Earlier this year, the New Jersey Appellate Division reversed a Bergen County trial court decision, which had dismissed a construction defect case filed by a condominium association more than six years after the condominium complex was substantially completed, but less than six years after the association received the transition engineering report identifying construction defects. Finding the Association had six years from the date of substantial completion during which to file suit, the trial court rejected the Association’s contention that the running of the limitations period was effectively tolled until after the unit owners took majority control of the Board and received a comprehensive transition engineering study identifying various construction defects. See Palisades at Fort Lee Condo. Ass’n v. 100 Old Palisade, LLC, 2016 N.J. Super. Unpub. LEXIS 193 (App. Div. Feb. 1, 2016).

In reversing the trial court, the Appellate Division recognized the application of the discovery rule in the context of condominium defects, holding that for statute of limitations purposes, the Association’s claims accrued, triggering the running of the six-year limitations period, when it received the transition report. That was the first time the unit-owner-controlled Board was “reasonably aware that it had actionable claims regarding the full range of construction defects.” The Appellate Court categorically rejected defendants’ arguments that the Association should still be time barred because at the time the transition engineering study was produced, the Association still had a reasonable time left to assert claims within six years of the date of substantial completion of the work. Appreciating the legislature’s intent to give injured plaintiffs six years to file suit, the Appellate Panel found that the statute of limitations, by its plain terms, affords a plaintiff the full limitations period to file suit after accrual of the cause of action. See N.J.S.A. 2A:14-1.

In the case of the Palisades, the Association’s cause of action accrued on June 13, 2007, the date it received the transition engineering report prepared by Falcon Engineering. As such, the Association had until June 13, 2013 to file suit for construction deficiencies in the common elements. The Association’s complaint filed in May 2009 was therefore timely, not barred by the statute of limitations, and consequently improperly dismissed by the trial court.

While it remains to be seen whether the Supreme Court will grant certification and evaluate the Appellate Court’s decision, the current state of the law is as it should be—the statute of limitations does not begin to run on an Association’s construction defect claims until the unit owners have full control of the Association’s governing Board and have sufficient facts upon which to assert claims for construction defects.

The requisite “facts” are almost always contained within a transition report prepared by engineers, who are hired by the Board, after the developer sells 75% of the units and the unit owners take majority control of the Board. For prior to then, the developer controls the Board and has no incentive to perform the engineering work and discover construction defects, the disclosure of which will undoubtedly be bad for business and have an adverse impact on sales.

You hire an architect to prepare plans for the construction of a new home and a developer to execute those plans and physically construct the home. The plans require the testing of the underlying soil to confirm that the bearing capacity of the soil is adequate to support the weight of the structure. The builder, despite being contractually obligated to build the home in accordance with the plans and specifications, does not test the soil.

As a result, after the structure is erected, you notice substantial cracking and differential settlement throughout the house. The builder assures you this is just “a normal part of the settling process.” You later find out that a substantial portion of the house was constructed on soil with a bearing capacity that is considerably less than what is required, and the house is slowly sliding down a hill and uninhabitable. You bring suit against the developer for breach of contract. Can you also claim a violation of the Consumer Fraud Act and seek triple damages and attorneys’ fees?

Continue Reading Triggering the Protections of the Consumer Fraud Act with Breach of Contract

When finding and hiring contractors to perform construction work, property owners rely on information provided by the contractor, especially relating to the experience, skill and specialized knowledge they possess to perform the requested job. But, what happens when the contractor does not have the adequate experience and knowledge to perform the work properly? According to the New Jersey Supreme Court Appellate Division, such a contractor may be liable to the owner for consumer fraud, which provides for triple damages as well as recovery of attorneys’ fees and costs of suit.

Wanting an outdoor tennis court, the Hudson Harbour Condominium Association hired Oval Tennis, Inc. to install an open-celled Premier Court (specific brand of tennis court) on an existing concrete slab. Oval, an “experienced” tennis court installer, represented to the Association that it was a certified Premier Court installer, was familiar with the requirements of the job, possessed sufficient experience to properly install the court and employed trained technicians to perform the work. Despite the contract calling for an open-cell court and Oval’s representations, Oval installed a closed-cell, non-breathable court, which was unsuitable for the concrete surface it was installed upon.

Immediately after installation, the Association started noticing problems with the new court, which included blisters near the net, holes, ripples, bubbling and delaminating of the court surface. These conditions were a direct result of Oval’s failure to install the court with the contracted open-cell surface material, which would allow vapor to push through the breathable court surface. Instead, the closed-cell surface did not allow vapor to pass through, ultimately resulting in a buildup of vapor and moisture trapped underneath the court which caused the problems on the surface.

Continue Reading Misrepresenting Their Qualifications, Inexperienced Contractors are Liable for Consumer Fraud

Generally speaking, a contractor’s commercial general liability (“CGL”) policy is designed to cover personal injury or property damage caused by an accident resulting from the contractor’s work. The policy is not meant to be a guarantee of the contractor’s work and therefore does not cover damages to the work itself – instead, these are known as “business risk” damages. The concept that is inherent in every agreement for the performance of construction work is the risk that the work will be done improperly.

