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
Triggering the Protections of the Consumer Fraud Act with Breach of Contract
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?
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Misrepresenting Their Qualifications, Inexperienced Contractors are Liable for Consumer Fraud
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.
Insurers of General Contractors Can No Longer Hide Behind Business Risk in Refusing to Defend Their Insureds in Construction Defect Litigation
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.
Practical Tips for New Construction Homebuyers
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
What Prospective Homebuyers Should Look for When Evaluating Homes to Purchase
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
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.
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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.
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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.
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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.
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