Contractors, 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/
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 firstname.lastname@example.org or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.