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Habitat Magazine June 2020 free digital issue

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CONDO CONSTRUCTION DEFECTS

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Condo Construction Defects

Mar 02, 2020

What should condo owners do when they discover problems? Habitat asks Jeffrey Reich, partner at Schwartz Sladkus Reich Greenberg Atlas, for his legal advice.

Construction defects are the dirty little secret behind many condo offerings, both in newly built buildings and rehabbed conversions. What should condo owners do when they discover problems?

The first thing is to meet with other owners, and if they find that they’re sharing common issues, they should form a group, or if possible, get control of the condominium’s board of managers.

Sounds good, but how would that be done?

In some buildings we have worked with there have been Facebook groups that kicked things off. However the group gets formed, though, it will need to hire an attorney. We would review the bylaws and determine if the requirements for turning over control have been met, including whether there have been sufficient sales and a sufficient amount of time has passed. Once that’s established, we can demand that a meeting be called for an election to turn over control of the board to the unit-owners.

What’s the next step?

Getting your arms around what the issues are. Since some problems are obvious and others are harder to spot, we recommend retaining the services of an engineering firm to review the building from top to bottom. If the unit-owners have control over the board, they can cover the costs by raising common charges or an assessment. If they don’t, they can raise funds by asking residents to contribute or by charging membership fees to a group of owners who are going to pursue the issue.

What should the engineers be looking for?

The first is whether the building is constructed in accordance with the terms of the offering plan. The property description contained in the offering plan and the building plans are filed with the city. The second is whether everything meets building codes, like fire, electrical and plumbing, and that there are no violations. The third is to make sure the building meets construction standards for our area.

So the engineer will give you a full report on any defects as well as an estimate on how much it will cost to fix them.

Yes. We take that information and discuss it with the board, and sometimes have a meeting with all the unit-owners to let them know what the situation is. Then, in order to try and resolve those issues, we go to the developer. We provide them with a copy of the report and have our engineer walk the developer through it.

Presumably the developer knows this is under way, so it’s no surprise to them.

The developer is most aware. They often still own units in the building, control management or have a relationship with management, and they sometimes know about problems even before the unit-owners do. After we go through the report with the developer, we try to negotiate an agreement as to what problems they’re prepared to address, either by paying the costs of remediating the situation or doing the repairs themselves.

Do you prefer one or the other?

Most unit-owners prefer a cash payment so they can control the entire process of remediating the construction defects. On the other hand, most developers feel like they can do the work more cheaply or have leverage over the contractors that performed the work originally, so they want to oversee the repairs. Either way, we just want to make sure the work is done correctly, so we would require in any resolution that the condo and the unit-owners’ architectural engineer make the final determination over whether repairs have been adequately performed.

Are there any other remedies that you would include in a settlement?

We want to make sure that it can be enforced. We have done this by placing mortgages on sponsor units, either in the building we're dealing with or in other buildings that the developer has assets in. In other situations we have placed liens on the sponsor units for the cost of the work, and if the sponsor defaults under the terms of the agreement, we have foreclosed on those liens. You want the settlement to have some teeth to it.

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