The New Texas Two-Step: Construction Defect Litigation by Condominium Owners’ Associations

On June 17, 2015, Texas adopted amendments to the Texas Uniform Condominium Act by requiring condominium unit owners’ associations (“Association”) to take specified procedural steps prior to initiating a construction defect or design lawsuit or arbitration. In sum, the Act (effective September 1, 2015) prevents an Association made up of eight or more units from commencing litigation without engaging the unit owners, fully disclosing the potential claims to the unit owners, and obtaining the agreement of the majority of the unit owners to pursue the claims. This process involves two primary steps: (1) procuring a third-party inspection and written report from a licensed professional engineer regarding the claim or claims; and (2) thereafter providing notice to and obtaining approval of a majority of the unit owners prior to commencing litigation.

Ten days before the inspection, the Association must notify each party subject to a claim and allow those parties a chance to attend the inspection. The notice must identify the engineer conducting the inspection, identify the specific units or common elements to be inspected, and include the date and time of the inspection. Once the report is prepared, the Association must then provide a copy of the report to each affected unit owner and each party subject to a claim, and allow 90 days after completion of the report to inspect and correct any condition identified in the report.

Before the Association can proceed with litigation, more than 50 percent of the unit owners must vote to approve that action. Among other requirements, the Association must give the owners the name of its proposed lawyer, an estimate of the legal fees, costs, and expenses, and how the Association proposes to raise the money to pursue the action.

Condominium litigation is a known risk to many of our clients. The Texas procedure is perhaps designed to reduce the likelihood of such litigation, but it has many ambiguities yet to be addressed: If the Association simply makes a demand on the original developer, who then brings the lawsuit, does any of the procedure apply? What if a single owner pursues the builder, and is then joined by other named owners, but not the Association? Does the contractor benefit from an airing out of all the complaints by various condo owners? One principle stands out, though, that is useful in any jurisdiction: If the contractor (or developer or sub- contractor) has the chance to learn about and view alleged defects, it should do so. A complaint about a defect—even an exaggerated one—can sometimes fester if not tended to.