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Articles Posted in Construction defect

GeorgKetelhohn.jpgWhen the Daily Business Review, the South Florida region’s only daily business newspaper, decided to report on the proposed bills at the start of this year’s legislative session that would impact construction defect claims for Florida community associations and property owners, it turned to the firm’s Georg Ketelhohn for his insights on the bills for the front-page story, which also featured his photograph. Georg, who wrote about the concerns for community associations with these bills in recent articles in this blog, served as one of the primary sources for the article, which appeared in yesterday’s edition of the newspaper and was titled “Construction Defect, Claims Bills Favor Contractors, Designers.”

The article focused on Georg’s views about the concerns for community associations with House Bill 87 and House Bill 501. It reads:

One of the most hotly debated proposals comes from Rep. Jay Fant, R-Jacksonville, whose House Bill 501 would reduce the window for homeowners to file claims for latent defects against contractors, designers and planners.

Florida law allows homeowners four years after discovering a structural defect–or four years after they should have discovered the defect with due diligence–to bring a construction claim.

But also at play in the four-year statute of limitation is the statute of repose. That law expires 10 years after the owner takes possession of the property or completes the contract with an engineer, architect or contractor; a certificate of occupancy is issued; or construction is completed or abandoned. It expires even if the statute of limitations has not run.

Under Fant’s proposal, the 10-year window could shrink to seven, leaving homeowners responsible for fixing any defects discovered after the cutoff period for filing suit.

“Most people are very aware of the statute of limitations, but the statute of repose has no tolling or exemptions. It’s an absolute cutoff even if the defect was latent and could not have been discovered until that time,” said construction litigator Georg Ketelhohn, a senior associate at Siegfried Rivera Hyman Lerner De La Torre Mars & Sobel in Coral Gables. “It’s a concern because some construction defects do not manifest for at least seven years.”

Opponents say the bill would especially hurt condominium associations and owners who might not gain control of units for years but would face a shorter window to file claims for faulty construction or design work.

The bill made it past the House’s Civil Justice Committee on a 7-6 vote Feb. 17 and is headed next to the Judiciary Committee. If it becomes law, the change would take effect July 1 and become one of two potential game changers for property owners across the state.

The article continues to discuss HB 87:

Another proposal would require litigants to provide more detailed information when filing claim notices. Instead of identifying only some defects up front, a bill would require homeowners to identify every affected location as the basis of the claim.

Opponents say uncovering the full scope of a faulty construction or design would force property owners to undertake destructive investigations including demolition work to expose all shoddy work.

The bill by Rep. Kathleen Passidomo, R-Naples, also would require the initial notice to specify the building code, project plans, drawings or other project specification to serve as the basis for the claim.

Sen. Garrett Richter, R-Naples, filed a companion Senate bill Jan. 21.

“The intention is to limit construction claims in the state,” Ketelhohn said.

Our firm congratulates Georg for sharing his views on these important new pieces of proposed legislation for community associations with the editors of the Daily Business Review and the newspaper’s readers. Click here to read the complete article in the newspaper’s website (registration required).

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In addition to Florida House Bill 87, which I wrote about in this blog last month, HB 501 also presents serious concerns for associations, property owners and even also public-sector projects. The bill seeks to reduce the statute of repose for construction-related claims from the current 10 years to just seven years, meaning that claimants will have only seven years from the date of the completion of construction to file any claims for the design, planning or construction of any improvement to real property.

Unlike the statute of limitations, which establishes a time limit within which an action must be brought from the time of the accrual of the cause of action, the statute of repose bars a claim after the conclusion of the period of repose, thereby creating an absolute bar to such claims even if the claim is for a latent defect that was not discovered until years after the completion of construction. It holds contractors, subcontractors, architects, engineers and other construction-industry professionals free from all liability after the set term of time expires.

Under Florida law, the statute of limitations for construction defects expires four years after the defect is discovered or should have been discovered using due diligence, but the statute of repose expires (even if the statute of limitations has not run) ten years after the later of:

  • the date of actual possession by the owner;
  • the date of the issuance of a certificate of occupancy;
  • the date of abandonment of construction if not completed; or
  • the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer.

