Source: https://cowiemott.com/resolving-condominium-construction-defect-claims-in-maryland/
Timestamp: 2019-04-21 22:51:08+00:00

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Newly constructed and newly converted condominiums in Maryland often contain concealed or “latent” construction defects. Left undetected and unrepaired, latent defects stemming from the original construction of a condominium can cause extensive damage over time, requiring associations to assess their members for unanticipated repair costs that could have been avoided by making timely developer warranty claims.
This article provides a general overview of how Maryland condominium associations transitioning from developer control can proactively identify and resolve construction defect claims with condominium developers and builders before warranties and other legal rights expire. This proactive approach typically results in an amicable resolution without the need for litigation.
Condominium associations are responsible for overseeing and maintaining condominium common element facilities (e.g., roofs, exterior walls, foundations, lobbies, common hallways, elevators, surrounding grounds, and common mechanical, electrical, and plumbing systems). Following the period of developer control, it is incumbent upon a condominium association’s first unit owner elected board of directors to evaluate the construction of the condominium common element facilities to identify construction deficiencies so they can be brought to the developer’s attention for repair while warranties and other legal rights are still in effect.
An early identification of construction defects also assists the condominium association in determining whether the original budgeted reserve fund established by the condominium during the period of developer control is adequate to cover the future cost of maintaining, repairing, and ultimately replacing the common element facilities. A reserve fund is based on an underlying assumption that the common element facilities of the condominium are constructed properly and will have a normal life expectancy (e.g., a 30 roof, 45-year exterior siding, etc.). An evaluation of construction allows a transitioning condominium association to independently verify these assumptions in the original reserve budget created by the developer. For example, if the roof of a newly constructed condominium is found to be leaking and in need of immediate replacement due to a defect in the original construction, then a budget based on a projected roof replacement in thirty (30) years is grossly insufficient.
Following transition from developer control, condominium associations should hire an engineering or architectural firm to perform a “transition deficiency study” (also known in the community association industry as a “transition study,” “transition report,” “deficiency report,” “warranty analysis,” “construction analysis,” or “construction defect report”). The purpose of the transition deficiency study is to evaluate the construction of the common elements, identify construction defects, and set forth the findings in a written report.
The transition deficiency study is intended to provide a useful and comprehensive list of construction defects prepared by a construction expert, citing specific violations of building codes, approved plans and specifications, and other applicable industry standards. The condominium association’s attorney can then use the study to put the developer on notice of the defects and request repairs under applicable warranties. When construction defects are identified early in this manner, before they can cause serious damage to the building, the repair expense is typically substantially less, making it easier to negotiate an amicable resolution with the developer. Ideally, at the end of the transition process, all construction defects will be identified and properly corrected by the condominium developer so that the condominium association can then establish an accurate reserve fund based on common element facilities that have a normal life expectancy.
Retaining the services of a qualified consultant to inspect construction of common element facilities is important because some construction defects that occur during the original construction or conversion of a condominium are concealed behind a building’s exterior facade or may simply not be recognized as a problem to average homeowner purchasers when they acquire their units. Left undiscovered and unrepaired, latent construction defects can result in extensive hidden building damage over time, resulting in unanticipated repair expenses that can wreak havoc on an Association’s financial condition, requiring it to borrow money and assess unit owners. For example, the failure to properly flash windows, balcony beam penetrations, and other openings in a building envelope can cause extensive and insidious water damage within the exterior building walls of a condominium causing rotting of wood sheathing and structural framing. The damage may only come to light when mold or water stains begin to appear years later within the interior living space of units. A properly performed and utilized transition deficiency study greatly reduces the risk that a condominium association’s unit owner members will be assessed significant amounts for unexpected repairs caused by hidden or “latent” construction defects caused during construction.
