A Guide for Boards of Managers and Property Managers

As a board member or property manager of a newly constructed condominium in New York, you have a responsibility to protect the interests of your unit owners. This includes taking action if there are construction defects in the building.

Understanding Your Rights and Options

Sponsors are legally obligated to deliver a building that is free of material defects and constructed according to the offering plan. When they fail to meet these obligations, you have several legal avenues to pursue:

• Breach of Warranty:
  • Buildings with five stories or less have an implied warranty under New York law covering material defects for six years, plumbing and electrical issues for two years, and construction-related defects for one year.
  • Larger buildings may have limited warranties provided by the sponsor, often with strict notice requirements.
• Breach of Contract: You can sue the sponsor for breaching the offering plan or purchase agreements, which often detail construction standards and materials.
• Fraud: If the sponsor intentionally misrepresented or concealed material conditions in the offering plan, you may have a fraud claim.
• Breach of Fiduciary Duty: Sponsor-appointed board members owe a fiduciary duty to the condominium, even during the sponsor’s control period.
• Negligence: You can sue the sponsor for negligence if they breached duties beyond their contractual obligations.
• Don’t Forget the Sponsor Members: It’s always better to seek relief from the Sponsor or Sponsor-appointed board members before they sell out of your condo. If they still own unsold assets there, you’re in luck. If not, you can try to claw back distributions by the Sponsor to its members.

Time is of the Essence

It is crucial to act quickly when pursuing these claims, as New York law enforces strict statutes of limitations (even though there are arguments that can be raised to extend the time periods or as to when the time periods begin):

• Breach of Warranty: Six years from substantial completion or occupancy.
• Breach of Contract: Six years from the date of the breach.
• Fraud: Six years from the date of the wrongdoing or two years from its discovery.
• Negligence: Three years from the date of injury.

Taking Action

If you suspect construction defects, take the following steps immediately:

1. Document Everything: Engage a licensed engineer or architect to thoroughly inspect the building and document all defects with a detailed report, including photos and videos. Do this through your attorney to preserve the attorney-client work product privilege. This can be a critical step that condo boards overlook sometimes. Experienced counsel know better and can fix the issue in some instances retroactively.
2. Consult an Attorney: Seek legal counsel experienced in construction defect litigation to discuss your options and ensure you meet all deadlines and procedural requirements.
3. Consider Collective Action: If a non-sponsor board is not yet in place, unit owners may need to pool resources to pursue claims collectively.
4. Common Elements vs. Units: The common elements are for the Board to seek legal redress but the units themselves are the individual unit owner’s responsibility to pursue if there are issues. Some issues are so pervasive in the entire community that the Board takes on the fight for its unit owners’ unit issues. Experienced counsel can guide you through this process.

Conclusion

Construction defect cases are complex and time-sensitive. By understanding your rights, acting swiftly, and seeking expert advice, you can protect the interests of your unit owners and hold the Sponsor, Sponsor-appointed board members and Sponsor members accountable. It’s a lot better to fix your problems with their money than with your own. Another consideration that seasoned counsel can walk you through.