January 28, 2015

Judicial Panel on Multidistrict Litigation Assigns Multiple Putative Class-Action Suits Over Faulty Outdoor Decking to US District Court

On January 7, 2015, the Judicial Panel on Multidistrict Litigation (JPML) ordered that six putative class-action lawsuits stemming from Colorado, Illinois, Indiana, Iowa, North Carolina and Ohio will be venued and centralized in the U.S. District Court for the District of New Jersey. New Jersey was selected to handle this MDL litigation matter because the primary defendant/manufacturer of the outdoor decking material at issue, GAF Materials Corp., is headquartered in Wayne, NJ. The cases are consolidated before U.S. District Court Judge Jose Linares in Newark. The number of nationwide suits subject to the consolidation order is expected to at least double.

The claims at issue involve an outdoor decking product manufactured by GAF. One of the class representatives, Thomas McGovern, installed the subject decking at his vacation house in Mackinac Island, Michigan in 2009. The decking almost immediately began to warp and stain when exposed to the elements. The condition of the material was so bad that it had to be completely replaced two years later. The claims involve violations of applicable consumer protection laws, breach of warranty and unjust enrichment, and relate primarily to the defective product itself rather than improper installation.

GAF is represented by Quinn Emanuel in New York. Insofar as GAF has not filed a motion to dismiss any of the actions, it looks like these MDL cases are headed into full-blown litigation.

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January 15, 2015

New Jersey Court Addresses Affidavit of Merit Statute in Recent Opinion

A New Jersey appellate court recently issued a reported opinion in Hill International v. Atlantic City Board of Education, addressing whether an affidavit of merit issued by an engineer, addressing the conduct of a defendant, architect, was sufficient in order to satisfy the requirements of the affidavit of merit statute.

At issue was whether the conduct of a licensed New Jersey architect, and his licensed architectural firm, was deficient in terms of his failure to properly perform contract administration and design services, provided in connection with construction of a school. The affidavit of merit was issued by a licensed engineer, who was not a licensed architect, although the two professions do have some overlap. The court addressed whether the affidavit of merit statute, which requires an affidavit from an "appropriate licensed person" should allow this type of deviation or be construed to require a supporting affidavit of merit from a "like-licensed" professional in all malpractice or negligence cases falling within the purview of the statute.

The court held that, to support a claim of malpractice or professional negligence, the affidavit must be issued by an affiant who is licensed within the same profession as the defendant. The court did however carve out exceptions where an affidavit from such a like-licensed expert was not required – in circumstances where the plaintiff's claims do not involve the exercise of functions within the scope of the licensed professional’s role, or where the claims are confined to theories of vicarious liability or agency that do not assert or implicate deviations from the defendant’s professional standards of care.

The trial court had allowed the affidavit issued by the licensed engineer to suffice in supporting claims of alleged deviations of professional standards of care by the architect and his firm. The Appellate Division reversed, but granted the plaintiff leave to submit a substitute affidavit of merit from a licensed architect, and, therefore, the claims at issue will likely advance forward toward ultimate disposition on the merits.

In a lengthy opinion, the court reviewed the history of the affidavit of merit statute and considered arguments provided by amicus counsel writing on behalf of The New Jersey Society of Architects and The New Jersey Society of Professional Engineers. The court observed that the statute does not specify in detail, except in medical malpractice cases, the qualifications required of an "appropriate licensed person" eligible to submit an affidavit of merit. The affidavit must, however, state with reasonable probability that the defendant's conduct "fell outside acceptable professional or occupational standards."

Thus, the court clarified the existing statute and provided necessary guidance concerning the appropriate qualifications of an affiant. While the court recognized exceptions to the like-licensed professional standard, it would appear that in most cases where a licensed professional is involved, especially in the context of a licensed architect or engineer performing services on a construction project, an affidavit of merit from a similarly licensed affiant will be required.

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April 14, 2014

Fate and Fortune: Unauthorized Acts of the Board Cannot Be Challenged by Non-Owner Third Parties but Can Be Retroactively Cured by the Membership

In a decision that has renewed the faith of condominium law practitioners in our state’s judicial system, the New Jersey Appellate Division recently issued a strongly worded opinion in Port Liberte II Condo. Ass'n v. New Liberty Residential Urban Renewal Co. et. al., 2014 N.J. Super. LEXIS 19 (App. Div. Jan. 21, 2014) (approved for publication on January 31, 2014), that has prevented a grave injustice and allowed unit owners to control their own fates by having the power to validate unauthorized decisions of the board.

