Having construction work or renovations done on your home is certainly an exciting, but undoubtedly stressful time. In fact, the process from selecting a suitable (and experienced) contractor to completion of the project can be downright daunting at times. As a homeowner myself, who coincidentally is going through this very process as we speak, I know the difficulties of sifting through countless potential contractors, negotiating prices, and coordinating schedules and the like. As daunting as it may seem, there are certain steps a homeowner can take at the outset that will mitigate potential pitfalls during construction, ensure your project is constructed properly, mitigate construction disputes, and alleviate unnecessary stress.
Every new home—no matter if it is a single-family, townhome, duplex, co-op, condominium, or even modular home—comes with a ten year warranty as required by the New Home Warranty Program, which was enacted by the New Jersey Legislature in 1977 under the New Home Warranty and Builders’ Registration Act. While the New Home Warranty Program undoubtedly affords purchasers with an array of protections and avenues for redressing defects in newly constructed homes, it is not without pitfalls that the unsuspecting homeowner should be mindful of.
What does the New Home Warranty Program cover?
The first question you may be asking is: what does the New Home Warranty Program cover? The New Home Warranty Program is a ten-year phased warranty, which covers everything from grading to major structural defects. The availability of coverage for specific defects is directly tied to the warranty year. This means that during the first year of the program the warranty is at the peak of its protections, which diminish over time.
The first year of the warranty covers nearly all defects in workmanship or materials, including, but not limited to, concrete, masonry, stucco and cement plaster, carpentry and finished carpentry, waterproofing, insulation, siding, roofing, doors and windows, mechanical and electrical system defects, and major structural defects. After the first year of the warranty, the available coverage becomes more limited.
The second year of the warranty is limited to mechanical and electrical system defects and major structural defects. Years three through ten of the warranty are strictly limited to “major structural defects,” which is defined to mean “any actual damage to the load-bearing portion of the home, including consequential damages, damage due to subsidence, expansion or lateral movement of the soil (excluding movement caused by flood or earthquake) that affects its load-bearing function and that vitally affects or is imminently likely to vitally affect use of the home for residential purposes.”
Be Aware of the Election of Remedies Provision
Sounds great, right? Not so fast. Before you begin the process of filing your claim under the New Home Warranty Program there is one key aspect that you must be aware of, which is the election of remedies provision of the program. The New Home Warranty Program presents homeowners facing issues with their newly constructed home a strategic dilemma: file a claim under the New Home Warranty Program or file a lawsuit with the courts. The adage “when one door closes, another opens” does not apply here, at least with respect to the same defect. Once a homeowner elects a remedy, whether it be bringing suit against the builder or filing a claim under the New Home Warranty Program, the homeowner is bound to that decision and will be barred from changing course.
The election of remedies provision of the New Home Warranty Program is so stringent that under the applicable regulations the mere initiation of a claim under the New Home Warranty Program, i.e. simply submitting the initial paperwork, will bar a homeowner from turning to the courts for redress related to any defect submitted as a claim under the program.
For instance, Mr. and Mrs. Smith purchase a newly constructed home in New Jersey. During the first two years in their new home, life is great and Mr. and Mrs. Smith are not aware of any workmanship issues. However, during year three they notice water stains have appeared in their living room ceiling. Without knowing too much about the New Home Warranty Program, Mr. Smith says, “Not to worry, our home came with a ten year warranty. We’ll file a claim and get it fixed.” And so, Mr. Smith fills out the necessary paperwork and submits a claim under the New Home Warranty relating to the water leak. Several weeks later Mr. Smith receives a letter in the mail informing him that the claim is not covered as the home is in the third year of the warranty program, which covers only major structural defects and therefore the claim is denied. Can the Smiths now bring a lawsuit against the builder for the water leak? Unfortunately, the answer is they cannot and they now have no recourse for that defect.
The Bottom Line
Don’t be like Mr. Smith. Before you file a claim with the New Home Warranty Program consult with an attorney that is knowledgeable about the program and can advise you on the best course of action.
You’re in your car heading home when you turn into your condominium development. That road you just entered, it’s a common element. On your route to your unit you pass by the club house and community pool— these are common elements as well. You’re finally home as you pull into your driveway—which, by the way, probably isn’t a common element, but rather most likely a limited common element. You enter your unit. In the case of a condominium, does your unit qualify as a common element, limited common element, or strictly unit owner property? The answer, in fact, is that the unit you just entered is likely a combination of all three. This article will take a closer look at this distinction.
