CONDOMINIUM ASSOCIATION RIGHTS REGARDING CONSTRUCTION DEFECTS & THE STATUTE OF LIMITATIONS FOR STATUTORY IMPLIED WARRANTIES

imagesContractors, subcontractors, suppliers, developers, and design professionals that are involved in the design and construction of condominiums need to appreciate three items relating to the construction of condominiums and the rights of condominium associations:

 

(1) The condominium association, upon turnover from the developer to the unit owners, may sue for matters affecting the common elements or matters of common interest concerning most or all of the unit owners (Fla. Stat. s. 718.111)

 

(2) The condominium association’s statute of limitations to assert construction defect claims does not begin to accrue until the developer has turned over control of the association to the unit owners (Fla. Stat. s. 718.124); and

 

(3) The developer, the contractor, subcontractors, and suppliers owe certain statutory implied warranties to the unit owners that can be asserted by the association as a class representative (Fla. Stat. s. 718.203). For instance, under Fla. Stat. 718.203(2): “The contractor, and all subcontractors and suppliers, grant to the developer and to the purchaser of each unit implied warranties of fitness as to the work performed or materials supplied by them as follows: (a) For a period of 3 years from the date of completion of construction of a building or improvement, a warranty as to the roof and structural components of the building or improvement and mechanical and plumbing elements serving a building or an improvement, except mechanical elements serving only one unit.”

 

A.  THE STATUTE OF LIMITATIONS FOR STATUTORY IMPLIED WARRANTY CLAIMS

 

A topic that comes up is the statute of limitations for an association to assert a statutory implied warranty claim since the statutory implied warranties kick in from the completion of the building (i.e., the Certificate of Occupancy) and are of a shorter time period than the four year statute of limitations period from the time the defect was discovered (or should have been discovered with the exercise of due diligence).

 

This issue was addressed by the Florida Supreme Court in Charley Tropino & Sons, Inc. v. Seawatch at Marathon Condominium, Ass’n, Inc., 658 So.2d 922 (Fla.1994). In this case, three condominium buildings were constructed and the last building received its Certificate of Occupancy in April 1983. The association was turned over from the developer to the unit owners more than two years later in August 1985. The association then asserted a construction defect lawsuit that included claims for breach of statutory warranties against the general contractor, developer, etc., (over defective concrete and metal decking) in May 1988: more than five years from the Certificate of Occupancy of the last building and almost two years from when the association was turned over to the unit owners.

 

The Florida Supreme Court was asked to determine whether the turnover of the association from the developer to the unit owners extended the time for unit owners to assert a breach of statutory implied warranty claim.  (Based on the facts of the case, the question was whether the association in 1988 could assert breach of statutory warranty claims against the developer, general contractor, etc., when the Certificate of Occupancy was issued more than five years earlier for the last building and unit owners obtained control of the association approximately two years earlier.) The Court answered this question “Yes,” maintaining:

 

“[A] condominium association has a statutory right to file suit on behalf of its unit owners for breach of implied warranty of fitness and merchantability for construction defects affecting the common interest. Such a suit must be filed within the general time limits set out in chapter 95, but the commencing of this limitations period shall be tolled until control of the association passes from the developer to the unit owners.”
Charley Tropino, 658 So.2d 925.

 

This means that the statutory implied warranty period is not a statute of limitations. Rather, it is simply the time period in which the life of the warranty applies to cover defects that occur within that time period. However, these claims are then tolled until the association is turned over to the unit owners at which time the association has four years to assert its breach of statutory warranty claims. See Saltponds Condominium Ass’n v. Walbridge Aldinger Co., 979 So.2d 1240 (Fla.3d DCA 2008) (a condominium association was turned over in August 2002 and had until August 2006 to preserve its rights to sue for breach of statutory implied warranty claims).