In what has been exclaimed as a “big win” for condominium associations and unit owners, the Appellate Division has determined that a condominium board’s decision to file suit without taking a pre-litigation vote, required by the association’s bylaws, can be affirmed at a later time by the membership and cannot be challenged by the defendants. Designed to protect the financial interests of the unit owners, the bylaws cannot be used by defendant developers and contractors to suppress those very same interests. Non-homeowners, therefore, do not have standing to challenge unauthorized or procedurally defective decisions of the board to start suit.

Faced with widespread construction defects in the common elements of its 225-unit community with a price tag in excess of thirty million dollars for repairs, the Port Liberte II Condominium Association filed suit in 2008 against those responsible, the Developer and the contractors that built the development. Several years into the law suit, the defendants sought dismissal of the entire action because the Association had not obtained a community vote to approve the filing of the suit, as required by a provision of the bylaws drafted by the Developer. To rectify that oversight, the Association held two separate votes to ratify the original filing of the suit, the first in October of 2009, which was approved by the community 72 votes to 3, and a second in October of 2011, which was approved by a vote of 65 to 1. Armed with these two examples of overwhelming support in the community for the lawsuit, the Association opposed the defendants’ motions to dismiss the case arguing that the defendants, as outsiders who owned no units in the community, had no standing to enforce the bylaws, and, even if they had such standing, the original filing of the suit was overwhelmingly ratified by the unit owners.

With an opinion that barely filled a single page and devoid of any legal precedent, the trial court allowed the defendants to use the Association’s bylaws, designed to protect the unit owners, as a weapon against them and dismissed the Association’s entire case, and with it the unit owners’ hopes for fixing their community.

The Appellate Division, however, reversed the court’s flawed decision. Specifically, the Appellate Division found that the “trial court misconstrued the bylaws – and disserved the unit owners’ interests – in holding that the owners could not ratify the Association’s action after the lawsuit was filed.” Additionally, the Court held that the defendants had no standing to enforce the voting provision of the bylaws.

Interpreting the Condominium Act and the spirit and purpose of the community’s bylaws, the Court found that the voting provision of the bylaws was intended to protect the unit owners' financial interests by requiring their approval of possibly expensive litigation. The Court, however, then noted that the unit owners in the Port Liberte II community also had “an equally great - if not greater - financial interest in recovering damages to repair the common areas, because otherwise they will have to pay for the repairs themselves through assessments.” The Court then concluded that it would “not enforce a statute or regulation in a manner that would produce an absurd result, contrary to its purpose. Here, it would be absurd to construe [the bylaws] in a way that would strip the owners of a cause of action designed to recoup payment for construction defects, if they are willing to authorize the litigation after it was filed.”

While provisions of the bylaws may provide a process by which a board obtains authorization to file suit i.e. an affirmative vote of the membership, unauthorized actions of the board may be cured through ratification, such as a subsequent vote, and are not deemed null and void. This means that pre-litigation voting requirements included in the bylaws by the developer cannot preclude an informed board from filing suit when time is of the essence and a community vote is impractical. A later vote of the membership ratifying the decision of the board will suffice; and while not technically a “pre-litigation” vote, it will nevertheless, according to the Appellate Division, comply with the spirit and intent of the bylaws and the Condominium Act.

The Court went a step further and found that the defendants, strangers to the relationship between the unit owners and the Association, lacked standing to enforce the voting provision in the bylaws. To that end, the Court observed that “because defendants' interests were adverse to the unit owners, letting them enforce the unit owners' interests would be akin to letting the proverbial fox protect the interests of the chickens.”

Turning its attention to the cases relied on by the judge in support of his decision to dismiss, the Appellate Court had no trouble distinguishing them as lacking any relevance and legal significance. Ascribing error to the trial court’s decision to dismiss the Association’s entire case on a curable procedural hyper-technicality, the Appellate Division reversed and revived the original complaint to proceed on the merits.

Following the court’s dismissal of the Port Liberte II Condominium Association’s suit, word spread quickly through the defense bar about a new avenue to avoid liability for construction defects. The Appellate Division has now spread a new word – Developers and contractors cannot intrude into the affairs of a condominium association and its unit owner members by forcing strict compliance with un-amendable, onerous pre-litigation voting requirements in the bylaws.

