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Blame, Defects, and The Sponsor - Racht & Taffae

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BACKSTORY A great deal of our time and efforts of late have been devoted to representing several “new construction” condominiums where board control was just turned over to the new unit-owners from the developer. As is unfortunately typical with “new construction” buildings (we include gut renovations in this category), the unit-owners were encountering problems with the building’s common elements because of poor construction.

The problems often encountered include façade and roof leaks, inadequate insulation, inadequate heat, faulty intercom systems, or work that was promised under the offering plan but either never performed or left incomplete. Our focus is to address problems with the common elements rather than problems occurring within individual units because:

1) The offering plan generally makes clear distinctions between the two issues as to sponsor’s obligations; and

2) The board has the sole responsibility for the common elements, but does not, generally, have responsibility to act with respect to matters affecting individual apartments.

The board needs to focus quickly on the defects in the common elements in order to assert claims against the sponsor in a timely fashion. The offering plan details time limits for notifying a sponsor of defects. There are various statutes of limitations that must also be kept in mind. Asserting these claims can be done effectively only with the aid of a detailed engineering report, which should include physical inspection of the building and its mechanical systems and a review of Department of Buildings filings. This report often takes several weeks to prepare. Thus the board must, as soon as possible, retain an engineering firm to conduct this inspection of the building; compare conditions to those represented in the offering plan; specifically identify the nature of the defects, including defects that are not obvious to the board; propose remedies for the defects; and provide cost estimates of the proposed remedies.

Our role is to coordinate these steps with the board and to review the offering plan to examine the various representations and disclosures made by the sponsor. It is essential that your attorney has a good working knowledge of the disclosure regulations of the attorney general (AG). Together with the engineers, we review the board’s engineer’s report and compare it with the architect or engineer’s report contained in the offering plan. We can then provide advice to the board on its options for redress.

In some cases, where the sponsor is cooperative and the cost of resolution is manageable, the issues can be resolved amicably, and the building’s resources can be focused on actually remedying the problems. In other cases, the board must consider alternative options, primarily litigation against the sponsor or registering a complaint with the AG alleging violations of the Martin Act. Even though the AG’s office has been inundated with new construction complaints, we have found that if they do believe that a complaint has merit and that it is appropriate for them either to attempt to mediate a resolution or bring an enforcement action, they are a powerful ally in achieving redress from the sponsor. A settlement achieved under the auspices of the AG can be obtained far more quickly, and at less cost, than is typically the case with litigation. Litigation remains a more viable option where the claims are greater and the board and the unit-owners have the resources to independently pursue the claims.

COMMENT When control of the board of managers is first turned over to the purchasers in a newly constructed condominium, we know that this is a difficult time for the board. There are often many matters confronting it and competing for its attention. In many buildings, there may not be a great deal of experience among the unit-owners in managing and dealing with these issues. If it is clear that there are problems with the construction of the building, it is essential that the board focus its attention on interviewing and hiring its own attorneys and its own engineers. Having an engineer’s report performed will provide the board with vital information on the depth of the problems and cost of resolving them and will allow the board to provide prompt and credible notice of the problems to the sponsor. The report will also provide credibility and foundation for any complaint made to the attorney general or any litigation that may be instituted. Your attorney will be able to provide guidance on properly notifying the sponsor of deficiencies and will be able to advise the board on the options available in seeking redress and including the ones that might best be suited to your particular circumstances.

From the Desk of AMT:

The boards i like have the willingness to put in the time and do their homework. They are defined by dedication, pragmatism, and communication.

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