An Overview of Condominium Defect Litigation in Florida

Due to poor mid-2000’s construction, the area of construction defect litigation is booming. Across the country, numerous owners are grappling with issues of shoddy construction and defective building materials. One of the most common reasons for defect litigation, aside from shoddy construction and poor workforce supervision, results from defective building materials that allow water intrusion. Unchecked water intrusion into the exterior walls of a building can cause pervasive rot problems within a few months following completion of a building. Due to the climate in Florida, this is an oft-diagnosed and litigated issue in Florida condominiums.

The types of buildings subject to construction defect litigation are endless. Common types of buildings with which we have been involved are condominiums, townhouses, residential subdivisions, hotels, apartments, and schools. A common denominator in these buildings is that most were constructed on a fast track, bottom dollar basis. Certainly there is nothing wrong with profit oriented construction, but too often “value engineering” on the front end of a project substitutes good building materials for less expensive ones and good subcontractors lose out to low bid “jacklegs“ with little experience.

With any condominium construction litigation, all parties must develop an initial understanding of the nature and extent of defects and deficiencies arising from the original design and construction of a condominium building, the identity of parties responsible for the design and construction of the building and the amount of recoverable damages associated with remedying the defective conditions. This roadmap should be the “10,000 ft.” checklist for a condo defect practitioner.

Many of these issues require the technical analysis of a professional engineer, general contractor, or other qualified professional to assess the defects and report on their conditions. In most cases, the Association will need to hire the services of an independent expert. Experts are those who have the necessary training, education, and experience to give testimony in court as to the cause of a defect. For example, if your roof leaks, a roof expert who has designed roofs, evaluated other defective roof systems, and knows how roofs should be built would be in a good position to testify. A general or roofing contractor can repair a damaged roof, but he may not be the best person to act as the expert.

Although section 718.301(4)(p), Florida Statutes, now requires developers to provide associations with a written turnover inspection report at the time of transition, the report is limited in scope to useful life and maintenance of the specified components. This list is not an exhaustive list and should be used as a starting point to examine overall building conditions. When evaluating the overall health of the buildings and whether to proceed with defective construction claims, a detailed inspection report should be commissioned by the association to ascertain whether the condominium was constructed in accordance with the applicable building code, plans and specifications on file with the municipality, and in conformance with good construction and engineering practices.

Furthermore, under section 718.301(7), Florida Statutes, in any claim by the association against a developer alleging defects in design, construction, structural elements, or any mechanical, plumbing, electrical, fire protection, or other element that requires a licensed professional for design or installation under Chapter 455, 471, 481, 489, or 633, Florida Statutes, the “defect must be examined and certified by an appropriately licensed Florida engineer, design professional, contractor, or otherwise licensed Florida individual or entity.” Great care should be taken by the professional to analyze and apply the building code in existence on the date that the building department issued the building permit. See e.g. Biscayne Cove Condo. Ass’n, Inc. v. Biscayne Cove Southeastern, Inc., 582 So.2d 806 (Fla. 3d DCA 1991) (condominium association claim against developer for noncompliance with building code provisions requiring installation of life-safety equipment barred because specific building code provisions did not become effective until after building permit was issued).

Because Chapter 558, Florida Statutes, also known as Florida’s construction defect law, requires an association to allege construction or design defects with “reasonable detail” (Fla. Stat. §558.004(1)), hiring a qualified consultant is an important consideration relative to the association’s compliance with the requirements of Chapter 558. Any association making claims will need to have a countervailing expert to offset the developer and contractor expert.

Section 718.301, Florida Statutes, provides a mechanism for the association to compel developer turnover of documents which will aide in analysis of the claims and identification of the parties (e.g. “as-built” plans). There are several competing statutes of limitations that may apply differently depending on whether the association elects to pursue a developer, contractor, design professional, or others for damages arising from the faulty design and construction of a condominium. Accordingly, a strong expert or set of experts with solid technical expertise in procuring and evaluating building department codes and records as compared to project documents is essential.