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April 10, 2014

Creative Collection Solutions: The Rewards and Challenges of Rent Receivership

Every day condominium associations battle delinquencies and employ creative strategies for collecting unpaid assessments. Sometimes ambitious collection efforts are successful – sometimes not. One aggressive strategy employed by associations is the appointment of a rent receivership for a vacated or abandoned unit owned by a delinquent owner. If successful, a receivership would entitle the association to collect rent for a unit it technically does not own and apply the monies received towards the owed arrearage. While the concept sounds good in theory, it is actually quite difficult to accomplish in practice given the likely upside down mortgage on the property, the inevitable foreclosure proceedings by the bank, and the fact that abandoned units are not occupied by paying tenants.

All those dissuading factors, however, did not stop one association from trying. Faced with over $30,000 of unpaid maintenance dues for two abandoned units, Woodlake at King’s Grant Condominium Association, made an application to the Chancery Court for an appointment of a rent receiver. The Chancery Judge denied the Association’s request finding that the “extraordinary remedy of appointing a rent receiver” was not appropriate under those facts and circumstances. The Association appealed and the Appellate Division issued an unpublished decision on April 1, 2014 affirming the judge’s denial of the Association’s application. See Woodlake at King's Grant Condo. Ass'n v. Coudriet, 2014 N.J. Super. Unpub. LEXIS 714 (App. Div. Unpub. 2014).

Despite recognizing that the Association was seeking the appointment of a receiver so that it could rent out defendants’ vacant units and recoup some of the assessment monies owed by the defendants, the Appellate Court did not find legal support or plaintiff’s arguments persuasive in favor of forcing the defendants to rent their units or for allowing the Association to rent those units to new tenants. Even though the Association’s assessment liens would remain unpaid after a foreclosure sale because the mortgage liens on the units exceeded their fair market value thereby leaving the Association with no remedy, the Appellate Division found no authority in the bylaws or in the Condominium Act for providing the appointment of a rent receiver.

Even if the Association’s governing documents did include an express provision allowing for the appointment of a receiver in case of assessment dues default and unit abandonment, the right to receivership is not guaranteed and still “subject to equitable considerations in the Chancery Division judge’s exercise of discretion.” This means that a Chancery Judge has the discretion to deny an application for receivership even when there exists an express agreement giving the moving party the right to the receivership.

While hinting that “a condominium association has the right to seek appointment of a rent receiver under appropriate circumstances,” it did not find those circumstances existed in Woodlake’s case. Not only was there no express provision in the bylaws giving the Association the right to a rent receiver, but the Association sought to rent out and collect rents from the units “without giving notice to the mortgage lender and affording the lender the opportunity to be heard.” Since a mortgage lender may be entitled to the appointment of a receiver in a foreclosure action “when it appears necessary for the protection of the mortgagee” and the mortgagee’s security interest, the court was understandably reluctant to grant receivership to the Association without the involvement of the mortgage lender.

The court’s decision finds support in the practical considerations that abound in a receivership situation. First, where no rent-paying tenant exists, one must be found, which means the unit must be cleaned, repaired, and appliances updated as necessary. Would the association be able to recoup any costs incurred in making the unit rentable? Second, if there is a foreclosure action by the bank or the Association, negotiating lease durations becomes an issue. What happens if the foreclosure proceedings come to an end during a lease period? And third, if the bank is involved, what happens if it wants a rent receiver for itself or better yet a portion of the rent received by the association? All these questions and more make the process less than straightforward and the judges hesitant about granting such an “extraordinary remedy.”

Although New Jersey courts have appointed receivers under varying and similar circumstances as those presented in Woodlake, there has been no published opinion on point. The Appellate Division’s decision here, albeit unpublished, is the first written decision to explore the balance of the equities involved in an association’s rent receivership application. While it does not explicitly identify the conditions for a successful application, the Woodlake decision does provide associations and practitioners with some key takeaways for increasing their chances of getting a rent receiver: amend the bylaws to provide for the right of receivership and notify the appropriate mortgage lenders when seeking the appointment of a rent receiver.

