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Construction Defects: What Every Manager or Property Owner Should Know

09/01/2017 4:07 PM | CAI Rocky Mountain Chapter (Administrator)

By Michael J. Lowder, Esq., Benson, Kerrane, Storz & Nelson, P.C.

No one wants to find out that there may be construction defects in their home or community. Unfortunately, construction defects happen, even though local building departments inspect construction projects and most developers take steps to avoid them. Fortunately, as long as you act quickly to resolve construction issues with the developer of the community, homeowners and community associations can typically get construction defect issues resolved, even if the developer has gone bankrupt or out of business.

Tick-tock: Don’t Let the Statute of Limitations Bug Bite!
Generally, a property owner must make a claim for construction defects within two years after they first notice a symptom of a problem. That two-year clock can start even if you do not know that the symptom is a construction defect, and even if you do not know the cause of the symptom.  

For a community association, a report of a problem in an email to a board member or the community manager, or discussion of an issue in meeting minutes can start that two-year clock, so it is important to pay attention to reports of any problems that could be related to construction.  

An example of such a problem might be a homeowner reporting in an email to the community manager: “There’s a lot of ice in the concrete gutter of the alleyway. Can you have someone salt there?” This could be the symptom of a construction defect (inadequate slope of asphalt or concrete) and could start the two-year clock.

So, any time that you have complaints about issues in the community that might be related to construction, it is crucial to keep track of those issues so that you do not let too much time pass and lose your claims.

Working With the Developer.
When construction problems come up, property owners and community managers usually turn to the builder to resolve the issues. While this can be a good first step, there are three things to keep in mind while you work with the developer.  

First, developers sometimes will ask you to sign a “release” of claims in order for the developer or builder to fix the construction issues. Developers may ask for a “full and final release” of all claims. If you sign this type of release, you are releasing the developer for all potential claims you may have against it, even issues that you do not even know exist.  

For example, you may have an issue with concrete spalling, and the developer agrees to fix it if you sign a full and final release of all claims. You sign the release, the concrete gets fixed, and then a year later, you discover that the developer installed the pool heater incorrectly, or that the roofer did not properly flash the roof vents. Since you signed the full and final release in order to get the concrete replaced, you waived your claims related to the pool heater and the roof vents. Therefore, it is important to be very careful about any release the developer asks you to sign. You may want to have it reviewed by an attorney.

The second thing to keep in mind is that property owners and community managers often have the misunderstanding that working with the developer to resolve issues stops the two-year clock, and your claims will not expire. Unfortunately, under Colorado law, “working with the developer” does not stop claims from expiring. Therefore, it is essential to pay attention to any time that passes after the symptom of the defect is first noticed.  

“Working with the developer” can take time, and you do not want the two-year clock to run out while you are in this process. If the two-year period expires and you do not resolve the issue, then you may not be able to pursue formal legal action against the developer anymore. If you want to work with the developer for an extended period and do not want to worry about your claims expiring while you do so, ask the developer to enter into a written tolling agreement to toll (pause) the statute of limitations or repose.

Finally, you want to make sure that whatever repairs the developer is willing to perform will actually fix the underlying problem, and not just cover up the problem or delay symptoms temporarily. It is wise to consult with a contractor or engineer before accepting any repair the developer offers.

But It Passed Inspection?!
There isa common misconception that if a home or a community passes the inspections by the local building department, it was built correctly. Unfortunately, this is not always the case.  Building inspectors simply cannot look at every condition in every location on every building, and building inspectors sometimes fail to spot construction defects and building code violations. Building inspectors perform a function similar to the police: they catch some violations, but they do not catch every violation.  Just as citizens are expected to obey the law, whether or not they are caught by the police, developers and builders are expected to follow the minimum standards of the building code, regardless of whether a building official finds a building code violation.  

No Money in the Bank?
Another common misconception is that if a developer goes bankrupt, or is out of business, homeowners have no recourse. Fortunately, that is not always the case. Even if a developer is out of business or has declared bankruptcy, owners and community associations with construction defects may be able to recover funds to make repairs from the developer’s insurance company, based on insurance policies the developer bought during construction.  

Construction defects do not need to be a headache. If you stay on top of the issues in your community and remember to be vigilant with the passage of time, you can put your community in a great position for long-term stability, even in the face of construction defects.

Michael J. Lowder is a senior associate attorney at Benson, Kerrane, Storz & Nelson, P.C.  Michael represents property owners and community associations suffering from construction defects throughout Colorado and Minnesota, and also serves on CAI-RMC’s Programs & Education Committee.

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