 2006-03-03 COMMUNITY ASSOCIATION CONSTRUCTION DEFECT CLAIMSMinnesota community associations often face construction defect issues arising out of original construction and improvement projects. This article discusses basic legal principles related to those construction defect claims. A wide array of statutes apply to construction defect claims by Minnesota community associations. Minnesota Statutes Chapter 327A provides a statutory basis for pursuing breach of warranty claims by a homeowner, including community associations on behalf of its homeowners, when those claims arise out of new construction. This statute provides for three basic warranties. First, during the one year period from and after the warranty date, the dwelling shall be free from defects caused by faulty workmanship and defective materials due to non-compliance with building standards. Second, during the two year period from and after the warranty date, the dwelling shall be free from defects caused by faulty installation of plumbing, electrical, heating and cooling systems. Third, during the ten year period from and after the warranty date, the dwelling shall be free from major construction defects, which are defined as actual damage to the load-bearing portion of the dwelling. Minnesota Statutes Chapter 327A requires that the claimant provide written notice to the contractor within six months after the homeowner discovers or should have discovered the loss or damage covered by the statutory warranty provisions cited above. The Minnesota Common Interest Ownership Act, Minnesota Statutes Chapter 515B (“MCIOA”) provides a statutory basis for community associations to pursue both express and implied warranty claims against the declarant, which is often the community association’s developer and builder. The declarant creates express warranties under MCIOA when an original purchaser of one of the community association units relies upon any affirmation of fact or promise relating to the unit purchased and/or the community association. The declarant often makes such affirmations of fact and promises in its marketing materials, including but not limited to the initial disclosure statement, unit specifications and descriptions, community amenity descriptions and drawings, and landscaping plans. Under MCIOA, a declarant creates legally enforceable implied warranties in favor of a unit purchaser. Implied warranties need not, by their very nature, be stated; they are implied as a matter of law. Such warranties include but are not limited to the following: (1) that the unit and the common elements in the common interest community are suitable for the ordinary uses of real estate of its type; (2) that any improvements by or at the direction of the declarant for the purchaser’s use will be free from defective materials and constructed in accordance with applicable law, according to sound engineering and construction standards, and in a workman-like manner; and (3) that the unit will be in at least as good condition at the earlier of the time of the conveyance or delivery of possession as it was at the time of contracting, reasonable wear-and-tear accepted. Litigation to pursue express and implied warranty claims under MCIOA must be commenced within six years after the cause of action accrues. However, MCIOA allows the declarant to reduce this deadline to two years if the declarant does so in a written document separate from the purchase agreement between the declarant and the original purchaser. Minnesota Statutes section 541.051 requires that claims for construction defects (defined as “the defective and unsafe condition of an improvement to real property”) must be brought within two years after discovery of the condition, but may not be brought more than twelve years after substantial completion of the construction, regardless of the date of discovery. For instance, if a defective condition is not discovered until eleven years after substantial completion of the construction, the claim must still be brought within twelve years of the date of substantial completion of the construction. There are a number of conflicting statutes of limitation that can apply to construction defect claims under Minnesota law. In addition to the statutes of limitations referenced above, construction defect claims may be pursued under common law for breach of contract and negligence, which have six-year and two-year statutes of limitation, respectively. The appropriate statute of limitation that applies to a specific construction defect claims should only be analyzed by an experienced attorney, who will make the determination based upon the specific facts and circumstances in the case. Assuming that no statutes of limitation preclude the community association from pursuing its construction defect claims, professional investigation of the construction defect claim must follow to determine the cause, remedy and resulting expenses to the community association. In most construction defect cases, the community association will hire engineers and other qualified experts to advise it on these issues. A community association pursuing a construction defect claim must be able to demonstrate, both to the defendants and, if necessary, the jury or judge, that the appropriate contractors involved in the construction were responsible for the construction defects, and then advise on the appropriate remedy and the cost of that remedy. If the community association sustained substantial damages and it is unable to resolve the construction defect claim with the appropriate contractors, litigation often follows. Litigation is commenced by serving a Summons and Complaint on the defendants. The community association may commence litigation to pursue its own claims for those construction defects that affect common elements or limited common elements. The community association may also commence litigation to pursue related claims on behalf of two or more unit owners. During the litigation process, the community association and the defendants will engage in discovery to obtain information regarding the claims and defenses from each other. Discovery may include interrogatories (written questions and answers), physical inspections of the property and depositions (oral questions and answers). Discovery often occurs over a period of several months, and may last more than a year. During the discovery phase, the parties may engage in alternative dispute resolution, voluntarily or by order of the court. Alternative dispute resolution takes many forms, but is usually limited to mediation (during which the parties attempt to agree upon a resolution with the assistance of a third party mediator) or arbitration (during which the parties present their cases to an arbitrator who makes a final and binding decision). In the event that the parties are unable to resolve the case through settlement or alternative dispute resolution, the parties proceed to trial before a judge (and jury if requested). At the conclusion of the parties’ trial, the judge and/or jury decide the outcome. If the community association is successful at trial, it receives a judgment against the liable defendant(s). The judgment defendant(s) may then voluntarily pay the judgment, or the community association must collect it. Often, defendants in construction defect claims are defended by their insurance companies, and the involved insurance companies often pay all or a portion of the settlement or judgment in favor of the community association. A community association faced with construction defect issues must first consult with a qualified attorney, who will assist the community association in determining the viability of those claims and advise on whether to pursue them following investigation the construction defects’ cause and remedy. With this information, the community association will be well prepared to make important decisions on whether to pursue a construction defect claim, and if pursued, to succeed in pursuing and recovering its damages. For more information, contact Chad A. Johnson at 952-941-4005 or cjohnson@hjlawfirm.com |
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