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April 8, 2014

Cracking the Paradox: Complying with the Statute of Limitations in Construction Defect Cases

In early April, a Bergen County judge dismissed a construction defect complaint filed by a mammoth 40-story condominium complex known as the Palisades, located along the Hudson River in Fort Lee, based on the statute of limitations. While dismissal for filing suit outside the statute of limitations is nothing new or surprising, the way in which the judge reached that conclusion and applied the “law” is. According to Judge Robert C. Wilson, the six-year statute of limitations begins to run upon “substantial completion,” is not subject to the discovery rule, and is not tolled until the association is created and subsequently controlled by the homeowners. Not only does this decision render the ten-year statute of repose meaningless, it unduly prejudices the rights of condominium associations whose legislatively granted six-year window to file suit can seemingly be judicially dwindled down to two years or one year or less.

Continue reading "Cracking the Paradox: Complying with the Statute of Limitations in Construction Defect Cases" »

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September 30, 2013

Class Recourse for Individual Home Owners Suffering from Construction Defects

Until now, owners of single-family homes were left to their own devices and resources in seeking redress for construction defects. Class suits were thought to be unavailable to homeowners despite their homes having been built by the same builder and suffering from the same general defects. The differences in subcontractors used, methods of construction, location of defects, time built and nature of resulting damages defeated class certification and deterred law firms from bringing class action lawsuits alleging construction defects. The economics of bringing an individual construction defect suit weighed heavily against litigation and, as a result, homeowners ended up either living with the defects or paying for repairs out of pocket.

Fortunately for homeowners, a recent decision from the Appellate Division captioned D’Andrea v. Hovnanian, 2013 N.J. Super. Unpub. LEXIS 1484 (App. Div. June 18, 2013) has changed that landscape. According to the Appellate Division, the four prerequisites for bringing a class action lawsuit – numerosity, commonality, typicality, and adequate representation – were met by a class of plaintiffs who sued developer K. Hovnanian (“Hovnanian”) for fire safety hazards in the HVAC system installed in their homes.

Arguing against class certification, Hovnanian contended that the individualized nature of home construction made such causes of action unsuitable for class certification. Hovnanian pointed out, and Plaintiffs agreed, that there was no single deviation common to each class member’s home. Nevertheless, despite the significant differences among the construction defects, there remained a “strong commonality in the nature of the claimed defect – fire safety hazards in HVAC return systems.” Seeing the forest instead of the trees, the court focused on whether construction of the HVAC cavities met the applicable code rather than on the differences in materials and construction methods used.

According to the court, Plaintiff’s satisfied the commonality requirement because even though the improper construction varied from home to home, the effect of that construction remained the same. The court also found that common questions of fact and law predominated over individual differences between the claims. The significance of the common thread i.e. improper return cavity fireblocking, outweighed the relevance of the individual issues of damages i.e. repairs. As a result, class certification was appropriate.

Recognizing the economic realities deterring individual claimants from pursuing individual lawsuits or arbitrations, the Appellate Division agreed that the class action device was particularly useful in this case. Efficiency and consistency weighed heavily in favor of class certification, as did fairness to the class members and a lack of prejudice to Hovnanian.

This case sets important precedent for individual homeowners, especially those living within planned developments built by the same developer. Members of homeowners’ associations now have a potentially viable option of pursuing litigation as a class to recover for construction defects. Whereas expert fees and litigation costs are nearly insurmountable for individual homeowners, the class structure allows members to share those costs while still seeking full recovery of their damages. While the D’Andrea decision has opened the door for construction defect cases to be brought as class actions, time will tell exactly how large that opening is. For the time being, however, it appears that homeowners, whose homes suffer from a common defect having the same adverse effect, are suitable candidates for class membership in a class action lawsuit.

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August 8, 2013

Condominium Association Gets Big Win Against Developer for Consumer Fraud

In late 1998 Monroe Station Associates started construction on the Belmont, a seven-story, thirty-four unit condominium building in Hoboken, New Jersey. Monroe Station served as the sponsor, developer, and general contractor of the Belmont. Prior to completing construction, Monroe Station filed a Public Offering Statement (“POS”), which stated that there were no known defects in the common elements of the Belmont building that a prospective purchaser could not determine by a reasonable inspection. Attached to the POS were certain marketing materials, which provided that the potential buyers would be getting a “Proven Developer and Construction Management Team which has overseen the building and renovation of over 400 Single Family & Condominium Homes, and over 1,000,000 Sq. Ft. of Office/Commercial/Retail Development.”

