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.

About the Palisades

Plaintiff, The Palisades at Fort Lee Condominium Association, filed suit in March of 2009 alleging property damage as a result of defendants’ negligent construction of the high-rise building. At the time the Palisades was constructed, it was purely a rental apartment building owned by the builder. It was then later sold to the sponsor who registered the building as condominiums and sold the units to homeowners. Once the homeowners assumed control of the Association, they hired an engineering firm to inspect the common elements and prepare a transition engineering report. The report revealed numerous construction deficiencies and the homeowner-controlled Association filed suit not long thereafter.

Here, the dates and timeline are important: the building was substantially complete on May 1, 2002; on June 28, 2004, the builder sold the apartment complex to the sponsor; on January 27, 2005, the sponsor registered the building as a condominium and began selling units; in July of 2006, the sponsor transitioned control of the board to the unit owners; the transition engineering report was issued on July 13, 2007; and the Association filed suit on March 12, 2009. Additionally, the Public Offering Statement registered by the sponsor contained a 2004 engineering report that outlined a number of deficiencies.

Under the existing legal paradigm as understood by this author, the statute of limitations on the Association’s claims would, in all likelihood, have began to run in July of 2006, when the unit owners first took control of the Association. Maybe, the statute was triggered as early as 2005, when the Association was first incorporated or as late as July of 2007, when the transition engineering report was issued. But in no case would the statute begin to run against the non-existent Association in 2002, when the building was substantially completed, almost three years before the Association could have possibly learned of its injury. Yet, that is exactly what Judge Wilson held.

Statute of Limitations

The plain language of the statute gives injured parties six years “after the cause of . . . action shall have accrued” to bring suit. N.J.S.A. 2A:14-1. Relying on a Supreme Court decision solely addressing when the completely separate and distinct statute of repose is triggered, Judge Wilson held that a plaintiff’s cause of action in a construction defect case accrues at the time of substantial completion. That conclusion, however, is drastically undermined by legions of case law applying the discovery rule in complex causation cases and by the legislative history behind the statutes of limitations and repose.

Unlike the absolute and unyielding ten-year statute of repose, the statute of limitations is equitable in nature and thus subject to equitable considerations. As such, the statute of limitations is informed by the discovery rule, which operates to move the starting marker to that point in time when the “injured party discovers, or should have discovered by the exercise of reasonable diligence and intelligence, that an actionable claim exists.” Lopez v. Swyer, 62 N.J. 267, 273 (1973).

In a complex construction defect case, the trigger for the statute of limitations is the moment in time when the construction defects became reasonably apparent or ascertainable to the plaintiff. See Diamond v. N.J. Bell Telephone Co., 51 N.J. 594 (1968) (holding that when plaintiffs did not discover that defendant’s installation of a conduit had apparently damaged their sewer line until nine years after the event, the statute of limitations did not start to run until the harm to plaintiffs became reasonably apparent or ascertainable); Torcon v. Alexian Bros. Hospital, 205 N.J. Super. 428, 432 (Ch. Div. 1985), aff’d, 209 N.J. Super. 239, certif. denied, 104 N.J. 440 (1986) (“It would be anomalous to hold that certain classes of plaintiffs are afforded the protection of the discovery rule while others are not when it is alleged the injury was not readily ascertainable. The discovery rule should be equally applicable to allegedly hidden construction and design effects.”)

It is therefore the discovery of the defects which triggers the running of the statute, not the date of substantial completion, although under the right set of facts the two could conceivably coincide. In the case of the Palisades, like most condominiums, the Association did not discover or through the exercise of reasonable diligence should have discovered that it was injured until it was privy to the engineering report attached to the POS or until it received the transition engineering report, both of which occurred many years after substantial completion.

A Legislative Look Back

The legislative backdrop to the enactment of the statute of repose in response to the potentially indefinite liability brought on by the advent of the discovery rule belies any suggestion that “substantial completion” marks the beginning of the limitations period.

Prior to the enactment of the statute of repose, the “completed and accepted rule” provided that an architect’s or a builder’s liability for negligent design or construction of a structure “terminated upon the completion of the professional’s work and its acceptance by the property owner.” E.A. Williams Inc. v. Russo Development Corp., 82 N.J. 160, 165-66 (1980). The Supreme Court repudiated the “completed and accepted rule” outright in Totten v. Gruzen, 52 N.J. 202 (1968), a year after the enactment of the statute of repose, N.J.S.A. 2A:14-1.1. In O’Connor v. Altus, 67 N.J. 106, 121 (1975), the Supreme Court pointed out that the “tendency away from the completed and accepted rule was so clearly established as to make it reasonable to assume that the Legislature took that trend into account in enacting the statute.”

