the attorney to help navigate disclosure ob- ligations. Once defects are discovered an association needs to determine what obli- gation if any they owe to the membership regarding the specific defects.
WB: Leaks can cause major issues such as decay, dry rot, mold, and compromise the structural integrity of the buildings. How do you determine a “financial value” for these?
WB:
DG: Te financial determination is based on the cost to repair and the association’s governing documents. In some instances, the damage may be related to a component that an individual owner is responsible for under the maintenance and repair obliga- tions in the CC&Rs, in other instances it may be the association’s responsibility.
DG: It
goes without saying that the longer a leak goes undetected the greater the damage, and therefore the bigger price tag. I have seen leaks cause damage that range from under a $1,000 up to $10,000,000.
WB: When does the statute of limita- tions on leak issues expire?
WB:
DG: Most building components have a 10-year statute of limitation period (eg. Roof, siding, stucco, windows, etc.) Tis period is measured from the notice of com- pletion date. However, some components have much shorter periods, for instance paint and stains only have a 5-year period. If leaks are detected, the HOA will want to contact their attorney to determine when the statute of limitations for that compo- nent expires.
DG:
WB: How many leaks (on a percentage basis) are needed to avoid a statute of limi- tations argument by defense?
WB:
DG: Great question! Tis ultimately is a question of fact determined by a judge, ar- bitrator or jury. Tese facts depend on the size of the project, the locations of the leaks and the similarity to the damage found at each location. Percentage wise, I would say no less than 20% of the buildings need to be investigated. But again, this will be de- termined on a case by case basis.
DG:
WB: How can you navigate the statute of limitations argument?
WB: 22
DG: I had a couple cases this year that had severe statute of limitation issues.
DG: I
was able to resolve these cases favorably by arguing the statute period was extend- ed on certain components due to other components that were still within the statutory period. I used a forensic team to develop reports that showed certain repairs could not be made unless others were included. Typically, statute of limi- tations cases are ones other firms try to stay away from, but I have enjoyed work- ing on them.
DG: From your perspective, how can you deal with CC&Rs that call for “in- spections yearly, for appropriate items or events” with accompanying reports that must be delivered to the developer, if there is no substantive reason to inspect?
DG:
WB: Wow, love how the attorney asks the newbie that one….hahaha.
WB:
DG: If you’re a newbie then I get to be Brad Pitt.
WB: DG:
Touché – I guess I can’t be the di-
nosaur and in the freshman class. Well, the quickest answer is amend your CC&Rs as soon as possible, as the clause or clauses demanding that type of unreasonable re- porting are usually in developer drafted CC&Rs. Tat said, inspections are hugely important for the protection of both the HOA and its owners, especially given that the HOA is required to conduct proper maintenance of community, including preventative maintenance of the property. Preventative maintenance can include ev- erything from visual inspections to gut- ter cleaning and even routinely scheduled painting. Ideally, the HOA’s attorney should be asked to review the initial gov- erning documents when the community is turned over by the developer to review for any potential liabilities and exposure. I would also hope that weighing cause and reasonability would come into play. Tat said, requiring annual inspections for appropriate items or events allows for some interpretation. With SB326, inspections are going to become a much bigger issue and expense for HOAs to in- corporate into their monthly assessments and reserve studies.
WB: Should HOAs under 9 years old build annual inspections into their bud- gets, and is that financially reasonable, just to prevent this potential defense claim? And how will they afford it with SB326 coming into play?
WB: DG: Absolutely! You would be surprised
how many associations actually already have a built-in inspection requirement in their CC&Rs, which by osmosis would require this to be part of an association’s financial planning. Also, with the new in- frastructure legislation (SB 326) going into effect next year we will see an increase, but only for those associations who have not addressed this issue already.
Like I said
earlier, this is a situation where financially an association would much rather be safe than sorry. Regardless of the new legisla- tion, protecting the health and safety of our associations is paramount. Te last thing we want is to drive down the high- way twenty-years from now only to see abandoned condominiums and homes that were improperly maintained. Many people take out thirty-year mortgages on these homes, so they need to last. At the end of the day, preserving these properties makes us all environmentalists.
WB: So true! Te biggest financial invest- ment that most of us make in this lifetime is in our home. Hopefully, our jobs help en- sure that everyone who invests into an HOA has an expert team helping them in that protection! Tank you for sitting down and chatting; now, let’s get back to work.
WB:
WENDY BENNER is the newest addition to
the Angius & Terry team. Wendy is the Executive Director of Client Rela-
tions and Construction Services.
DYLAN GRIMES is an attorney specializing in Construction Defect and a partner with Angius & Terry LLP.
Wendy Benner (WB) has
decades of construction and contractor experience. Dylan Grimes (DG) is and HOA attorney who has seen his fair share of problems in HOA construction.
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