Continue reading "Condominium Association Gets Big Win Against Developer for Consumer Fraud" »

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August 1, 2013

A Breakthrough in the Law Gives Similarly Situated Individual Home Owners Suffering from Construction Defects Class Recourse

Until now, owners of single-family homes were left to their own devices and resources in seeking redress for construction defects. Class suits were thought to be unavailable to homeowners despite their homes having been built by the same builder and suffering from the same general defects. The differences in subcontractors used, methods of construction, location of defects, time built and nature of resulting damages defeated class certification and deterred law firms from bringing class action lawsuits alleging construction defects. The economics of bringing an individual construction defect suit weighed heavily against litigation and, as a result, homeowners ended up either living with the defects or paying for repairs out of pocket.

Continue reading "A Breakthrough in the Law Gives Similarly Situated Individual Home Owners Suffering from Construction Defects Class Recourse" »

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June 13, 2013

Are Condominium Unit Owners Unconditionally Obligated to Pay Common Expense Assessments?

The short answer is – Yes! The Condominium Act specifically obligates all unit owners to pay a proportionate share of the common expenses. Even where a unit owner waives the right to use a common element or abandons the unit there is no exemption from liability for common expenses. The Condominium Act, N.J.S.A. 46:8B-1 to -38, provides in pertinent part:

A unit owner, shall by acceptance of title, be conclusively presumed to have agreed to pay his proportionate share of common expenses accruing while he is the owner of a unit. . . . No unit owner may exempt himself from liability for his share of common expenses by waiver of the enjoyment of the right to use any of the common elements or abandonment of his unit or otherwise . . .
[N.J.S.A. 46:8B-17.]

The “or otherwise” language implies that the obligation of unit owners to pay the proportionate share of the common expense is absolute and does not yield to other considerations, such as disputes with the Association. See Holbert v. Great Gorge Vill. S. Condo. Council, 281 N.J. Super. 222 (Ch. Div. 1994) (plaintiff owner was obligated to pay for previously unpaid common expenses, plus interest, despite having brought suit against defendant condominium association for alleged mismanagement of condominium affairs).

Among the powers assigned by law to a condominium association is the authority to assess and collect funds for the payment of common expenses. N.J.S.A. 46:8B-14. The New Jersey Legislature has defined "common expenses" as follows:

[E]xpenses for which the unit owners are proportionately liable, including but not limited to:
(i) all expenses of administration, maintenance, repair and replacement of the common elements;
(ii) expenses agreed upon as common by all unit owners; and
(iii) expenses declared common by provisions of this act or by the master deed or by the by-laws.
[N.J.S.A. 46:8B-3(e).]

“A unit owner's obligation to pay common expenses is unconditional.” Holbert, supra, 281 N.J. Super. at 226 (emphasis added). Failure to pay assessed common expenses automatically gives rise to a lien against the owner's unit in favor of the association. N.J.S.A. 46:8B-17. The lien may be foreclosed following its recordation in the office of the Clerk of the county in which the unit is situated. N.J.S.A. 46:8B-21. The amount of the lien against the unit may lawfully include the unpaid common expenses, interest on the common expenses calculated at the legal rate and, if authorized by the master deed or the by-laws, reasonable attorneys fees. N.J.S.A. 46:8B-17 and -21.

While unit owners have an absolute legal obligation to pay common expense assessments, the same may not be true of other assessments, such as limited common element assessments, emergency assessments, special assessments, capital improvement assessments, etc. The validity of those assessments may be successfully challenged should the internal procedures proscribed by the applicable governing documents not be followed and fully documented by the Board of Directors. It is therefore imperative that a condominium Board be familiar with the oft-overlooked procedural particulars outlined in the master deed and/or by-laws for enacting and levying certain types of assessments.

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November 12, 2012

Recovering Damages Under the Statute of Repose

Under the statute of repose, no action to recover damages for any deficiency in the design, planning, surveying, supervision or construction of an improvement to real property may be brought more than ten (10) years after the performance of “such services and construction.” N.J.S.A. § 2A:14-1.1. Essentially, the statute of repose provides that an injury occurring more than ten years after completion of improvements to real property does not give rise to a cause of action at all.

