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Condominium Defect Litigation in Massachusetts

All real estate developers should stay cognizant of their duties concerning alleged building defects, but condominium developers especially should understand building defect claims and their legal limitations. While buyers of newly constructed residential property, whether a single-family home or a condominium unit, have always had a variety of avenues to litigate alleged building defects, the nature of condominium ownership and the larger scale of condominium development projects make alleged building defects in newly completed condominium projects an attractive litigation opportunity.

This article summarizes the different condominium defect claims and the legal considerations that should shape a condominium developer’s responses to them. Due to the complicated nature of many of the issues involved, it is important for condominium developers to enlist the aid of experienced attorneys to provide advice and guidance concerning the appropriate response to building defect complaints in newly constructed condominiums.

Parties Involved in Condominium Defect Litigation

Typical condominium defect litigation has two types of plaintiffs: (1) the condominium association;[1] and (2) owners of individual condominium units.

Similar to single-family homeowners, the owner of an individual condominium unit can initiate litigation alleging building defects within an individual condominium unit. For the condominium common areas, the Massachusetts Condominium Act empowers the condominium association to litigate on behalf of the association (but not the individual unit owners).[2] The condominium’s master deed will delineate the distinction between common areas and individual units. Regardless of whether a complaint originates from the condominium association or individual unit owners, the important thing for developers contacted with complaints about the building is to respond appropriately based on the nature of the complaint and in consideration of the relevant legal limitations.

Even if a plaintiff sues only the condominium developer, most entities involved in a condominium’s construction can still become defendants in litigation concerning alleged building defects through the insurance and indemnification provisions in the contracts among developers, contractors, engineers, architects, and subcontractors. Therefore, it is important that condominium developers do not mistakenly bargain away these insurance and indemnity requirements when negotiating construction contracts.

Types of Condominium Defect Claims

Massachusetts courts have shown a desire to ensure that owners of newly constructed condominiums, individually or through their associations, have the ability to pursue the same construction defect and warranty claims as new single-family home owners.[3] The potential claims described in this article are not an exhaustive list, but rather a summary of the typical claims pursued by condominium defect plaintiffs.

Implied Warranty of Habitability

The implied warranty of habitability concerns latent defects in the condominium that raise issues of safety and habitability. Massachusetts courts have determined the implied warranty of habitability attaches to the developer’s transfer of the condominium common areas to the condominium association despite the lack of a contract between the association and the developer.[4]

Negligence

Plaintiffs may also allege the developer, architects, engineers, and general contractors were negligent in constructing and designing the building by failing to exercise the appropriate duty of care resulting in the defective building.

Breach of Express Warranty

Generally, contracts for the sale of a new condominium unit will have an express one-year builder’s warranty, though it is always important to verify the existence and length of any warranty in the appropriate contracts. The contract typically will state that the developer warrants it constructed the building in a workmanlike fashion and in conformance with the plans and specifications. The builder may also promise specific results or features, like providing a certain type of windows, or granite counters. Unlike the negligence and implied warranty of habitability claims, breach of express warranty claims do not require an actual “defect” in the condominium, but simply a deviation from what the developer promised in the contract.

Statute of Limitations and Other Defenses

Developers and their counsel should understand how the relevant statutes of limitations and statute of repose dictate the appropriate response to condominium defect complaints from condominium associations and individual unit owners.

Statutes of Limitations

Negligence and breach of the implied warranty of habitability claims are generally subject to a three year statute of limitations, which requires plaintiffs to bring suit within three years of the claim’s accrual.[5] Claims accrue once a plaintiff knows, or should know, about a potential claim, so if a plaintiff does not discover a defect for two and a half years after the condominium’s completion, then a negligence claim about that defect could be brought five and a half years after completion.