In addition to seeking proposals for conducting a transition deficiency study, the first unit owner-elected board following transition from developer control should also obtain a complimentary consultation with an experienced condominium transition attorney with substantial experience representing condominiums in construction defect matters. Such an attorney can advise the board of applicable deadlines necessary to avoid waiving warranty rights and other legal claims and will provide a timeline for the association to follow that will ensure that the transition deficiency study is obtained in a timely manner, well within applicable notice, warranty, and statute of limitations time periods, so that any serious construction defects identified in the study can be brought to the developer for repair within the applicable warranty periods.
A condominium association in Maryland has the legal authority to assert warranty and other construction defect legal claims in its own name and in a representative capacity on behalf of two or more of its unit owner members with regard to construction defects affecting the condominium. Maryland Condominium Act (“MD Condo Act’) § 11-109(d)(4) and (19). Developers often insert language into governing documents that purport to deprive the association of its ability to pursue common element defect claims on behalf of unit owner members. As a practical matter, it is the continuing ability of a condominium association to assert these legal claims that motivates condominium developers and builders to repair construction defects. Therefore it is important to have experienced construction defect legal counsel review governing documents to identify such issues early in the transition process and to take necessary counter-measures to preserving the legal claims.
Below is an overview of some construction defect legal claims that can be asserted in Maryland by a condominium association in its own name or on behalf of its unit owner members against condominium developers and/or other responsible parties. In the event it should ever become necessary to litigate, each of these legal claims will have its own legal strengths and weaknesses. Some legal claims may cover certain construction defects or afford monetary damages that others claims do not. It is the ability to assert claims that enables an association to bargain from a position of strength, thereby increasing the likelihood of a favorable resolution without litigation Therefore, it behooves the association to make sure it does not waive any viable legal claims while negotiating with a developer by allowing the statute of limitations to run or by failing to give proper notice.
In Maryland, there is an implied warranty created by the Maryland Condominium Act that runs from the developer to a condominium association. MD Condo Act § 11-131(d). The common element warranty applies to the roofs, foundations, external and supporting walls, mechanical, electrical, and plumbing systems, and other structural elements. MD Condo Act § 11-131(d)(1). The warranty is implied by statute and need not be in writing. The statute requires that the developer be responsible for correcting any defect in materials or workmanship, and that the specified common elements are within acceptable industry standards in effect when the building was constructed. MD Condo Act § 11-131(d)(2). The Maryland Condominium Act expressly gives a condominium association authority to assert the warranty on the common elements in its own name. MD Condo Act § 11-109(d)(19). A suit for enforcement of the warranty on the “general” common element warranty can be brought only by the council of unit owners. MD Condo Act § 11-131(d)(4). A suit for enforcement of the warranty on the “limited” common elements may be brought by the condominium association or any unit owner to whose use it is reserved. MD Condo Act § 11-131(d)(4).
(iii) Two years from the date on which unit owners, other than the developer, take majority control over the association board of directors.
The statute is designed so that the warranty period can never expire shorter than two years after the developer turns over control of the association to non-developer unit owners.
Under the Title 10 Implied warranty, the builder/seller of a condominium unit warrants that the unit and its common element improvements are free from faulty materials, constructed in accordance with sound engineering standards, constructed in a workmanlike manner, and fit for habitation. RP § 10-203(a). The warranty is implied by statute and need not be stated in writing.
The Title 10 Express Warranties are not implied and must be based on written statements about the condominium or a sample or model that is made as part of the basis of the bargain to purchase a condominium unit. Typically, these express warranties refer to written promises contained in a contract, but also can arise from written statements in sales brochures, public offering statements, advertisements, model home depictions, drawings, and other written or pictorial descriptions of the condominium. A typical express on warranty might be a promise to construct a condominium in accordance with applicable building codes or a promise to build a clubhouse with swimming pool, or some other important part of the decision to purchase a unit at the condominium. The express warranty is breached if the unit or common elements fail to conform to the written promise or description, or fail to sufficiently conform to a model or sample. RP § 10-202(a).