 

Let’s apply this law to hypotheticals because it is confusing:

 

Hypothetical 1: A Certificate of Occupancy was issued for a condominium tower in March 2005. The condominium association was turned over to the unit owners on April 2008. Due to construction defects, the association filed a lawsuit against the general contractor for structural defects in February 2012 that included breach of statutory warranty claims.

 

Under s. 718.203, as referenced above, the contractor owes to the association an implied warranty for structural components from three years from the completion of the building (defined as the Certificate of Occupancy date). This means that a breach of this implied warranty should have taken place between March 2005 (Certificate of Occupancy date) and March 2008 (three years from that date). But, and this is an important but, the condominium association does not need to file suit on this breach of the implied warranty until April 2012 (four years from the April 2008 date the condominium association was turned over to the unit owners since the statute of limitations is tolled until an association is turned over to the unit owners).

 

Hypothetical 2: An interesting twist to the above hypothetical is if the association did not file its lawsuit until March 2014-nine years from the Certificate of Occupancy date and six years from the turnover date. Under these dates, the association will have to assert that it did not discover the defects until on or after March 2010 in order to fall within the four year statute of limitations. However, by doing this, the condominium association really should NOT have a breach of statutory warranty claim against the general contractor because the life of the warranty would have expired before the breach of that duty was actually discovered.

 

Hypothetical 3: Now, let’s assume the association did not file suit until March 2016 or eleven years from the Certificate of Occupancy date and argues that it did not discover the defects until March 2014. Under this context, the association should not have any claims since the turnover of the association to unit owners has no bearing and does not toll the ten year statute of repose period to file suit (i.e., the last date a lawsuit must be filed-not matter what). See Sabal Chase Homeowners Ass’n, Inc. v. Walt Disney World Co., 726 So.2d 796 (Fla. 3d DCA 1999) (finding that turnover of condominium association to unit owners did not extend the statute of repose).

 

B.  TIDBITS FOR CONTRACTORS CONSTRUCTING CONDOMINIUMS

 

General contractors constructing condominiums need to operate under the presumption that there is a strong likelihood that the association will assert construction defect related claims including breach of statutory warranty claims. Many condominium associations retain engineers at turnover or shortly thereafter to perform a comprehensive analysis of the plans, as-built plans, submittals, and condition of the condominium to determine if there are any design / construction defects. Associations will want to do this to ensure they preserve warranty-related items / claims and provide parties notice of those items sooner than later. Contractors, knowing claims are forthcoming, need to be proactive:

 

  • They will want to hire subcontractors that do not have residential or condominium exclusions in their policies, or an exclusion in a liability policy that excludes coverage for condominium projects.
  • They will want to ensure that they maintain the appropriate liability coverage with completed operations coverage and are identified as an additional insured under subcontractor policies.
  • They may want to account for the presumed claim in their price knowing that certain overhead may be devoted to addressing claims long after completion.
  • I have also seen escrow provisions included in the developer-contractor contract where an escrow account is to be funded and maintained during the statute of repose period to offset claims. I have never been a big fan of this since (i) parties prefer to have the money instead of having that money fund an account for ten years, (ii) it could, perhaps, serve as motivation that there is money to fund claims that are not otherwise insurable claims, and (iii) it could lead to disputes down the road as to the allocation of that money in the event a dispute is initiated and fingers are pointed as to the cause of the defect.
  • If the contractor and the developer are in a dispute over certain defects and a settlement is reached, the settlement should reflect that the developer is entering into this agreement on behalf of the association (assuming it is still in control of the association) and accepts money, etc., for the specific items in consideration for a full and final release for the defects. This way, at a minimum, the contractor could create an argument in the event the association later files suit against the contractor for the same exact defects that the defects were already resolved and accepted by the developer on behalf of the association.