With HB 501, the legislature would reduce the period of repose from 10 to seven years, so after seven years any latent structural defects or other latent defects that have not manifested themselves beforehand would become solely the responsibility of the property owner. For condominium associations, this change would be particularly troublesome because, unlike the period for the statute of limitations which does not begin to run until after the turnover of control from the developer, the clock starts ticking for the period of repose at the completion of construction, which is often years before the turnover. Thus, if the turnover of a property from the developer is delayed beyond the normal course for some reason, the period for a condominium association to bring any construction claims could be quite short, as no extension is given to the association for the period of repose under current law or under the proposed bill.

constdefect1.jpgTypically, construction defect claims for condominium associations are only brought after turnover has taken place, as the turnover process includes an independent engineering inspection of the structural and mechanical elements. Also, prior to the turnover, the unit owners will not be as informed and involved with the management and administration of the property while it is still being overseen by the developer. And, it would be cost-prohibitive and impractical for individual unit owners to commission an engineering inspection and report for the common areas on their own, and then file suit for the construction defects of the whole condominium on their own.

Thus, the statute of repose, if it gets shortened to seven years, could create an incentive for developers to limit their exposure to construction defect liability by delaying the turnover as long as possible, as the longer they wait to complete the turnover, the shorter the window of opportunity becomes for the association under the statute of repose to identify any defects and pursue a claim.

Builders and their lobbyists in support of this legislation argue that most construction defects become apparent within a few years of the completion of construction, but the fact is that some of the most costly and cumbersome defects to repair are latent structural and mechanical defects that can take well over seven years to become evident. A well-known and oft-cited example of this took place years ago in Key West when one of the area’s largest concrete firms used salt water to mix its concrete. The residual salt in the concrete caused the reinforcing steel to corrode, but the defect did not become fully apparent until years after the completion of construction.

The current ten year statute of repose was already previously reduced from fifteen years in 2006, and the additional reduction to seven years that is being considered appears to be receiving mixed reviews by the lawmakers. Two civil engineers gave expert testimony against the bill before the House’s Civil Justice Subcommittee, which narrowly passed the bill by a vote of 7-6 and sent it on to the House Judiciary Committee.

Our firm encourages associations and property owners to contact their state representatives and senators to share their concerns regarding HB 501 as well as HB 87, which you can learn more about by clicking here to read my recent blog article. Click here to find the contact information for the state legislators for your district.

Developed with the assistance of the South Florida Chapter of the Associated General Contractors of America, House of Representatives Bill 87 seeks to amend Chapter 558, Florida Statutes, in an effort to help contractors and design professionals avoid construction defect litigation. For community associations and property owners, there are a number of concerns about the proposed changes under this new legislation as it currently stands before the House’s Civil Justice Subcommittee. The changes under HB 87 would require community associations or other property owners that wish to pursue a construction claim to meet additional procedural requirements which could require substantial expenditures on engineering fees before being able to file suit. The bill would also require property owners to produce potentially large amounts of documents to the contractor or design professional before being permitted to file suit without imposing a similarly broad requirement on the contractor or design professional, and it would impose monetary sanctions against property owners who file suit for construction defects in several circumstances, while not providing for any sanctions against contractors or design professionals in similar situations.

The changes under HB 87 include:

  • Revising the legislative intent to address the involvement of insurers.
  • Revising the legislative intent to indicate that Chapter 558 is intended to provide an opportunity to resolve construction defect claims through confidential settlement negotiations.
  • Revising the definition of the term “Completion of a building or improvement” to include issuance of a temporary certificate of occupancy, which could potentially shorten the statute of limitations for a property owner to file suit for construction defects.
  • Providing additional requirements for a notice of claim, including the identification of specific location(s) of each alleged construction defect, as well as the specific provisions of the building code, project plans, project drawings, project specifications, or other documentation, information, or authority that serve as the basis of the claim for each alleged construction defect.
  • Revising the requirements for a response to a notice of claim to address monetary settlement offers.
  • Providing that, if a claimant proceeds with an action that includes any claim previously resolved in accordance with Chapter 558, the associated portion of that action shall be deemed frivolous. The term “previously resolved” is not defined.
  • Providing for sanctions for such frivolous claims, including attorneys’ fees.
  • Revising the provisions relating to production of records requested under Chapter 558, to include a claimant’s maintenance records and other documents related to the discovery, investigation, causation, and extent of the alleged defects identified in the notice of claim and any resulting damages.
  • Providing for sanctions for construction defect claims that were solely the fault of a claimant or its agents, including costs of investigation, testing, and attorneys’ fees. (No sanctions are provided against a defendant if the defect is deemed to be solely the defendant’s fault.)

HB 87 defines “completion of a building” to mean issuance of a temporary certificate of occupancy (TCO) instead of the final certificate of occupancy (CO), which may shorten the statute of limitations for construction defects in some cases. Currently, the statute of limitations for construction defects commences with the final certificate of occupancy, but if the bill is ratified defendants will use it to argue that the period for the statute of limitations begins with the issuance of the TCO rather than the final CO.