The Title 10 Implied and Express warranties do not expire on the subsequent sale of a condominium unit by the original purchaser to a subsequent purchaser. Instead, these warranties continue to protect the subsequent purchaser until the warranty for the original purchaser would have otherwise expired had the original purchaser not sold their unit. RP § 10-204(c).
Determining when the warranty period for each unit owner commences and the statute of limitations expires can be an extremely complex and requires a fact-based analysis. In very general terms, however, the time for asserting Title 10 Implied or Express Warranty Claims in a court of law (including calculation of both warranty period and statute of limitations) can be as short as two years and as long as four years from the date of a unit owner settlement, depending on a number of factors, such as the date on which the defects were discovered, whether they are structural defects or non-structural defects, and when the unit owner took possession of the unit. RP § 10-204. The warranty period for a Title 10 Express warranty can be longer than a Title 10 Implied warranty if the express warranty specifies a longer period of time (e.g., a “five-year roof”).
The statute of limitations for a negligent construction claim in Maryland is three years. Maryland Courts & Judicial Proceedings Article (“CJ”) § 5-101. Under the discovery rule adopted by Maryland Courts, the three-year statute of limitations on a negligent claim runs from the date when a claimant actually knows, or by the exercise of reasonable diligence should know, of the injury, or damage giving rise to their legal claim (hereinafter referred to as “discovery”).
The Maryland Consumer Protection Act (“MCPA”) creates a private cause of action which can be asserted by a condominium association on behalf of its unit owner members who are deceived or otherwise misled by “unlawful trade practices” in connection with the sale and purchase of a condominium. MCPA § 13-408(a) and 13-303. The MCPA defines various unlawful trade practices that include misrepresentations about the characteristics and quality of construction, a failure to state material facts regarding problems with the condominium common elements, and other conduct which is misleading to consumers of condominiums. MCPA § 13-303. For example, if it is represented that a condominium will be built in accordance with the county-approved plans and specifications, it is a violation of the MCPA if there is substantial deviation from the applicable plans and specifications that results in defective conditions.
Negligent misrepresentation and fraud are common law legal claims that provide a remedy when a defendant, including a condominium developer, makes a false representation or omits a fact when there is a duty to disclose. The difference between negligent misrepresentation and fraud is that negligent misrepresentation does not require an intent to deceive on the part of the defendant in making the representation. Rather, the representation can be based on careless/reckless behavior, such as making untrue statements to unit owners about the condominium without knowledge as to whether or not they are true or not.
In the case of both fraud and negligent misrepresentation, the untrue statements or misleading omission must be material and reasonably relied upon by the Association and/or its members to their detriment, such as entering into a contract of sale and obtaining long-term financing based on a misrepresentation that the building was constructed in accordance with the plans and specifications approved by local County or City building authorities. The statute of limitations for a negligent misrepresentation or fraud claim related to the quality or condition of construction is generally three years under CJ § 5-101, running from the date of discovery under the discovery rule. In the case of fraud, the statute of limitations can be extended if the construction defect legal claim is intentionally concealed.
The Maryland Condominium Act creates a private cause of action against a condominium developer who makes a false or misleading statement in a Public Offering Statement (“POS”) or omits material facts in a manner that is misleading. MD Condo Act § 11-126(f). A claim under § 11-126(f) of the MD Condo Act has a one year statute of limitations for misleading representations in a POS from the date of discovery under MD Condo Act § 11-126(f).
Although the statute of limitations period for some typical construction defect claims are set forth above, a condominium association should not make any decisions based on its own determination of when the statute of limitations expires without consulting with an experienced construction defect attorney. Determining when the statute of limitations expires as to any construction defect claims is fact-based analysis and will always be different for every condominium depending on many factors, including the specific legal terms of documents pertaining to the condominium (e.g., governing documents and sales contracts), the nature of construction defects at issue and when they were discovered, the dates of common element completion, the dates of original unit owner settlements, the date control over the association is transferred from the developer to non-developer unit owners, etc. The statute of limitations analysis must also take into account the numerous unit owner members, each of whom has legal claims relative to the common elements that can often be asserted on their behalf by the condominium association. In each case, different legal claims will have different statute of limitations periods that commence at different times, and those periods can vary as to the defect in question, the unit owner involved, and the time of discovery. Condominium associations should consult with an attorney before taking or not taking action in reliance on the information set forth in this article.