For the right type of defect, an engineering expert should also be directed to evaluate those components specifically referenced in the statutory implied warranty provisions of section 718.203, Florida Statutes. In this regard, the engineer’s undertaking should include a review of the roof and the structural, electrical, mechanical, and plumbing components of the condominium. The engineer’s report should describe objectively each defect and whether the defective condition is a result of any of the following:

· Building code violations.

· Deviation from plans and specifications.

· Poor workmanship.

· Life-safety issues.

· Lack of maintenance.

Any expert report rendered should endeavor to advise the association of the methods and expense of repairing or replacing each defective condition, as well as the possible effects of not implementing the curative measures. This information will enable the association to evaluate the cost-effectiveness of pursuing resolution through settlement or litigation.

All experts and counsel should also be mindful of the association’s need to comply with the requirements of Chapter 558, Florida Statutes, also known as Florida’s construction defect law, which requires an association to allege construction or design defects with “reasonable detail.” Fla. Stat. 558.004(1). For this reason, the expert reports should be accompanied by photographs or video illustrating the defective conditions discussed in the written report. These graphic materials will also assist association members in understanding the problems connected with the condominium as outlined in the written report. Similarly, photographs and video become helpful for illustrative purposes during mediation conferences and may be introduced into evidence at trial.

Once the report is received, careful analysis is necessary for several reasons. First, to the extent that maintenance problems exist, the association should correct those items when appropriate, such as when a potential life-safety condition may develop. This is significant especially because the statutory implied warranty provisions that extend from the developer and others in favor of the association are conditioned on the performance of routine maintenance unless the maintenance is an obligation of the developer or a developer-controlled association. Fla. Stat. § 718.203(4).

Second, the report may point out some problems that are degenerative and require present maintenance regardless of the future potential recovery in the course of litigation or other dispute resolution proceedings. When maintenance or repairs are undertaken, the association should maintain careful records, including time-stamped photographs or video depicting the defective conditions and all significant conditions exposed during the repair process. The contractor selected by the association to perform remedial work should prepare a report outlining the justification, procedure, and cost of repair. All contractors performing remedial work should also be advised that they will probably need to testify about their work.

Third, the association should supplement the findings of the expert by compiling a list of potential deficiencies identified by unit owner complaints. These deficiencies can be identified by submitting a survey to unit owner members. Often, unit owner complaints may reference a symptom of a substantial problem that has not been discovered during the engineer’s inspection.

Finally, meetings should be conducted with the attorney, association, and engineer to discuss the findings and resolve any outstanding issues relating to additional defects not inspected previously. At the preliminary meeting following issuance of the engineer’s report, the parties should discuss the necessity for conducting additional inspections, destructive testing, and associated costs.

Construction defects can generally be classified into three categories: defective building material; faulty workmanship; and improper design. These include, water seepage through roofs windows and sliding glass doors; siding and stucco deficiencies; slab leaks or cracks; faulty drainage; improper landscaping and irrigation; termite infestation; improper materials; structural failure or collapse; defective mechanical and plumbing; faulty electrical wiring; inadequate environmental controls; improper security measures and devices; insufficient insulation and poor sound protection; and inadequate firewall protection. The developer, design professional, and contractor may all be responsible. Historically, the law has recognized that the various participants in the construction process are liable only for those defects that fall within their respective areas of expertise. For example, a contractor who builds a structure according to the design supplied by the owner generally is not responsible for the adequacy of the design.

In addition to express written warranties received from the developer and contractors, the Association should be aware of warranties provided by the Condominium Act. The Condominium Act provides implied warranties in favor of individuals who purchase their units from the developer. The warranties as to the developer, run 3 years from completion of the building, (usually measured by the issuance of the Certificate of Occupancy) or 1 year from transition of control from the developer to non-developer unit owners but in no event more than 5 years from completion of the building. Fla. Stat. § 718.203(1). There is also a common law implied warranty under which the Association can make claims for a period up to 4 years from transition. Fla. Stat. § 95.11.

