they look to see if there are conditions that they would find defective and actionable). Once retained, the selected engineer would perform either a visual or if necessary, a destructive investigation (and probably a good idea to support any claim since most of the defective conditions are covered over by stucco, etc.), or both, to identify all of the defective conditions. Having the engineer do this provides for a competent and persuasive expert to not only provide a report of the defects and deficiencies, code violations, and protocol for repair in a written report which may be used for 558 notice purposes but also prepares the case for the expert to testify in depositions or at trial or to support claims of the Association in mediation to increase the possible settlement, versus not having the engineer's report and opinions as a backup. And, if the Association does not wish to pursue its claims or if the claims are such that they are not worth pursuing, at least the Board of Directors of the Association has met their fiduciary obligations to the owners and 1) has competent support to back them up in the event owners question their due diligence and 2) has a detailed expert identification of the defects and a protocol for repair which the Association may use to solicit bids for the repair.

F.S. §718.203 provides the Association with statutory warranties by the developer and the contractors. Upon conclusion of the expert investigation, the Association may decide to bring claims against the developer and contractors for the breaches of these statutory warranties, or for code violations under F.S. 553.84, and negligence, to address the defects. Possible causes of action for implied warranties are typically not available. Most condominium purchase contracts and the Declaration of the condominium disclaim implied warranties. Therefore, it is usually a waste of time to advise the Association of that possible cause of action and usually results in confusing them anyway. Further, this cause of action may be subject to possible defenses from being brought as a class action. Many times what was promised to be conveyed by the developer in marketing materials, etc., is not conveyed and/or of lesser quality than represented. An Association may consider a bringing cause of action for false and deceptive trade practices. While this may also be subject to certain defenses by the developer as to whether it may be brought under a class action, the circumstances on a case-by-case basis may support it and may be used and provide an increase in opportunity to recover.

Associations need to be aware of the difference between warranty periods under F.S. §718.203 versus statute of limitations periods for commencing an action (F.S. §95.11). The Association needs to be aware of the importance of identifying the defective conditions during the warranty period. Just because the Association has four years to commence an action, does not mean that they have an actionable claim for warranty items not discovered within the shorter statutory warranty period.

The Association should also be aware of an avenue to recover attorney's fees and expenses. Typically, there is not a prevailing party attorney fee provision in the condominium documents or purchase agreements to enable the Association to recover its attorney's fees and expenses against the developer or contractors responsible for the defects. To facility possible recovery of attorney fees and expenses, there is a statutory scheme for doing so through a proposal for settlement. This is important to the Association and its members, as the decision of whether to pursue claims largely falls on whether the association can afford it or if it will be worth the expense. Even if attorneys take on claims on a contingency basis, the client association will still be concerned about how much will be left from any recovery after deduction of legal fees and expenses to permit them to make the necessary repairs. A proposal for settlement may be an avenue for the Association to get back that contingency fee and realize the full benefit of the judgment amount.

Another key issue when bringing an action to recover for construction defects is, How to assure the developer's and contractors' insurance covers the claim? Identifying the consequential damages resulting from the defects is typically necessary for insurance coverage to kick in. Insurance of the contractors does not cover their defective work. It will cover the damages caused by their insured's defective work (the consequential damages). This is important because many times developers are single-purpose companies with no or limited assets, and subcontractors may have limited assets, unlikely enough to cover the typical damages claim in these situations or be out of business altogether. These are just some of the reasons this issue is important.

Finally, it is always best for the Association to seek advice and guidance through the turnover process from an experienced attorney that deals with complex construction defect litigation and association turnover matters. Most association general counsel is not suited for this task.

1 Other turnover issues may involve financial claims, including inadequate reserves, developer expenses paid with association funds, etc.

2 F.S. §558.004 Notice and opportunity to repair.

(1)(a) In actions brought alleging a construction defect, the claimant shall, at least 60 days before filing any action, or at least 120 days before filing an action involving an association representing more than 20 parcels, serve written notice of claim on the contractor, subcontractor, supplier, or design professional, as applicable, which notice shall refer to this chapter.

See F.S. Chapter 558 et. al for complete pre-suit notice requirements.

3 F.S. §718.301(7) provides:

(7) In any claim against a developer by an association alleging a defect in design, structural elements, construction, or any mechanical, electrical, fire protection, plumbing, or other element that requires a licensed professional for design or installation under chapter 455, chapter 471, chapter 481, chapter 489, or chapter 633, such defect must be examined and certified by an appropriately licensed Florida engineer, design professional, contractor, or otherwise licensed Florida individual or entity.

4 See F.S. §718.203 for complete discussion of warranty periods. In general 3 years from certificate of occupancy or 1 year from turnover.

5 See §95.11(3)(c).In general, 4 years from discovery not to exceed 10 years from completion of the improvement.

6 See Fla.R.Civ.P. §1.442 & See F.S. §768.79.

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