 

For more on condominium statutory warranties, please see http://www.floridaconstructionlegalupdates.com/florida-condominium-acts-statutory-warranties-difference-between-manufacturer-and-supplier/

 

http://www.floridaconstructionlegalupdates.com/statutory-implied-warranties-for-condominium-associations/

 

For more on the statute of limitations and statute of repose, please see: http://www.floridaconstructionlegalupdates.com/watering-down-the-10-year-statute-of-repose-period-for-construction-disputes/

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

FLORIDA CONDOMINIUM ACT STATUTORY WARRANTIES — DIFFERENCE BETWEEN MANUFACTURER AND SUPPLIER

can-stock-photo_csp9881764A benefit to condominium unit owners and their associations is that Florida’s Condominium Act provides for statutory warranties that are extended from developers, the contractor, subcontractors, and suppliers. Fla. Stat. s. 718.203. These statutory warranties allow for direct breach of statutory warranty claims against the responsible party. The statutory warranties included in Florida’s Condominium Act are set forth at the bottom.

 

In The Port Marina Condominium Association, Inc. v. Roof Services, Inc., 38 Fla. L. Weekly D1876a (Fla. 4th DCA 2013), the Court discussed a breach of statutory warranty claim against a manufacturer compared to a supplier of building materials to a project. Florida’s Condominium Act does not provide a statutory warranty that extends to manufacturers. In this case, the developer hired a roofer to install a roof on boat storage building with a manufacturer guarantee from GAF (manufacturer) for the roofing product called TOPCOAT. After the condominium was turned over to the Association, leaks in the roof of the boat storage building were discovered. The Association was told that the leaks were due to the failure of the TOPCOAT product. A GAF manufacturer’s representative inspected the roof and advised that the product did not fail, rather it was the application of the product by the roofer that failed (which would not be covered by the manufacturer’s warranty, which typically does not cover workmanship).

 

The Association filed a complaint against the manufacturer (and others) for breach of the statutory warranties. The manufacturer moved to dismiss because Florida’s Condominium Act does not allow for a breach of a statutory warranty claim against a manufacturer. As it relates to a claim against a supplier, the Court explained:

 

The essential elements of a cause of action under this statutory provision against a supplier are: (1) the defendant is a supplier of materials to a condominium; (2) the materials failed to conform to the generally accepted standards of merchantability applicable to goods of that kind, or the materials failed to conform to the requirements specified in the contract; and (3) the failure of the goods to conform was a proximate cause of the plaintiff’s damages. See Leisure Resorts, 654 So.2d at 914. “Supplier” and “manufacturer” are not defined in Chapter 718, Florida Statutes. Black’s Law Dictionary defines “supplier” as “a person engaged, directly or indirectly, in the business of making a product available to consumers,” and “manufacturer” as “a person or entity engaged in producing or assembling new products.” Black’s Law Dictionary (9th ed. 2009).

 

The Port Marina Condominium, supra.

 

Whether the Association could properly assert a claim against GAF (manufacturer of TOPCOAT) is based on whether GAF was a supplier or manufacturer for purposes of the condominium project. The Court noted that the distinction would be whether GAF furnished, sold, or delivered anything to the entities involved in construction, i.e., “‘was in the business of making the product available to consumers,’” as opposed to merely “‘producing or assembling’” the product that Best Roofing, a roofing contractor [that applied the product], not a consumer, then purchased and used for the roofing project.” The Port Marina, supra.

 

The distinction between a supplier and manufacturer is not always clear as a manufacturer can be a supplier with respect to a given product. Typically, one would think of GAF as a roofing manufacturer where its materials are likely sold through distributors or retailers (e.g., supply companies). Where the supply company could certainly be a supplier if it sold products directly for purposes of the project, the manufacturer should not constitute a supplier.

 

In this case the Court allowed the Association to amend its Complaint to clarify that GAF was a supplier and not a manufacturer in order to survive a motion to dismiss. It is uncertain whether the Association pursued a claim against the manufacturer for breach of an express warranty. In particular, if the Association has an argument that the manufacturer breached the express warranty for TOPCOAT that was assigned or extended to it (oftentimes these manufacturer warranties state they are assignable or extended to the end user), then perhaps a breach of express warranty claim could have been asserted against it. While there could have been hurdles with this claim because privity of contract is generally required to assert a breach of express or implied warranty claim, this privity of contract requirement could have been negated if there was an assignable warranty.