A typical condominium development is comprised of numerous structures that usually include the building or buildings that house individual condominium units, more often than not a club house as well as other lands and improvements such as community pools, fitness centers, playgrounds, etc. These buildings, lands and improvements can be classified as common elements, limited common elements, or unit property. When you purchase a unit in a condominium development, you are in fact not only purchasing ownership rights to a particular unit, but are also acquiring an interest in the common elements and limited common elements. So, what are these common and limited common elements and how do they differ from unit property?
Pursuant to the Planned Real Estate Development Full Disclosure Act (“PREDFDA”), N.J.S.A. §45:22A-21 et seq., a developer of a proposed condominium development that is subject to the registration requirements of PREDFDA must establish an association responsible for the management of the common elements and facilities of the proposed condominium development. N.J.S.A. §45:22A-43. The developer is required to organize the association prior to the filing of the master deed or declaration of covenants and restrictions. The association may be established as a for-profit or nonprofit corporation, unincorporated association, or any other form permitted by law.
No matter the nature of the association, its responsibility is the same – “the administration and management of the condominium and condominium property, including but not limited to the conduct of all activities of common interest to the unit owners.” New Jersey Condominium Act (the “Condo Act”), N.J.S.A. §46:8B-12. The powers of the association are vested in an executive board that is tasked with carrying out the responsibilities of the association. Upon the formation of the association, the developer will appoint representatives to sit on the executive board and carry out the duties of the association. However, as the developer begins to sell units in the condominium development, pursuant to PREDFDA and the Condo Act, the developer is required to surrender control of the executive board to unit owners elected by the members of the association. This process is known as “transition.”
PREDFDA and the Condo Act require that no later than 60 days after the sale of 25% of the “lots, parcels, units or interests, not fewer than 25 percent of the members of the executive board shall be elected by the owners.” N.J.S.A. §45:22A-47; see also N.J.S.A. §46:8B-12.1. Once the developer sells 50% of the units, etc., within 60 days thereafter 40% of the membership of the executive board is to be comprised of unit owners elected by the owners. Final transition, and complete surrender of the executive board by the developer to the unit owners, occurs once the developer has sold 75% of the units in the development.
A New Jersey trial court granted summary judgment in favor of Selective Insurance Company holding that the “continuous trigger” theory does not provide insurance coverage subsequent to the manifestation of damages that arose from a subcontractor’s negligence in the construction of a condominium development. The issue arose in the matter of Cypress Point Condominium Association v. Selective Way Insurance Company, et al., Docket No. HUD-L-936-14, 2015 N.J. Super. Unpub. LEXIS 721 (N.J. Super., Hudson Cnty. Mar. 30, 2015) (“Cypress Point”).
“The ‘continuous trigger’ theory holds that an occurrence occurs under an insurance policy each time damage accrues over a continuous period of time, from ‘exposure to manifestation’.” Cypress Point, at *12. Courts developed the “continuous trigger” theory to counter scientific uncertainties surrounding initial manifestations of damages typically at issue in environmental, toxic tort, and delay manifestation property damage claims. Id.
In Cypress Point, the Cypress Point Condominium Association (the “Association”) filed a Declaratory Judgment Action against Selective Way Insurance Company (“Selective”) seeking a declaratory judgment that Selective owed a duty to indemnify its insured, MDNA Framing, in connection with an underlying construction defect action filed by the Association. The Association filed an amended complaint in the underlying action on June 12, 2012, bringing claims against MDNA Framing, which was contracted to perform framing and window installation work in connection with the construction of the Cypress Point condominium development. Construction of the development commenced in 2002 and was substantially completed in 2004. Subsequent to the completion of construction, unit owners began to experience water infiltration around the interior windows. The Association’s liability expert found numerous defects related to MDNA Framing’s work, including missing flashings, a lack of a continuous water management system, and improper sealant application around the windows. The Association’s liability expert issued his initial report opining on these deficiencies on June 30, 2012.
No matter whether you are a first time home buyer or veteran repeat purchaser chances are you have been mentally preparing for the deluge of paper that accompanies this major purchase. The sheer magnitude of documents is understandably overwhelming. Document after document is slid across the shiny, polished conference table in your attorney’s office. At a certain point you become automated; sign here, initial there—a few hours later and you may have just signed your first born child away. Yet, when purchasing a condominium or townhouse keep your wits about you and break out your reading glasses because there is one document you want to read—the Public Offering Statement.
A developer of a community development is required under New Jersey’s Planned Real Estate Development Full Disclosure Act to register the planned development with the Division of Housing and Development in the State Department of Community Affairs. In connection with its registration, the developer must also submit a proposed Public Offering Statement. Once approved, the Public Offering Statement must be freely available to all prospective purchasers prior to the closing of the unit.