The New Jersey Supreme Court has held that the ten-year statute of repose for bringing an action against a contractor or an architect begins to run as of “substantial completion” of the real property. Russo Farms v. Vineland Bd. of Educ., 144 N.J. 84, 117 (1996). The Court defined “substantial completion” as the date when construction is sufficiently complete so that an owner can occupy or utilize the building. Therefore, generally when the architect certifies as much to the owner and a Certificate of Occupancy is issued attesting to the building’s fitness for occupancy, the real property is substantially complete and the statute of repose begins to run.

One important concept has evolved from recent developments of case law interpreting the statute of repose: the start date for the ten-year time limit of the statute of repose is not the same for all contractors and design professionals on a particular project; the start date differs depending on a party’s continued involvement with a construction project. See State v. Perini Corp., 425 N.J. Super. 62 (App. Div. 2012). The Perini Court engaged in a lengthy discourse of the relevant case law interpreting New Jersey’s statute of repose from which it derived three guiding principles: First, the trigger date is the date of substantial completion, not completion of every last task of the contractor; Second, separate trigger dates apply to subcontractors that have substantially completed their work, even if the improvement as a whole is not completed and ready for use and a certificate of occupancy has not been issued; Third, the trigger date for any single contractor runs from completion of that contractor’s entire work on the “improvement,” not from discrete tasks. [425 N.J. Super. at 74-75 (internal quotations omitted).] This means that certain contractors, who performed services on a job site early on, can benefit from a repose period that commences earlier than the date of substantial completion.

Thus, while the statute of repose commences as to the developer, general contractor and architect upon substantial completion, the analysis is not the same for each individual contractor who will claim the benefit of the repose period ten years after the date the contractor walked away from the project having rendered all of his services and discharged all of his responsibilities

Finally, it is important to note that the strict limitations of the statute of repose only apply to those claims “arising out of the defective and unsafe condition of an improvement to real property.” N.J.S.A. § 2A:14-1.1. The statute as plainly worded applies to parties whose professional work is functionally related to and integrated with a building plan or design, and which gives rise or contributes to a defective and unsafe condition.

The New Jersey Supreme Court has pointed out that the statute of repose does not provide that all claims against planners, and designers, including surveyors, vanish after the passage of ten years from the performance of services. Rather, the statute of repose includes as a significant limiting qualification the requirement that a condition be both defective and unsafe. This means that in determining which actions fall within the statute, a court must first determine, as a threshold issue, whether the claimed condition is one that can be classified as "defective and unsafe."

An unsafe condition exists when the work created a situation hazardous to the well-being and safety of persons or property coming into contact with the improvement or structure. See, e.g., Newark Beth Israel Medical Center v. Gruzen and Partners, 124 N.J. 357 (1991) (prospect that building an addition to a hospital as designed would render the completed building dangerously susceptible to wind created an unsafe and hazardous condition even though the design flaw did not pose a threat to the building as then presently constructed) Rosenberg v. Town of N. Bergen, 61 N.J. 190, 197-98 (1972) (holding that a negligently paved road created an unsafe condition); Cnty. of Hudson v. Terminal Constr. Corp., 154 N.J. Super. 264, 267 (App. Div. 1977) (holding that negligently installed ceramic tiles that began to crumble and fall created a hazardous condition), certif. denied, 75 N.J. 605 (1978); Salesian Soc'y v. Formigli Corp., 120 N.J. Super. 493, 496 (Law Div.1972) (holding that the leakage of water that damaged the building's support structure created an unsafe condition), aff'd o.b., 124 N.J. Super. 270 (App. Div. 1973); cf. E.A. Williams, supra, 82 N.J. at 170-71 (surveying error, resulting in improper spacing between buildings, did not rise to the level of a dangerous and unsafe condition); N.C. State Ports Auth. v. L. A. Fry Roofing Co., 294 N.C. 73, 86 (1978) (action against contractor for damages from leaky roof was not subject to statute of repose because no unsafe condition was found).

Accordingly, in order for the statute of repose to even apply, defendants will have to show that their work created an unsafe or hazardous condition.

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November 5, 2012

How Does Equitable Tolling Affect the Running of the Statute of Limitations?