 

Understanding the statutory warranties is important for Associations and condominium unit owners because it is a benefit that should be realized. Equally important is the manner in which allegations are pled in a complaint in order to survive any motions to dismiss and get the potentially responsible parties to the table.

 

Fla. Stat. s. 718.203

(1) The developer shall be deemed to have granted to the purchaser of each unit an implied warranty of fitness and merchantability for the purposes or uses intended as follows:

(a) As to each unit, a warranty for 3 years commencing with the completion of the building containing the unit.

(b) As to the personal property that is transferred with, or appurtenant to, each unit, a warranty which is for the same period as that provided by the manufacturer of the personal property, commencing with the date of closing of the purchase or the date of possession of the unit, whichever is earlier.

(c) As to all other improvements for the use of unit owners, a 3-year warranty commencing with the date of completion of the improvements.

(d) As to all other personal property for the use of unit owners, a warranty which shall be the same as that provided by the manufacturer of the personal property.

(e) As to the roof and structural components of a building or other improvements and as to mechanical, electrical, and plumbing elements serving improvements or a building, except mechanical elements serving only one unit, a warranty for a period beginning with the completion of construction of each building or improvement and continuing for 3 years thereafter or 1 year after owners other than the developer obtain control of the association, whichever occurs last, but in no event more than 5 years.

(f) As to all other property which is conveyed with a unit, a warranty to the initial purchaser of each unit for a period of 1 year from the date of closing of the purchase or the date of possession, whichever occurs first.

(2) The contractor, and all subcontractors and suppliers, grant to the developer and to the purchaser of each unit implied warranties of fitness as to the work performed or materials supplied by them as follows:

(a) For a period of 3 years from the date of completion of construction of a building or improvement, a warranty as to the roof and structural components of the building or improvement and mechanical and plumbing elements serving a building or an improvement, except mechanical elements serving only one unit.

(b) For a period of 1 year after completion of all construction, a warranty as to all other improvements and materials.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

HOMEOWNERS ASSOCIATIONS AND COMMON LAW IMPLIED WARRANTIES

untitledThe Florida Supreme Court’s decision in Maronda Homes, Inc. of Florida v. Lakeview Reserve Homeowner’s Association, Inc., 38 Fla. L. Weekly S573a (Fla. 2013) has been a long awaited decision for both homeowners associations and home builders.

 

This case started when a homeowners association sued the home builder of the residential subdivision for common law breach of implied warranties of fitness and merchantability (also known as the warranty of habitability in the residential context) due to construction defects. The association asserted that infrastructure, particularly as it pertained to the storm water drainage system, was defective and was causing substantial flooding and other damage (e.g., severe soil erosion, damage to roadways, etc.).

 

The trial court entered summary judgment for the home builder finding that common law implied warranties do not extend to infrastructure, private roadways, drainage systems, retention ponds, or other common locations in a subdivision because these structures (or construction improvements) do not immediately support the homes.

 

On appeal, the Fifth District reversed the trial court holding that the common law implied warranties are applicable to the facts of the case. The Fifth District maintained that the common law implied warranties “have application to improvements to real property that not only support residences in a structural sense, but also apply to improvements which provide ‘essential services’ for the habitability of homes.” Maronda Homes, supra. Essential services for the habitability of homes include “roads for ingress and egress, drainage systems to divert flooding, retention ponds to correct water flow damage, and underground pipes (whether they be storm water or sanitary sewer pipes) which are necessary for living accommodations.” Id. In other words, the Fifth District held that the common law implied warranties apply to structures / construction improvements in a subdivision that immediately support the homes in the form of essential services. Id.

