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How to Handle New Construction Defects

Steven Sladkus, Partner, Schwartz Sladkus Reich Greenberg Atlas in Building Operations

New York City

When buying a condo apartment in a new construction, it’s very likely the building will have some defects, whether it’s issues with the roof, the elevator or amenities. Defect claims occur in about 90% of new construction condos in New York City, and approximately 30% to 40% of these end up in litigation. The majority of these cases are resolved through settlements with the board or with the involvement of the attorney general's office. For unit-owners, the key to resolving these issues is to take action quickly, make sure the defects are documented, and be aware of the legal avenues available to resolve problems.

A limited window. Claims about defects should be made within six years of the date of the first closing. This timeframe is essential due to New York's Real Property Law, which grants boards the authority to make claims against the developer within this period. The offering plan, which acts as a contract between the developer and unit-owners, sets this statute of limitations in motion from the date of the first closing. Allowing the limitations period for breach of contract to pass can leave unit-owners responsible for costly repairs. 

In some cases, unit-owners will have control of the board within this timeframe, which gives the board the opportunity to hire an engineering firm to conduct a survey of the building. By identifying any defects or maintenance issues, the survey will provide a basis for making a claim against the sponsor. In cases where the sponsor retains control of the board and is likely to do so beyond the six-year period, unit-owners should organize and conduct forensic engineering reports to identify defects before the statute of limitations expires. The owners can then present their findings to the sponsor-controlled board and request action. Individual unit-owners do not have standing to sue over problems with the common elements of the building, so if the sponsor-controlled board refuses to make necessary repairs, residents can pursue a derivative action against the sponsor.

Weighing the options. If the building has been completed in the past six months and defects are prevalent, a reasonable approach is to see if the developer can come back to make repairs. Sponsors often have a vested interest in avoiding litigation to protect their reputation as developers. However, disputes may arise over the extent of defects or the scope of the sponsor’s responsibility. Lots of developers will come to the table and negotiate. Others don’t want to hear what the forensic reports say and that often creates an impasse. If the defects are significant enough and the cost-benefit analysis for the unit-owners indicates it’s worth suing the developer, it may be better to take that route and get more money down the road than accept a nominal settlement. Residents who take the initiative but are not in control of the board are required to cover the costs of the forensic study and legal proceedings. However, there's potential for reimbursement when the residents eventually gain control of the board in the future.

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