The doctrine of equitable estoppel prevents a defendant from asserting the statute of limitations as a defense when the defendant has engaged in conduct that was calculated to mislead the plaintiff into believing that it was unnecessary to file suit. Thus, our courts have recognized that equitable estoppel may be appropriate where a defendant has lulled plaintiff into a false sense of security by representing that a claim will be amicably settled or resolved without the necessity for litigation. Such is the case when an association is engaged in settlement discussions with a developer and the developer promises to repair all identified defects and water intrusion issues in the community.

The important caveat regarding equitable tolling is that if, after the cessation of any basis for continued reliance by a plaintiff on the conduct of a defendant, there remains a reasonable time under the applicable limitations period to commence a cause of action, the action will be barred if not filed within this remaining time. Thus, while the discovery rule defers the accrual of a cause of action and provides a full six (6) years after discovery of injury and fault to file suit, equitable tolling delays the bar of the statute of limitations once a cause of action has accrued and may provide less than the full six years to file a claim if plaintiff has “a reasonable time” after the basis for equitable tolling has ceased to file under the original limitations period. What constitutes “reasonable” is not well delineated and will likely turn on the specific facts of each case.

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October 29, 2012

How Transition Affects the Statute of Limitations Analysis

The novel nature of condominium ownership, specifically the transition process, affects the statute of limitations analysis. The Planned Real Estate Development Full Disclosure Act requires that the developer of a condominium staff the board of trustees of an association and control the affairs of the association until seventy-five percent of the units in the development are sold. During that period of control, the developer is under a fiduciary responsibility to the association to act in the best interest of the association and its membership. Pragmatically speaking, however, a developer-controlled association is much different than a homeowner controlled association. Even if certain problems with construction are discovered during developer-control, it cannot be realistically expected that the developer-controlled board would take steps to investigate those defects and litigate, on behalf of the association, if necessary. Therefore, equity and common sense suggest that the earliest the statute of limitations clock could begin to run against an association for construction defect claims is the date of transition, at which time the unit owners take control of the board of trustees for the first time.

To this end, our courts recognize the inherent unfairness in allowing statutes of limitations to run against an association while the developer controls its board. The reason is clear – individual unit owners lack standing to assert claims for faulty construction affecting the common elements prior to transition. Thus, equity cannot support the running of limitation periods against an association that legally cannot assert its rights during the period of developer control.

In New Jersey, the Law Division decision in Terrace Condominium Ass'n v. Midlantic Nat. Bank, 268 N.J. Super. 488 (Law Div. 1993), clearly stands for the proposition that statutes should be tolled when the unit owners of a condominium are not in control of the Board. In Terrace, a condominium association brought an action against a bank that took over construction of the building. At the time the bank took over, some of the units had been sold, but construction was still continuing. Construction was later completed under the bank’s watch, and almost immediately its residents experienced numerous problems with water infiltration into their units. Midlantic, the bank/owner in question, engaged an engineer to document the problems and provide a solution. Most of these repairs were “short-lived or improper repairs to the most significant of the [] problems and generally had the effect of concealing the true causes of the problems.”

Transition occurred and the Association filed suit against Midlantic. Midlantic raised a statute of limitations defense as to several of the building warranty claims. The court found that because the bank had effectuated repairs, the statute of limitations did not run against the unit owners because they relied upon the bank to effectuate the proper repairs while in control of the Association. Additionally, the court found that, notwithstanding the repairs undertaken by Midlantic, the “unit owners had no control of the Association, and should not be bound by the period of time thereto.” This is true “even if each unit owner could have sued the Bank while the Bank was in control of the Association” and that “it may well be that ordinarily the right to make such claims should be tolled or deferred until the unit owners control the association.”

There is also an unpublished decision by the Appellate Division that directly addresses a condominium Association’s ability to control its own destiny. The Appellate Division decision captioned Skyline Condominium Assoc. v. Falkin, No. A-3913-98, A-3860-98, A-3792-98 (App. Div. September 10, 2001), is right on point. In the Skyline opinion, the Appellate Division was faced with the issue of “determining the first date that a plaintiff obtained the enforceable right to institute and maintain an action regarding the controversy” for the purposes of the entire controversy doctrine.

Recognizing the difficulty in running the statute of limitations clock while the individual unit owners are not in control of their association’s board, the Skyline Court concluded that the statute of limitations on an action for construction defects by a condominium association against a sponsor should be tolled until the unit owners control the association.

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