Developers cannot shield themselves from liability for construction defects by limiting right to sue
By Deborah Goonan, Independent American Communities
For the past several years, I have written dozens of posts about construction defect claims brought by homeowners and condo associations. Many IAC posts highlight the fact that developers and home builders attempt to avoid taking responsibility for shoddy construction, forcing homeowners and leaders of association-governed communities to bear considerable hardship and financial sacrifice to pay for necessary repairs.
It’s true that construction defect litigation can be lengthy, complex, and costly. But, although experts once argued that arbitration is less costly than litigation, recent research indicates that may no longer be true.
However, during the course of a lawsuit, lenders may be unwilling to approve mortgages with favorable terms. And, especially if the courts rule in favor of housing consumers, home sales can suffer in an association-governed community. Negative publicity takes its toll.
When condo or homeowners’ associations prevail in court, construction insurance premiums spike. According to critics of litigation, that increases costs of new construction and deters developers from investing in new condominium projects.
For all of these reasons, developers prefer settling construction warranty claims out of court. In the past two decades, most condominium developers have made a habit of inserting clauses to protect their interests in sale agreements and condominium documents.
Condo declarations typically protect developers in one of two ways:
- Requiring mandatory arbitration to settle all defect warranty claims, or
- Requiring a majority or supermajority vote of all members of the association to allow a condo board to initiate litigation against a developer.
Both requirements limit consumer rights to due process. But the latter option — requiring all members to vote on whether or not to sue — is the focus of a recent Supreme Judicial Court (SJC) ruling in Massachusetts.
The SJC has ruled that provisions in condo documents that require a full membership vote on the issue of suing a developer are blatantly unfair and, therefore, illegal. The courts opinion makes an important point —the fact that, until all units are sold to non-affiliated buyers, a condo developer typically holds sufficient weighted voting interests in the corporation to block an association vote in favor of litigation.
Finally, common sense prevails in the courts.
Court: Condo owners can’t have their rights to sue developers for shoddy construction waived away in condo docs written by those developers
By adamg on Fri, 01/19/2018 – 11:27am
The Supreme Judicial Court ruled today that developer-written condo-trust provisions that make it impossible to sue the developer for construction-related problems are illegal.
The ruling means that the condo board of the 42-unit Cambridge Point complex at 2440 Massachusetts Ave. in North Cambridge can proceed with a lawsuit against the company that put up the buildings. The trust is seeking at least $2 million to pay for repairs it says are needed because of shoddy construction by East Coast Developments of Woburn.
When it filed a master deed for the development, East Coast included provisions that required the condo board to obtain permission from at least 80% of condo owners for any lawsuit and to do so within 60 days of signaling its intent to sue. The condo board did notify all the owners, but then filed suit without 80% approval – because East Coast or its affiliated concerns still owned more than enough units to block any suit, according to the SJC.
Addressing the same issue last year, Colorado enacted a compromise amendment to condo statute that requires a vote of members before an association can pursue litigation, but specifically excludes votes held by developers and affiliates.
The Massachusetts SJC ruling, combined with recent legislation enacted in Colorado (see more details in reference section below), indicates increased Legislative and Judicial support for the property rights of housing consumers.
To win the battle for private property rights of homeowners, advocates must continue to challenge mandatory arbitration clauses imposed by developers, on both Judicial and Legislative fronts.
Condo developers can’t get around lawsuit by retaining ownership of units, court says
Finding: Bylaws can’t go against public policy protecting consumers
Colorado legislation posts:
Does court victory for home builders create more risk for condo owners?
CO SUPREME COURT DECISION MAY PLEASE HOME BUILDERS, BUT CAN HOME BUYERS COUNT ON SAFE, WELL-BUILT HOMES?