As a result, the demise of the “completed and accepted rule” left those involved in the design and construction of improvements to real property vulnerable indefinitely to liability for injuries arising from a structure’s defect. This was because the discovery rule deferred the running of the statute of limitations until a victim discovered or should have discovered that a wrong had been inflicted. The advent of the discovery rule exposed defendants, including architects and builders, to potential liability for injuries caused by defective workmanship that would last indefinitely, inasmuch as many defects would often not be discovered or give rise to a claim for damages until an injury had in fact occurred.

The statute of repose was the legislature’s response seeking to limit that greatly increased exposure and to “prevent liability for life” against contractors and architects. See Rosenberg v. Town of North Bergen, 61 N.J. 190, 194 (1972). Our Supreme Court has recognized that the legislature enacted the statute of repose in response to the expanding application of the “discovery rule” to new types of tort litigation, the abandonment of the “completed and accepted rule” (by which contractor and architect liability for negligence ended on completion of the work and its acceptance by the property owner), and the expansion of strict liability in tort for personal injuries caused by defects in new homes to builder/sellers of those homes. See Greczyn v. Colgate-Palmolive, 183 N.J. 5, 9-11 (2005); Newark Beth Isr. Med. Ctr. v. Gruzen & Partners, 124 N.J. 357, 362-363 (1991).

The discovery rule created the potential for liability for injuries occurring long after design and construction professionals had completed a project. The statute of repose was therefore “meant to cut back on the potential of this group to be subject to liability for life.”

As a result, the interplay between the statute of repose and the statute of limitations, which is subject to the discovery rule, provides adequate protections to builders and contractors whose work causes injury to persons or property. While discovery of an injury or other equitable concerns may delay, defer, and/or toll the running of the statute of limitations for many years beyond substantial completion, the statute of repose provides a firm cut-off date after which an injured plaintiff no longer has a cause of action. If, as Judge Wilson held, the six-year statute of limitations immutably commences running upon substantial completion, the ten-year statute of repose, which unconditionally begins to run upon substantial completion, would be rendered meaningless. What’s the point of a ten-year window if a plaintiff will be time-barred after six years?

That is why the statute of limitations is fluid, malleable, and susceptible to equitable considerations, such as undiscovered hidden construction defects and the transition process unique to condominium ownership. The statute of limitations, therefore, does not begin to run upon substantial completion and its trigger, duration, and expiration vary with the specific facts and circumstances of each case.

Substantial Completion & the Statute of Repose

The case cited by Judge Wilson in support of his conclusion that the statute of limitations is triggered upon substantial completion says nothing of the sort and actually reinforces the concept of a shifting statute of limitations trigger. In discussing the applicability of the statute of limitations to the facts of the case before it, the Russo Farms Court relied on the prerequisites of the discovery rule in determining the date plaintiffs’ claims began to accrue i.e. when plaintiffs knew or should have known that they had a cause of action against defendants. Russo Farms, Inc. v. Vineland Bd. of Educ., 144 N.J. 84, 115 (1996); see also Trinity Church v. Lawson-Bell, 394 N.J. Super. 159, 176 (App. Div. 2007) (stating that the Russo Farms Court implicitly recognized the application of the discovery rule to the six-year statute of limitations for claims based on injury to property).

While Russo Farms did not use the date of substantial completion as the trigger for the statute of limitations, it did hold that substantial completion, as opposed to finished construction and completed punch-list items, marked the beginning of the ten-year statute of repose period. 144 N.J. at 117. Accordingly, the “statutory period” determined by the Supreme Court to begin upon the date of substantial completion is the statute of repose, not the statute of limitations.

What This Means for Condominium Associations

While Judge Wilson’s decision is an unpublished, non-binding trial court level opinion in one specific case, it nevertheless opens the door for other judges to employ the same flawed reasoning and analysis in evaluating whether an association’s claims are time-barred. Until this precise issue is addressed by the Appellate Division on appeal, each case will turn on its specific facts and the legal proclivities of the presiding judge.

As a practical matter, associations should consider filing a complaint to stop the limitations clock soon after learning of construction defects – usually marked by the date the board receives the transition engineering report. Even if the association intends to negotiate with the developer and ultimately not pursue litigation, filing a complaint may be a good idea because the Court Rules allow a complaint to be filed without being served on the defendants for a period of four to six months. During that time period, a filed complaint may be withdrawn without prejudice (able to be filed at a later date) and without the need to release any of the defendants from the alleged claims (as would likely be the case if the defendants were served and had filed answers).

As such, filing a pro forma complaint gives concerned associations the security of having stopped the limitations clock and the flexibility to evaluate whether an amicable resolution is possible or whether litigation is the best option.