Florida legislature2.jpgThe proposed bill would require associations and property owners to identify in the initial notice of claim every single location of each defect rather than to provide a representative sample. If the type of defect involved is concealed, this would necessitate destructive investigations, and would require associations and property owners to demolish building elements in search of each instance of the defects in order to include all of them in the notice.

In addition, the bill also requires that the initial notice includes all of the specific provisions of the building code, project plans, project drawings, project specifications and other documentation, information or authority that serve as the basis for the defect claim. The failure to include each of these would serve to invalidate the notice of claim as deficient. This would create a significant obstacle to bringing a claim for construction defects, as the associations and property owners often do not have all the project drawings, specifications, etc., at the outset. Before initiating a claim, associations and property owners have often not yet had the opportunity to obtain project records or depose the defendants, which frequently allows the issues causing the defect(s) to be expanded during the course of litigation. Under this bill, if the claim is expanded based on information learned in discovery, the defendant can argue that the initial notice of claim was deficient.

The bill would require more detailed settlement proposals from contractors that wish to extend a settlement offer, but it provides no penalties for defendants that fail to comply with this requirement. However, the associations and property owners that file claims are subjected to several potential penalties if they do not comply with the requirements under the proposed modifications to Chapter 558.

The bill provides for sanctions if a claimant sues for any claim that had been “previously resolved” in accordance with Chapter 558, but it fails to define “previously resolved.” If a construction defect is settled by repairs offered by the contractor during the Chapter 558 claims process but the repairs fail to fully correct the defects and the owner or association then files suit because the issue was not resolved, the defendant may claim that the issue was “previously resolved” and the owner may face penalties. However, the bill provides no similar penalty for contractors that agree to provide repairs and then breach that agreement.

The proposed law would also require owners/associations to produce all of their maintenance records and other documents related to discovery, investigation, causation and the extent of the alleged defect(s) identified in the notice of claim as well as the damages resulting from the defects. This will typically require an extensive, time consuming, invasive and expensive process of document inspection, review and production on the part of the claimant before a lawsuit is ever filed, creating another significant roadblock to filing a suit for construction defects. From the owner/association’s perspective, this defeats part of the benefit to settling before litigation starts, as they must incur significant discovery expenses and attorney’s fees just to go through the claims process prior to the filing of a lawsuit. In addition, the provision is one sided in that it does not require the contractors or design professionals to produce to the claimant a similarly broad amount of discovery during the process.

HB 87 would also provide for sanctions against an owner or association that brings suit for an item that is ultimately deemed by the court to be solely the fault of the claimant or its agents. Florida Statutes Section 57.105 already provides for fees against a party that prosecutes a frivolous claim or a frivolous defense. The bill does not reference the standard in Section 57.105, so essentially it creates a possibly different standard. HB 87’s possible sanctions against associations/owners include not only attorney’s fees but also costs of inspection, investigation and testing. However, if a contractor or other respondent is ultimately found to be responsible for a defect, and its defense was not supported by the facts or the law, no sanctions are provided against the contractor or its attorney under the bill.

As it now stands, HB 87 would cause significant obstacles and undue burdens on property owners and community associations that wish to pursue construction defect claims. Our firm’s other community association attorneys and I encourage Florida associations and property owners to become informed about this bill and its progress in Tallahassee. The bill has been assigned to the Civil Justice Subcommittee, the Business & Professions Subcommittee and the Judiciary Committee, and it must pass those committees before coming before the full Florida House of Representatives in the 60-day legislative session that begins March 3, 2015. If passed, the new law would take effect October 1, 2015.

Jeffrey Respler srhl-law.jpgThe firm’s lawsuits alleging major construction defects against the developer, general contractor, architect and engineers behind Miami’s Quantum on the Bay condominium towers were the subject of an article by the Daily Business Review that appeared in the June 16, 2014, edition of the newspaper. The lawsuits allege that the defendants’ work resulted in hundreds of defects, including stucco and HVAC problems as well as inadequate drainage that has led to severe flooding in the community’s fitness center and loading dock.

Firm Partner Jeffrey S. Respler is quoted in the article indicating that “[t]he unit owners want to have the property that should have been delivered to them. At the end of the day, we’re not looking for a windfall. We’re only looking to be made whole.”

The lawsuit names as defendants developer Terra ADI-International Bayshore LLC, builder Facchina-McGaughan LLC, architect Nichols Brosch Wurst Wolfe & Associates Inc., contractor Fred McGilvray Inc., and engineers Florida Engineering Services Inc., VSN Engineering Inc., Gopman Consulting Engineers Inc. and John J. Kirlin LLC, a Maryland-based firm that specializes in plumbing, heating, ventilation and air conditioning.

