Can a condominium association be sued by its unit owner members if the board of directors’ negligently fails to timely and properly pursue a construction defect claim against the condominium developer? The Maryland Court of Special Appeals held “yes” in the case of Greenstein v. Council of Unit Owners of Avalon Court Six Condominium (“Greenstein”).

 

Maryland Condominium Construction Defect Litigation Lawyers

This case demonstrates that construction defect disputes involving condominiums can be a highly technical area. There are various statute of limitations time periods that can differ depending on the type of claims and defect in question. There are also many developer imposed legal obstacles that serve as road blocks and pitfalls to the unwary and inexperienced. Our Attorneys often review cases where legal rights have been waived because of a lack of understanding or experience in this complex area of law.

Once control of an association is transferred from developers to homeowner control, we recommend that an association’s’ board of directors obtain a free consultation with a lawyer from our law firm or attend one of the Community Association Institute’s seminars on resolving construction defect disputes. In this manner the board can learn how to identify and resolve construction defects with developers and preserve warranty claims before warranties and other legal rights expire. In this manner, Associations can avoid the Greenstein scenario where homeowners accuse the board of negligently failing to pursue construction legal claims. This should be one of the first items addressed by the board once the developer turns over control of the Association.

The Community Association Institutes Seminar I teach, entitled “Successful Strategies for Resolving Construction Defect Claims with Developers,” teaches board members how to avoid the problems that resulted in the association being sued in Greenstein. Below is an Article I wrote regarding the Greenstein Case.

By way of background, in Greenstein the legal battle concerned a 36-unit residential condominium in Baltimore County, Maryland. According to court documents, the condominium association sued the developer for alleged construction defects resulting in building leaks. The Baltimore County Circuit Court dismissed the association’s suit as untimely because the association had been aware of construction deficiencies for some time, including water infiltration into units through the exterior of the building, but failed to bring the law suit before the statute of limitations expired.

Having failed in its efforts to preserve its legal claims and hold the developer responsible, the condominium association then reportedly decided to repair the construction defects with its own funds by assessing its members in excess of $35,000 each for the repair costs, which exceeded $1 Million. In response to the assessment, a group of individual unit owners sued the association for the cost of repairing common element construction defects claiming that board was negligent in failing to timely investigate leaks and file suit against the developer for construction defects.

Court documents say that the Baltimore County Circuit Court dismissed the unit owners’ lawsuit, in part, because no Maryland court has ever recognized that an association has a duty to sue on behalf of its members. The Baltimore County court felt that it should be left up to the legislature or Maryland’s highest court to decide if the law goes that far. The unit owners appealed the case to the Court of Special Appeals, asking it to interpret Maryland law on whether an association is legally obligated to sue on behalf of its members (and whether an association can be held liable to unit owners for failing to do so). The owners argued that because an association must maintain the common elements and has the power to file suit, it is, therefore, legally obligated to sue a developer when the common elements are defectively constructed and can be held liable to its members if it fails to timely file suit.

On appeal, Maryland’s second highest court, The Court of Special Appeals, concluded that a condominium association does have a duty to properly pursue any claims against the developer related to defects in the “design and/or construction of the common elements” and a breach of that duty could constitute negligence. The Court remanded the case to the Baltimore County trial court, instructing it to review the owners’ negligence claim. Further efforts to appeal that decision were denied by Maryland’s highest court, the Maryland Court of Appeals.

SUE OR BE SUED?

CONDO ASSOCIATION CAN BE LIABLE TO ITS MEMBERS FOR FAILING TO TAKE LEGAL ACTION AGAINST DEVELOPER FOR CONSTRUCTION DEFECTS

By Nicholas D. Cowie

The Maryland Court of Special Appeals, recently issued an opinion in Greenstein v. Council of Unit Owners of Avalon Court Six Condominium, Inc. finding that an association can be sued by its unit owner members if it fails to take timely legal action against a developer. In that case, the association was aware of construction defects, but failed to take action to preserve its claims and then filed a lawsuit against the developer too late, after the statute of limitations expired. As a result, the suit against the developer was dismissed and the association was forced to assess its unit owner members for the $1 Million in repair costs. Some of the unit owners then sued their association, seeking to recover the cost of their assessments on the ground that the association was negligent in failing to pursue a timely legal action against the developer.

On appeal, the court was asked to decide whether state law permits owners to sue their condominium association for negligently failing to sue a developer for common element construction defects. The court found that an association could be held liable to its members. The Court said: “The duty to maintain, repair, and replace the common elements together with the exclusive right to initiate litigation regarding the common elements [which was stated in a provision of the association’s by-laws] creates a concomitant obligation on the part of the [Association] to pursue recovery from [the Developer] on behalf of [the unit owners] for damage to the common elements caused by [the Developer’s] negligence, breach of contract, or violation of any applicable law.”

The particular effect of the court’s opinion on other condominium associations remains to be seen. It appears that court’s opinion was based in part on the fact that the association’s by-laws provided it with an “exclusive” right to sue for common element defects. Although existing Maryland law recognizes the right of individual unit owners to sue for common element defects, this law was not addressed in the documents filed by the parties in the case or the court’s opinion. In addition, because the court ordered that a trial be conducted to determine whether the association was negligent in that case, it is not yet known whether the association will actually be made to pay damages.

One take-home lesson from the court’s opinion is clear: whenever construction defects are discovered at a condominium, an association should discuss its legal obligations and options with an attorney as soon as possible. As a general matter, condominium associations should conduct a professional evaluation of the construction of the condominium so that potential warranty claims can be brought to the developer’s attention before they expire. Whenever there is evidence of common element construction defects, an association should take immediate action with the developer to protect its unit owner membership by preserving warranty claims so that the statute of limitations does not expire while negotiating repairs.

For more information regarding this case and strategies for preserving warranty claims without having to resort to litigation, please sign up for the next CAI/CRC seminar entitled “Successful Strategies for Resolving Construction Defect Disputes with Developers”. The location and date for the seminar are currently being scheduled. In the meantime you may contact Rachael Smith (rsmith@cowielawgroup.com) if you would like to preregister or receive notification of the seminar schedule.

-Nicholas D. Cowie, Esq.

Nicholas Cowie is a partner in the law firm Cowie Law Group, P.C. and a member of the Washington Metro and Chesapeake Region Chapters of the Community Association Institute. Mr. Cowie established the construction law course at the University of Baltimore where he served as an adjunct professor of construction law. Mr. Cowie has been practicing construction defect law for 23 years and his legal work in the courts and legislature has greatly strengthened the rights of condominium associations and their members in construction defect claims. The law firm of Cowie Law Group, P.C. had no involvement in the case which is the subject of this article.