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BLOG / 06.29.24 /Peter Mustalish

Holding Condominium Developers Accountable for Construction Defects

Imagine you bought a condo in a new, or recently constructed, development.  The brochures and website described a beautiful lifestyle with plush amenities.  After you move in you notice that things aren’t quite right with the common elements.

Months and even years go by, and the pool and clubhouse are still not built.  Streets are poorly paved or flood easily.  Roofs leak and terraces are already cracked.  Common charges are a lot higher than you expected and now there’s talk of an assessment.

You and your neighbors have complained to your condo board, but they haven’t done anything – and you doubt they will because they all work for the developer.  By the time homeowners finally take control of the board, the developer is long gone and ignores your complaints and questions.  What can you do?

Plenty, according to a recent decision from the Putnam County Supreme Court.  This decision reinforces two key principles which give condo owners a chance to hold the developer accountable.  First, condominium developers must live up to the promises contained in the offering plan – even if many years have passed since the homeowners took over.  And second, developer-appointed board members can themselves be held accountable, long after they resign, and may be subject to greater scrutiny than ordinary boards because of their inherent conflict of interest.

The developer can’t simply hand over the keys and walk away.
In most cases, the developer has an ongoing obligation to construct the common elements as they were detailed in the offering plan.  And with each unit the developer sells, it is renewing that promise.  In its April 18, 2024 decision, the Putnam County Supreme Court confirmed this when it denied the developer’s motion for dismissal on statute of limitations grounds despite the fact that the developer had stepped away more than five years before.  It’s also a reminder that a lawsuit by the condo board against the developer for issues related to common elements will benefit the entire community, regardless of when you purchased your individual unit.

Business judgment rule protection for board members may not be as robust when the board is controlled by the developer.
Typically, condo board members are protected by what’s known as the business judgment rule, which basically says that board actions taken in good faith on behalf of the community cannot be challenged in court.  However, in a new condo development, the first board is often made up of employees of the developer.  This creates an obvious conflict of interest especially where the developer has not finished construction or there are defects that it must fix. This kind of board cannot possibly perform its duties with undivided loyalty to the community.  Are they really going to push the developer to correct defects or finish the job quickly and according to the plans?  And they are not going to sue the developer on behalf of the community because that would be like suing themselves.

The Putnam County decision reminds us that boards that are controlled by the developer are still on the hook for up to six years after they resign and do not enjoy the same protections of the business judgment rule because of their affiliation with the developer.  When there are allegations that the sponsor-controlled board concealed or ignored defects, cut corners, or failed to address construction problems, the business judgment rule will not serve to automatically dismiss lawsuits against the board.

The Court’s decision sends a clear message to condo owners and boards.  If your developer has not lived up to its promises, courts will hold developers and their appointed board members accountable for delivering the community you were promised – even if many years have passed.

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