 

After the Fifth District’s holding, the Florida Legislature enacted Florida Statute s. 553.835 which it intended to apply retroactively (meaning the homeowners association would have no claims against the home builder in Maronda). This statute was enacted as a reaction to the Fifth District’s ruling to apply common law implied warranties to improvements that support the homes in a subdivision. This statute provided:

 

There is no cause of action in law or equity to a purchaser of a home or to a homeowners association based upon the doctrine or theory of implied warranty of fitness and merchantability or habitability for damages to offsite improvements.”

 

Offsite improvements were defined in the statute as follows:

 

“(a) The street, road, driveway, sidewalk, drainage, utilities, or any other improvement or structure that is not located on or under the lot on which a new home is constructed, excluding such improvements that are shared by and part of the overall structure of two or more separately owned homes that are adjoined or attached whereby such improvements affect the fitness and merchantability or habitability of one or more of the adjoining structures; and

(b) The street, road, driveway, sidewalk, drainage, utilities, or any other improvement or structure that is located on or under the lot but that does not immediately and directly support the fitness and merchantability of the home itself.”

 

Based on this new statute, the Florida Supreme Court needed to determine (a) whether the statute applied retroactively and (b) if it did not apply retroactively, do the common law implied warranties apply to structures / construction improvements in a subdivision that immediately support the homes in the form of essential services.

 

The Florida Supreme Court, agreeing with the homeowners association, held that (a) the statute did not apply retroactively, and (b) the Fifth District’s ruling was correct with their “essential services” test or standard to “determine whether a defect in an improvement beyond the actual confines of a home impacts the habitability and residential use of the home.” Maronda Homes, supra.

 

However, what the Florida Supreme Court importantly touched upon was the enforceability or constitutionality of Florida Statute s. 553.835 moving forward. Under this new statute, if the homeowners in Maronda sued today, its common law implied warranty claims would be barred by virtue of this statute (since its claims were asserted after the enactment of the statute).

 

An important portion of the Florida Supreme Court’s opinion provides:

 

“Article I, section 21 of the Florida Constitution declares the right to access the courts, stating that ‘The courts shall be open to every person for redress of any injury, and justice shall be administered without sale, denial or delay. In Kluger v. White, 281 So.2d 1, 3-4 (Fla. 1973), this Court interpreted the meaning of the phrase ‘redress of any injury.’ It held that where a cause of action exists under the statutory or common law of Florida, the Florida Legislature may not abolish that action unless it provides a reasonable alternative for redress of injuries, or demonstrates an overpowering public necessity for its abrogation and no other means by which to meet that necessity.”

 

Here, Lakeview Reserve [association] contends that section 553.835 violates article 1, section 21, because it abolishes the cause of action for breach of the implied warranties and fails to provide a reasonable alternative or demonstrate an overpowering public necessity for that abrogation. Maronda Homes…allege that although section 553.835 curtails the cause of action for breach of the implied warranties, it preserves other viable remedies that may exist in tort, contract, or by statute, such as negligence, misrepresentation, and rescission.

 

Section 553.835 violates the right of access to courts because it attempts to abolish the common law cause of action for breach of the implied warranties for certain injuries to property. In section 553.835(4), the Legislature establishes its intent to abolish some implied warranties by expressly limiting a cause of action for their breach by eliminating “offsite improvements for that action’s scope, even if such improvements impact the on-site habitability of the home….The statute even provides that the purpose of the law is to place limitations on the applicability of the doctrine or theory of implied warranty of fitness and merchantability, and to reject the decision by the Fifth District Court of Appeal in the Maronda case. This is a clear violation of separation of powers because the Legislature does not sit as a supervising appellate court over our district courts of appeal.”

 

Based on this portion of the decision, a homeowners association that has potential claims for “offsite improvements” after the enactment of s. 553.835 may still have these common law implied warranty claims based on an argument that the statute violates constitutional rights. If the statute is determined to violate constitutional rights by trying to abrogate common law implied warranties, the association will still have to satisfy the “essential services” standard set forth by the Fifth District and approved by the Florida Supreme Court in Maronda.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.