The warranties as to the developer are as follows:

–   As to the roof and structural components of a building or other improvements and as to mechanical, electrical, and plumbing elements serving improvements or a building, except mechanical elements serving only one unit, a warranty for a period beginning with the completion of construction of each building or improvement and continuing for 3 years thereafter or 1 year after owners other than the developer obtain control of the association, whichever occurs last, but in no event more than 5 years. Fla. Stat. § 718.203.

–   As to all other improvements for the use of unit owners, a 3 year warranty commencing with the date of completion of the improvements. Id.

Contractors, subcontractors, and suppliers all grant warranties as to work or materials supplied as follows:

–   For a period of 3 years from the date of completion of construction of a building or improvement, a warranty as to the roof and structural components of the building or improvement and mechanical and plumbing elements serving a building or an improvement, except mechanical elements serving only one unit. Id.

–   For a period of 1 year after completion of all construction, a warranty as to all other improvements and materials. Id.

As a general proposition, the measure of damages with construction defect actions is the cost to correct, repair, or replace the defective building component. A lawsuit must be filed before the Statute of Limitations expires. The Statute of Limitations as to defects which the Association knew of or should have known of through the exercise of reasonable diligence is tolled until time of transition and then runs for 4 years. Fla. Stat. § 95.11(3)(c). If there are latent defects, the Statute of Limitations as to those defects commences when the Association knows or should have known through the exercise of reasonable diligence of the existence of the defect and runs for 4 years with an absolute bar of 10 years from the time the building was completed (Statute of Repose), measured as of the date of the Certificate of Occupancy. Id. The total cost of prosecuting a lawsuit on behalf of the Association will depend on a number of factors, including the nature and amount of damages, the number of parties, and the attitude of the parties. Some lawsuits are settled within a short period of time, while others are not resolved until just before trial. Construction defects lawsuits can be extremely expensive, and close cooperation between the Board of Directors of the Association, property manager, expert, and attorney is necessary to contain the costs as much as possible.

Usually, the Association’s insurance policy will not cover damages caused by construction defects. The language in most insurance policies excludes coverage for faulty construction, design, workmanship, and/or defective materials. However, disaster coverage such as coverage for flood, earthquake, and hurricane must be evaluated separately as coverage may be afforded under said scenarios. The Association is generally required to mitigate damages. That is, the Association must take all required steps to protect the property from sustaining additional damage. These costs are usually recoverable if a lawsuit is filed. However, if temporary repairs are made, said repairs must be carefully evaluated with the Association’s expert to assure correct documentation of the temporary repairs. Furthermore, it is recommended that notice be given to all parties of the proposed repairs to be made.

The proposed repairs should be evaluated by the Association and its expert. If the proposed repair meets the approval of the Association’s expert, the Association should allow the repair unless other reasons exist to reject it. The same expert should oversee actual repairs. Once repairs are agreed upon, a proper settlement agreement should be drafted that only releases the developer of liability for the limited and defined repairs being made, and then only after the repairs have proved effective.

If the defects cannot be cured, then the Association should proceed with evaluating the viability of legal claims and potential defendants. Once it is determined that the basis for liability exists and the amount of damages sought justifies a potentially expensive, multi-party construction defect litigation, efforts should be undertaken to determine whether any of the potential defendants has sufficient financial resources to satisfy a judgment. Association resources need to be spent wisely- that is going after the best sources of repayment by order of priority.

Accordingly, the Association should attempt to ascertain whether a defendant has insurance, a performance bond, or other personal financial resources to assure the association that a judgment will be collectible. However, to pursue a claim against the defendant’s payment or performance bonds, the association must first be listed as a third-party beneficiary on the bond. See Beach Point Condo. Ass’n, Inc. v. Beach Point Corp., 480 So.2d 239 (Fla. 4th DCA 1985). Regardless, it is advisable to acquire credit reports, perform asset searches, and obtain other information to assist the association in evaluating if there is likely to be a “pot of gold at the end of the rainbow” to justify litigation.

