Pressing the Reset Button on Statutes of Limitations and Statutes of Repose on Condominium Projects

Construction and Procurement Law News, Q2 2016

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A “latent” defect is a defect that is not obvious on its face and instead only comes to light over time. Latent defect claims arising out of condominium construction projects often present challenging questions regarding the timeliness of the claims that can have varying results depending upon the applicable statutory language. These questions are further complicated when defects are discovered after the condominium developer turns over control of the condominium association to unit owners. In Henderson Square Condominium Association, v. Lab Townhomes, LLC, the Supreme Court of Illinois addressed one of these complex statute of limitations issues.

In Henderson, the defendants, the developer and its contractors, sold condominium units to individual unit owners in 1996. Over time, several unit owners noticed water infiltration issues in the units, but the condominium association did not complete a formal investigation until 2009, and did not file a lawsuit until 2011. Illinois has a five-year statute of limitations period, meaning claims brought more than five years after they accrue are time barred. Illinois also follows the discovery rule, which means that a cause of action may not accrue until such time as the claimant knows or reasonably should know that that an injury has occurred and that it was wrongfully caused.

Illinois also has a 10-year statute of repose, which prevents any lawsuit from being filed more than ten years from the date the act or omission giving rise to the injury or damage occurred, regardless of when it is discovered. The statute of repose is subject to a fraudulent concealment exception, whereby a claimant who pleads and proves that fraud by the defendant(s) prevented discovery of the cause of action may proceed with his or her claim despite the expiration of the 10-year period.

In Henderson, the court permitted the condominium association’s claim to proceed despite more than fourteen years having elapsed from the date the condominium units were sold to the date the lawsuit was filed. The court held that the association sufficiently pleaded that the defendants misrepresented and covered up the defects in the units such that the defects could not be discovered except by intrusive investigation into exterior masonry walls. As such, the statute of repose’s 10-year limitation did not apply. Additionally, the court determined that initial discovery of water infiltration was not sufficient to put the condominium association or the individual unit owners on notice of the cause of action against the defendants, and the cause of action did not accrue until the 2009 report was completed. Thus, the association’s claim could not be considered untimely as a matter of law.

In a separate case in New Jersey, Palisades at Fort Lee Condo. Ass’n, Inc. v. 100 Old Palisade, LLC, the Superior Court of New Jersey Appellate Division, took up a similarly complex statute of limitations question and also arrived at a favorable result for a condominium association plaintiff. There, contractors built an addition to an apartment complex, which was completed in 2002. The apartment building was later converted to a condominium complex. In 2005, during the conversion of the building into condominiums, the developer commissioned an engineering report, which identified some, but not all, construction defects in the condominium complex. In 2007, the condominium association completed its own engineering evaluation of the property, which revealed multiple additional construction defects in the condominiums arising out of the 2002 addition to the complex.

In 2009, the condominium association filed a lawsuit against the contractors regarding the construction defects, and the contractors sought to have the action dismissed as untimely. For contract claims, New Jersey employs a six-year statute of limitations period from the date the cause of action accrues, which generally means the date of substantial completion on construction projects. However, New Jersey also follows the discovery rule, which prevents the cause of action from accruing until the claimant discovers or should reasonably have discovered that it has a basis for a claim. The court concluded that association’s claim did not accrue until the 2007 engineering evaluation was completed; thus, the association timely filed its claim in 2009.

In both of these cases, the courts arrived at similar conclusions—that sufficient facts existed to avoid dismissal of the plaintiffs’ claims as untimely—but the courts arrived at the conclusion differently due to the varied facts of each case and the different statutes at issue. Statutes of limitations and statutes of repose vary across the 50 states, and subcontractors, contractors, and developers need to be aware of the distinctions that exist amongst the states and how each particular state’s courts interpret and apply these statutes. You may find this is an important risk consideration to take into account when pursuing work in an unfamiliar jurisdiction.