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Statute of Limitations

Oct 02, 2018

Julie Schechter, Partner, Montgomery McCracken Walker & Rhoads

It seems like everywhere you walk in the city today there are beautiful new condominium buildings popping up. If you're one of the people who buys a residential unit in one of these buildings and you find yourself on the board, you may be overwhelmed initially by all there is to do.


Unfortunately, no building is ever built perfectly, no matter how much you spend on the unit. Sometimes construction defects become visible early on in the process –  a couple months after closing you may notice leaks throughout the building. My recommendation to board members is to let the developer/sponsor know about these defects as soon as possible. In my experience, sponsors typically do the right thing for these initial issues. They tend to correct the leaks and take care of them.


Statute of Limitations 

Statutes of limitations are laws that set the maximum time after an event within which legal proceedings may be started. If the specified period of time has passed, a claim might no longer be filed, or, if filed, it may be struck down.


But the biggest issue for boards to worry about is defects that are not immediately noticeable. How do new boards know if there are construction defects that they cannot see? In some of the buildings that we've represented we've seen issues where the facades were not installed correctly and pieces have broken off and fallen into the street. We've seen balconies that have crumbled over time, and balconies with loose railings. We've seen windows that have been installed improperly, causing a spontaneous cracking or leaking. But none of these issues are visible or immediately noticeable.


So our recommendation to boards is straightforward. If it's economically feasible, hire an engineer. Engineers are able to do comprehensive studies of the property, and they will be able to tell you if the building is built according to code, if it complies with all of the required plans and specifications, and if there are structural defects or problems with any of  the building systems.


If negative conditions exist, the board may be able to go after the sponsor and get reimbursed for the expense of some of these issues or get the sponsor to correct it. There is an expiration date, however, on how long the board, on behalf of the unit-owners, has to go after the sponsor.  This expiration date is called a statute of limitations.


The most common type of claim that boards may bring against the sponsor is for a breach of contract.A breach claim exists whenever the sponsor has certain obligations to the unit-owners or the board, but failed to comply – leading to damages. For this type of claim, the courts have held that the statute of limitations is six years from the date of the first closing. (Other claims – for common-law fraud or a breach of a fiduciary duty – have different statutes of limitations.)


The bottom line is if the board waits too long to act, it can be much more difficult if not impossible to collect any money or get these defects corrected by the sponsor. So it's important to get an engineer to tell you if any of these issues exist. We always recommend that you share these engineering reports with your attorney because the attorney will be able to tell you if you have any claims against the sponsor.


But the worst thing a board can do is to refuse to investigate if there are any defects, and then let a statute of limitations lapse. Once that happens, the building is not going to be able to recover any money or get these issues corrected.


My philosophy is that knowledge is power, and the more knowledge a board has, the better choices it can make.

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