“The biggest problem is whenever there’s even a minor rain event, there’s flooding,” explains Respler in the report. “Every single day, the association people have to go out and pump the drainage wells in this luxury development. If not, there’s flooding – even when there’s no rain.”

The article describes how sandbags are being used at the property to keep water out of a service area during storms, and residents have been forced to have repairs made to swamped elevators.

Respler concludes: “The parties who we know are responsible are pointing fingers at each other. We are just the end users. We weren’t there when it was being built. The bottom-line fix is we’re probably going to have to move the drains to the front of the property. The speculation is the building was built too low.”

Click here to read the complete article in the DBR’s website (registration required).

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Daniel Salas SRLDS.jpgConcrete restoration projects are unavoidable during the lifespan of every concrete building in South Florida. They are among the most expensive construction renovation projects that associations will be required to take on, and as such many associations and their property managers try to mitigate the costs as much as possible. However, the old adage that an ounce of prevention is worth a pound of cure holds true with these projects. Associations should be very careful to avoid cutting corners on the record keeping, making sure to chronicle all of the work that was performed as part of these restoration projects in order to protect against the repercussions of shoddy work and defects.

My colleagues and I have experienced a number of instances where our association clients have had defects manifest themselves only a few years after a concrete restoration project has been completed. However, the associations have had a difficult time proving that the contractor was responsible due to inadequate and incomplete records of the work that was performed. After inspecting the defects in question, the contractors have responded by indicating that they were not responsible for the work on the affected areas. The associations then request records and work logs to verify the contractors’ claims, only to find that the contractors and engineers did not keep detailed work logs of the work that was performed, leaving the association with little evidence to prove their claims.

balcony renovation.jpgThere are a number of measures that associations should take to avoid this scenario and protect themselves against the potential for inferior and defective work in concrete restoration projects. The foremost among these is the retaining of an independent third-party engineer or project manager to oversee and chronicle the restoration work performed in the building, and to help ensure that all of the work is performed in a cost-effective and timely manner. A third-party project manager not only protects the interest of the association during the construction process but also protects the association’s interests should defects in the restoration work arise in the future. The benefits of hiring a third-party project manager are countless, for example, project managers will assist in the evaluation and hiring of the project engineer and contractor; evaluate the work of the engineer and contractor; hold timely meetings to review the process of the work performed; review the payment requisitions and daily logs; and keep the association informed of any potential issues on the project.

In addition to the use of an independent engineer or project manager, the association’s attorney should also be called upon to review and or draft the contracts for the restoration project. The associations should ensure that their contracts include stipulations requiring that the general contractor and engineer maintain and provide to the association detailed work logs of all of the work performed. The standard warranty language in general construction contracts will not suffice without the detailed work logs showing exactly what work was performed and the location of such work in every facet of the building. It is much more difficult to hold contractors liable for defects in areas that are not documented as having been part of the restoration work performed.

Although these additional measures will add to the costs of concrete restoration projects for associations, without them the associations would be taking a significant risk of being unable to hold contractors responsible for any defects that may arise in the restored areas. Additionally, these added costs are minimal compared to the costs that the associations would endure in litigation or in repairs to the areas which had been restored. There is no doubt that concrete restoration projects are expensive, time consuming and a nuisance to the residents of the building. However, keeping these measures in place throughout the process will mitigate the time and money spent on the project as well as result in a well done concrete restoration project, retaining the value of the building as well as the safety of the residents.

HB 1013, one of the most surprising and anti-consumer pieces of new legislation for Florida homeowners and HOAs, was recently signed into law by Gov. Scott. HB 1013 was passed in direct response to the Fifth District Court of Appeal’s decision in the case of Lakeview Reserve Homeowners Association, Inc. v. Maronda Homes of Florida, Inc. In Maronda, the appellate court extended the common law warranty of fitness and merchantability to off-site improvements such as roads and drainage systems within a community. The new law eliminates an HOA’s cause of action for breach of the common law warranty of fitness and merchantability as it pertains to defective roads, walls, drainage areas, utilities, or any other improvements that are not located on or under the lot on which the home is constructed or which do not “immediately and directly support the habitability of the home itself.”