By selecting a particular contractor, the owner has to make a business judgment as to the qualifications and reliability of the selected contractor, and therefore assumes the risk that the work will be done incorrectly. If the work is done improperly and needs to be corrected, the contractor, and ultimately the owner, bears the burden of repairing or fixing that faulty work. The contractor’s insurance is not a performance bond guaranteeing the work; instead, the commercial general liability insurance is designed to cover any unexpected damages that arise from the contractor’s work, such as damage to other property caused by the faulty work.

Consider a roofer hired to install a new roof on a building. Once completed, the roof is the roofing contractor’s “work.” If the roofer installs the wrong type of shingles, but does everything else correctly, the only “damage” to speak of would be to the roof shingles themselves, i.e. the roofer’s work. The cost of replacing the shingles is therefore that “business risk” not covered by insurance.

Continue Reading Insurers of General Contractors Can No Longer Hide Behind Business Risk in Refusing to Defend Their Insureds in Construction Defect Litigation

Purchasing a new construction home is an exciting endeavor. Once all the design options and custom changes are finalized, the wait begins. While all builders discourage purchasers from visiting the construction site, most builders will accommodate requests for walkthroughs. It is always a good idea, however, to try and include a provision in the sale contract or addendum providing you, the homeowner, the right to request and receive access to the site upon reasonable notice.

So, what should you do while on site? The most important thing you can do is take pictures (a lot of pictures). Specifically, you want to capture critical areas such as around windows and doors, at roof-to-wall intersections, and to the extent visible, any installed flashing such as building paper, drip caps, Tyvek, etc. Some more obvious things to look for are wall locations, number and placement of windows and doors, proper room layouts, etc. If you are so inclined, you may want to hire a professional engineer or architect to perform a cursory walkthrough with you and provide you with comments and concerns. Once the walls get covered up, it becomes much more difficult, if not impossible, to observe hidden construction elements and/or fix mistakes.

If you can, you should get to know the superintendent and ask a lot of questions. You should also request to see a copy of the plans and take pictures of the various details and specifications. Additionally, you may want to fill out an OPRA (Open Public Records Act) request form and submit it to the construction office. You are entitled to see any and all public records attendant to your build lot, which includes permit applications, issued permits, inspection reports, violation notices, filed plans and drawings, etc. This is a good way to gather information and stay informed about the construction process.

Finally, if you have the opportunity, you should visit your house during a heavy rain event and observe the conditions around windows and doors from the inside. This is the best time to identify any leaks around penetrations such as windows and doors. Once the drywall is installed, if there are leaks, you will not see any manifestations of water intrusion for many months, sometimes even years. By then, the Developer will likely no longer be responsive and the new homeowner warranty program will essentially be useless.

Buying a home is one of the most rewarding, yet potentially costly, life experiences. Construction takes months, sometimes years, and despite the existence of building codes and municipal oversight, mistakes happen. Due to the concealed nature of construction (e.g. important construction elements get closed up by siding, cladding, and drywall), mistakes are hidden and unidentified until the consequences of those mistakes begin to manifest. Water intrusion is the hallmark of construction defects and is almost always an indicator that construction deficiencies exist. Unfortunately, by the time the water manifests itself inside the house, the builder and/or seller are long gone, leaving the homeowner with the expense of performing investigations and subsequent repairs.

So what should a prospective homebuyer look for when evaluating homes to purchase? First, an understanding of basic home construction is necessary. The name of the game is simple: manage water. The intent behind every home design is water management and drainage. Thus, regardless of whether a house is clad with stucco, stone, brick, or vinyl siding, all those systems have to be installed in such a way as to protect the home from the elements and manage any water that gets behind the cladding system. While visual observations from the exterior will not reveal whether necessary drainage provisions exist behind the cladding (i.e. building paper, flashings, and moisture barriers); certain drainage provisions are nevertheless observable. For instance, once water gets behind the cladding it needs to be able to drain back out through small holes at the base of the cladding. Therefore, you should be able to observe spaces or holes around the areas where the cladding terminates at the base of the home.

Additionally, proper slope is extremely important for adequately managing water and preventing water intrusion. Balconies, decks, exterior window sills, decorative trim, and any other protruding surface that has the potential to hold water must be sloped away from the structure to direct water away from the house. Otherwise, water is directed towards the building and will find a way inside.

Any signs of cracking, buckling, bending, or sprawling of any piece of the exterior cladding should be investigated further. While home inspectors are licensed and trained, they are not professional engineers and do not always recognize the existence or potential for construction defects. If you are serious about purchasing a home, hire a professional engineer to perform a visual inspection and draft a report. It will be money well spent and may save you from buying a home that will require expensive repairs soon after you move in.

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.

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

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.

Continue Reading Creative Collection Solutions: The Rewards and Challenges of Rent Receivership

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

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.

Continue Reading Class Recourse for Individual Home Owners Suffering from Construction Defects