The legal claims discussed above are of limited duration and will expire if not brought in a court of law by filing a lawsuit within the applicable “statute of limitations.” The statute of limitations is the time period within which a legal claim must be brought in a court of law or it shall be forever barred. In general, there are two ways to stop the statute of limitations from running on a party’s legal claims: (1) file a lawsuit asserting those legal claims in court before the statute of limitations expires; or (2) have the responsible parties sign a tolling agreement before the statute of limitations expires.
Before negotiating serious construction defects claims with developers, builders, and other responsible parties, an association should first obtain a tolling agreement from them in order to preserve legal claims and prevent them from becoming time-barred by the statute of limitations while attempting to reach an amicable resolution. A tolling agreement allows a condominium association to focus on negotiations without having to be concerned about filing a law suit in order to prevent those claims from becoming time-barred by the expiration of the statute of limitations. A tolling agreement preserves the condominium’s bargaining power and benefits both the developer and the association by giving them a “time-out” so that they can resolve their claims without litigation.
It is important to retain experienced legal counsel to draft a tolling agreement. In our law firm’s review of cases, we find that many attorneys representing condominiums enter into tolling agreements fail to include important construction defect legal claims and responsible parties. As a result, the statute of limitations continues to run and even expires on these important legal rights during negotiations. Although a condominium association can agree to enter into a limited tolling agreement, attorneys unfamiliar with construction defect litigation on behalf of condominiums often do not understand and thus do not explain to their association clients what legal rights they are giving up and what the alternatives are. As a result, associations are unable to make informed decisions about excluding legal rights in a tolling agreement until it is too late.
Once a condominium association has notified the developer of construction defects and obtained a tolling agreement, it should work with its transition engineering consultant to ensure that the developer performs repairs that properly address the underlying construction deficiency. In many cases, developer repairs prove ineffective and fail to address pervasive problems. This typically occurs when condominium associations simply accept whatever repairs are offered by the developer without involving their construction consultants to ensure that a proper repair is being offered and without documenting repair agreements to ensure accountability as to the method and scope of repair.
Condominium associations should be careful about accepting verbal offers from developers and builders to make unspecified “repairs” in response to complaints about construction problems. The informal nature of such an agreement may be appropriate in some circumstances, however, in most cases, problems will arise when the developer’s definition of “repair” differs from that required by code, contract, or industry standard. For example, when a developer agrees, informally, to repair a window or roof leak, the “repair” as far as the developer is concerned may consist of merely sending out a worker with a caulk gun to seal gaps that should have been protected with a solid flashing material during the original construction. Caulk is generally not an appropriate substitute for flashing. In this example, caulk is a temporary and inappropriate fix that may actually conceal the underlying absence of flashing until the caulking seal breaks or is bypassed by water infiltration at another location and the leak reappears six months later. This example demonstrates the need for written clarity, as well as the necessity of seeking the assistance of the association’s construction expert to review and approve the offered repairs.
A condominium association does not have to accept whatever undefined repair the developer is offering. Instead, it should request a detailed description, preferably in writing, of the proposed repair being offered by the developer. The developer’s proposed repair can then be evaluated by a construction consultant working for the condominium. The consultant can review the applicable construction drawings and field conditions and advise the association whether the offered repair is reasonable and appropriate to address the underlying construction defect. If not, the consultant can suggest alternative repair approaches, request additional information, or suggest modifications to the developer’s repair proposal. In some cases, additional joint invasive inspections may be proposed to determine the appropriate repair and/or the extent, or “scope,” of repairs needed throughout the community. In this manner, the association can make informed decisions based on its construction consultant’s expertise rather than accepting whatever the developer is offering without understanding the appropriateness and effectiveness of the repair being offered.