In Maronda, the HOA sued the developer alleging defective construction of private roads, drainage systems, retention ponds and underground pipes within the subdivision. The appellate court reversed the trial court’s decision and ruled that the implied warranty of habitability extends to developers and contractors that have built communities with defective infrastructure because purchasers of new homes in a subdivision “must rely on the expertise of the builder/developer for proper construction of these complex structures, where they are in an inferior position to inspect the work and to correct the defects in the construction phase and where the defects are not readily discernable to the average homeowner.” Defective drainage.jpg The Fifth DCA specifically held that roads, drainage systems, retention ponds and underground pipes are all essential services that support the habitability of the home for purposes of the application of the implied warranties.

HB 1013 becomes the law on July 1, 2012. However, there is a possibility that the new law will face a constitutional challenge because its application is intended to be retroactive – meaning that it applies to issues and cases already in existence. Because the new law is retroactive, it may be considered to be an impairment of an existing contract – which is unconstitutional in Florida. However, until such a challenge is made, the law will now only allow homeowners to bring claims for damages due to defective construction if they can prove a breach of the building code or negligence in the design of the infrastructure systems. These claims can be difficult to prove, since typically all of the building permits and inspections have been passed by a builder during construction, and infrastructure systems are built in accordance with proven designs.

With the passage of this new law however, it is now more imperative than ever that the turnover process for communities include thorough testing and inspections of the infrastructure and drainage systems by a certified engineer. If the community is experiencing flooding prior to turnover, the association should have its engineer inspect and identify any flaws in the infrastructure that may require additional work or repairs. Many times in the past, when these types of defects have arisen, the parties have been able to settle their issues because reputable developers and contractors generally take responsibility for faulty infrastructure and make the necessary repairs.

A hearing in the Maronda case before the Florida Supreme Court was slated for later this year, however it is yet to be seen how the parties will address the passage of HB 1013 and whether the hearing will go forward.

Other community association attorneys at our firm and I were very surprised by the passage of this new law, as it appears to us to be unfairly allowing developers, contractors and engineers to avoid liability for defects in infrastructure systems that can lead to significant and costly repairs for HOA communities and their homeowners. We will continue to monitor and write about this and other important issues for Florida community associations in this blog, and we encourage board members, unit owners and property managers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

A recent decision by a Florida appellate court in the case of Lakeview Reserve Homeowners v. Maronda Homes, Inc. 35 Fla. L. Weekly D2413 (Fla. 5th DCA 2010) has far-reaching implications for homeowners associations in construction defect disputes with developers. The Fifth District Court of Appeal court has broadened the implied warranty of fitness and merchantability granted to purchasers of new homes to include structures in common areas of a subdivision that immediately support the residence in the form of essential services. This case will further enable community association and construction defect lawyers in Florida to protect consumers who rely on the expertise of the developer for the proper construction of their new home.

The court found that a homeowners association does have a claim for breach of common law implied warranties of fitness and merchantability, which is also often referred to as a warranty of habitability, against a builder/developer for defects in roadways, drainage systems, retention ponds, and underground pipes. The court ruled that the unit owners in the community are entitled to consumer protections under the law. It wrote in its ruling that the defects in the case involve “. . . complex site improvements, some of which are underground. These improvements were put in so that the builder/developer could market move-in ready homes in a completed subdivision. The planning, permitting, site work and construction required to build these improvements requires expertise far beyond the expertise of the average homebuyer,” who must therefore rely on expertise of the builder/developer. The ruling also notes that: “The builder/developer is in a superior position to ferret out and discover defects in the construction of the improvements and to have the defects timely cured during construction. Upon completion of the construction, the defects are not readily discernable to the average homebuyer, even with diligent inspection.”

In its conclusion, the court disagreed with the Fourth District Court of Appeal’s ruling in Port Sewall Harbor & Tennis Club Owners Association, Inc. v. First Federal Savings and loan Association of Martin County, 463 So. 2d 530 (Fla. 4th DCA 1985) which held that the homeowners association could not recover under a theory of breach of implied warranties of fitness and merchantability for defects in the construction of certain roads and drainage areas in the community. Accordingly, until the Florida Supreme Court resolves the conflict or the Florida Legislature grants warranties from the developer to purchasers of new homes, the extent of the implied warranty of habitability will depend on where the residence is located in Florida.

This is a very important ruling for homebuyers and homeowners associations in Florida, as the lower court’s decision in the case could have impeded many lawsuits by associations and unit owners against developers and builders involving these hidden and latent defects in the common areas of a community. Our attorneys who focus on construction defect lawsuits will continue to monitor cases and decisions such as these in the Florida courts, and we encourage those who are interested in our input and analysis of these matters to add their e-mail address in the subscription box on the right in order to automatically receive all of our future blog posts.

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