A breach of contract claim, such as the one-year builder’s warranty, is subject to a six-year statute of limitations from the time the claim accrues. However, Massachusetts courts sometimes apply the three-year statute of limitations to contract claims in condominium defect cases. This occurs when the contract claim is fundamentally a negligence claim asserting that the defendant failed to comply with the appropriate industry standard of care, but which the plaintiff is able to characterize as a contract claim because the builder agreed by contract that it would comply with that standard of care.[6] Applying the three-year statute of limitations in these instances prevents plaintiffs from escaping the consequences of the three-year statute of limitations for negligence claims by creatively rewording those claims as contract claims.[7]

The statute of limitations’ length is only part of the analysis because the starting date of the statute of limitations period is also vital in determining whether a plaintiff’s complaint is timely. For claims brought by individual unit owners, the owner of each condominium unit has its own statute of limitations starting date based on the date of purchase. The starting date for condominium association claims may be either the date the condominium association was created under the Massachusetts Condominium Act, or the date the unit owners assumed control of the association from the declarant-appointed board.[8] Regardless of whether the plaintiff is a unit owner or the condominium association, the court can retroactively delay the statute of limitations starting date until the plaintiff became aware, or should have become aware, of the alleged building defect.

Statute of Repose

Building construction professionals such as architects, engineers, and general contractors are also protected by a six year statute of repose which can limit building defect claims regardless of when the plaintiff knows, or should know, about the existence of the defect. Under the statute of repose, all claims alleging “damages arising out of any deficiency or neglect in the design, planning, construction, or general improvement to real property” must be brought within six years of the building’s substantial completion or its opening to use, whichever is earlier.[9] Depending on the developer’s involvement in the project, and the types of claims asserted, the statute of repose may not protect all developers, but the statute of repose remains a useful tool to provide a specific end date for exposure to building defect liability.

The Importance of Board Member Fiduciary Duties

It is a common practice for developers to appoint themselves, family members, or employees as board members for the initial condominium association. This declarant-appointed board typically exists until a specific date or until a certain percentage of units are sold, at which point unit owners select a board. Even when unit owners select the board, a developer may still own enough units to retain power over the selection of board members.

Having board members with significant allegiance to the developer raises the possibility of a conflict between that allegiance and the board member’s fiduciary duties to the condominium association. Such board members should exercise extreme caution to avoid breaching their fiduciary duties to the condominium association, as an initial board member could breach his or her fiduciary duty by ignoring complaints about building defects. This may result in legal claims against the board member and may limit the statute of limitations defenses for claims against other entities involved in the condominium’s development and construction. In past cases where a condominium developer owned the general contractor that built the condominium, the general contractor could not avail itself of an otherwise applicable statute of limitations defense because the only reason the statue of limitations period expired was because declarant-affiliated board members prevented the condominium association from pursuing its legal claim sooner.[10]

While the completion and sale of all condominium units would seem to signal the conclusion of a successful condominium development project, prudent condominium developers should carefully consider complaints from the condominium association and unit owners during the first few years after the project’s completion. Responding to building defect complaints in a thoughtful manner and with an understanding of the relevant legal issues can ultimately save developers from the time, expense, and uncertainty of protracted litigation and allow developers to focus on new projects and opportunities.

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[1] For consistency and clarity, this article will assume the condominium association is an unincorporated associated managed by board members.

[2] G.L. ch. 183A, § 10(b)(4).

[3] See Wyman v. Ayer Properties, LLC, 469 Mass. 64 (2014) (deciding that the rationale behind economic loss rule does not prevent a condominium association from pursing claims of building defects in condominium common areas); Berish v. Bornstein, 437 Mass. 252, 265 (2002) (arguing for application of the implied warranty of habitability to condominium common areas because it is necessary to ensure condominium owners receive the full benefit of the implied warranty).

[4] Berish v. Bornstein, 437 Mass. 252 (2002).

[5] G.L. ch. 260, §2B; Klien v. Catalano, 386 Mass. 701, 718-20 (1982).

[6] Kingston Hous. Authy. v. Sandonato & Bogue, Inc., 31 Mass. App. Ct. 270, 273 (1991).

[7] Massachusetts Housing Opportunities Corp. v. Whitman & Bingham Associates, P.C., 83 Mass. App. Ct. 325, 330 (2013).

[8] There is significant dispute in the legal community as to which of these two events is the proper starting date for the statute of limitations period.

[9] G.L. ch. 260, §2B.

[10] Berish v. Bornstein, 21 Mass. L. Rptr. 530 (Mass. Sup. Ct., May 22, 2006); Harris v. McIntyre, 2000 WL 942559 (Mass. Sup. Ct., June 27, 2000) (Gants, J.),

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