All repairs negotiated in this manner should be documented so as to avoid misunderstanding and create an objective standard by which the repair can be judged. If the repair should fail the association has a written reference by which to judge whether the repair was performed properly as agreed.
This framework for negotiating the method and scope of repair promotes accountability and finality. It can be employed on a larger scale when a condominium association is negotiating repair of multiple defects discovered during a transition deficiency study. Each repair agreed upon by the parties can be specified in writing and become part of an agreement under which the developer agrees to perform specified repairs pursuant to a specific method and at all the specific locations where the defect exists in accordance with applicable construction standards. In some cases, it is appropriate to incorporate these agreed-upon repairs into a larger repair agreement that can also provide for future repair related activities and contingencies, such as resolution of disputes over repairs that arise during the repair work, unforeseen conditions discovered during repairs, provisions for having the association’s consultant inspect and approve the developer’s repair work, reimbursement of construction defect related expenses incurred by the condominium association, including consultant inspection fees, attorney’s fees, and defect evaluation and defect-related repair costs previously incurred by the condominium association.
A Maryland appellate court has held that a condominium association can be sued by its unit owner members for failing to timely investigate and bring a lawsuit against the condominium developer for construction and design defects causing water leaks into the condominium buildings. See, Greenstein v. Council of Unit Owners of Avalon Court Six Condominium, 201 Md. App 186 (2011) (“Greenstein”).
In Greenstein, the condominium association complained about building water leak problems for many years. Ultimately, the association filed a lawsuit against the developer of the condominium when it failed to make effective repairs to stop the leaking. The court dismissed the condominium association’s suit because it was filed after the statute of limitations had expired. The association then assessed the unit owners for the cost of repairing the developer’s construction defects that cause the water leaks. In response to the assessment, some unit owners sued the association for negligence in failing to bring a timely lawsuit. The Maryland Court of Special Appeals held that the unit owners’ lawsuit against the condominium association could go forward because the association had a duty to timely pursue recovery from the developer on behalf of unit owners for damage to the common elements caused by the developer’s negligence, breach of contract, and other applicable law. Greenstein 201 MD App at 205.
It is important to note that the condominium association in Greenstein could have avoided these legal problems and liability had it consulted with an experienced condominium construction defect attorney and been advised of the pending expiration of the statute of limitations and filed a timely lawsuit, or, alternatively, entered into a tolling agreement when it first began negotiating with the developer.
The most important step a transitioning association can take toward successfully identifying and amicably resolving construction defect claims is to seek an early, complementary consultation from an attorney with substantial experience in representing condominiums in construction defect matters. Such a consultation, tailored to the community in question, will provide an association with a road map and a timeline for proceeding each step of the way so that it can protect its warranties and other legal rights before they expire, thereby giving it the opportunity to negotiate proper repairs to be performed by the developer.
Nicholas D Cowie is a partner in the law firm of Cowie & Mott, P.A. and is licensed to practice law in Maryland and Washington DC (District of Columbia). Mr. Cowie has been resolving construction defect disputes on behalf of condominium associations for over 29 years. He has been involved in some of the major litigation that has shaped the condominium construction defect law in Maryland. Mr. Cowie has served as adjunct law school professor of construction law and drafted legislation enacted into law that protects and preserves the rights of condominium associations, homeowners associations, and their members in construction defect disputes by extending time periods for bringing common element condominium warranty claims and preventing condominium developers from shortening statute of limitations on warranty and other legal claims that condominium associations and their members can assert for construction defects. The law firm of Cowie & Mott, P.A. consists of attorneys who are versed and experienced in both construction law and condominium law, and who are known for representing condominiums in construction defect claims, financial disputes, developer collection and allocation of unit owner assessments and fees, and other developer contractual and legal obligations occurring prior to transition.

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