In addition, the condominium documents, including the declaration of condominium, should be reviewed to determine whether disputes involving construction litigation are subject to prevailing party attorneys’ fees or arbitration, or if any restrictions exist to impair an association’s rights to pursue litigation against the developer. For example, a declaration of condominium may contain a provision precluding litigation against a developer without first obtaining 75% approval from the unit owners. Similarly, the declaration may seek to disclaim common-law implied warranties, limit the recovery of damages, and impair other rights available to the association. The issue whether these provisions in a declaration are valid or enforceable should be considered, because section 718.303(1), Florida Statutes, provides for prevailing party attorneys’ fees and section 718.303(2), Florida Statutes, prohibits a waiver of rights granted under the statute. Additionally, while Chapter 720, Florida Statutes, requires a homeowner vote prior to instituting certain types of litigation, Chapter 718, Florida Statutes, does not contain this limitation.

Conducting a presuit analysis will also aid in the association’s compliance with the requirements of Fla. Stat. Chapter 558. The association’s failure to comply with the presuit notice and right to cure requirements of that chapter could impede its ability to perfect a construction or design defect claim.

Fla.R.Civ.P. 1.221 establishes the right of a condominium association to assert a class action in its own name on behalf of its unit owner members for certain matters of common interest, including the common elements. This is significant because it has eliminated traditional technicalities typically associated with the initiation and pursuit of class action suits. See Fla.R.Civ.P. 1.220. Consequently, a class action lawsuit initiated on behalf of the unit owners by the association to recover damages for deficiencies arising from the faulty design and construction of the common elements of a condominium is appropriate. The Florida Bar, In re Rule 1.220(b), Florida Rules of Civil Procedure (Petition To Modify), 353 So.2d 95 (Fla. 1977); Avila South Condo. Ass’n, Inc. v. Kappa Corp., 347 So.2d 599 (Fla. 1977). Similarly, a class action instituted under Rule 1.221 would be appropriate to recover damages for defects located in a unit as opposed to the common elements if the defect is prevalent throughout the building. Seawatch at Marathon Condo. Ass’n, Inc. v. Charley Toppino & Sons, Inc., 610 So.2d 470 (Fla. 3d DCA 1992), aff’d 658 So.2d 922. The exact percentage of unit owners which experience the symptoms is unclear, though Florida courts have upheld class certification when the issues in question were common among 90-100% of the unit owners. The Florida Bar. In re Rule 1.220(b); Brazilian Court Hotel Condominium Owners Ass’n, Inc. v. Walker, 584 So.2d 609 (Fla. 4th DCA 1991); El Conquistador Condominium, Inc. v. Day, 338 So.2d 237 (Fla. 3d DCA 1976).

The Florida Supreme Court has clarified that a condominium association is not the exclusive holder of the right to sue over the common elements. In Rogers & Ford Construction Corp. v. Carlandia Corp., 626 So.2d 1350 (Fla. 1993), the court recognized the right of a unit owner to maintain an action against a developer or general contractor for breaches of duty with respect to defects in the common elements. Notwithstanding, the court cautioned that the interest of the other unit owners must be represented in any action unless the duty that was breached was owed only to a particular unit owner, even with respect to the common elements.

While it is tempting in a defect action to sue all potentially solvent defendants and let them sort out responsibility, this approach tends to increase the cost of litigation and may delay resolution. When the developer is financially solvent, the most practical approach may be to sue the developer alone. This strategy will simplify the litigation unless the developer elects to bring in other parties (i.e., general contractor, design professionals, subcontractors) by initiating a third-party complaint.

Associations can utilize the presuit notice and right to cure requirements under Fla. Stat. Chapter 558 as a means to identify potential defendants via its provisions for obtaining discoverable documents and its provision that recipients of a notice of claim may forward copies of the notice to any other person or entity reasonably believed to be responsible for the alleged defects. The Fla. Stat. Chapter 558 requirement that associations serve a notice of claim on potential defendants is a unique tool to obtain information and documents from them; furthermore, it helps the association place all potentially responsible parties on notice of the claim for defects. Fla. Stat. § 558.004.

Source: Lessar, Construction Defect Litigation, Florida Condominium and Community Association Law (2007-08).