The clock can run out on HOAs’ ability to sue for defective work
Note: This is part two in a two-part series about condominium and HOA construction defects by my colleague Gregory L. Shelton, who practices construction law at Horack, Talley, Pharr & Lowndes, P.A. This first part covered common defects and their consequences. Now Greg explains how legal time limits can prevent the association or its owners from suing the parties responsible for defective construction. Condominium owners’ associations (COAs) and homeowner’s associations (HOAs) are usually responsible for repair and maintenance of common elements. For HOAs, the common elements include pools, clubhouses, playgrounds, and other amenities. For COAs, common elements also include the roofs, walls, windows, and other “building envelope” components. COAs and HOAs should understand that the law imposes time limits on their ability to sue the developer, architect, contractor, or subcontractors responsible for construction defects. The most frequently enforced time limits are the three-year statute of limitations and the six-year statute of repose. Although statutes of limitation and statutes of repose set time limits on claims, courts treat them differently. A statute of limitation is a defense to an existing claim. A statute of repose, on the other hand, establishes a time period in which suit must be brought in order for the cause of action to be recognized. If the action is not brought within the specified repose period, the plaintiff literally has no claim. Under North Carolina law, the statute of limitations for construction defects is three years. The clock starts to run when the defect “becomes apparent or ought reasonably to have become apparent to the claimant, whichever event first occurs.” In one case I recently handled, water intrusion was discovered when a homeowner tripped in the clubhouse and broke through the drywall. Inspection of the damage revealed rotting wall studs and mold behind the drywall. For hidden damage such as this, the statute of limitations would begin to run from the date the damage was discovered. Sometimes it is harder to determine when the defects “ought to have become apparent” to the association. The parties spend a lot of money arguing this “would’ve, could’ve, should’ve” hypothetical to the court. Under North Carolina’s Planned Community Act, statutes of limitation are tolled (suspended) until the declarant (usually the developer) turns over control of the association to the owners. This law prevents a developer from running out the clock on the owners. Unlike the statute of limitation, the statute of repose starts to run when the project is completed, no matter when the defect was or ought to have been become apparent. But, if the plaintiff can show that the defects resulted from willful or wanton conduct, the statute of repose will never apply to bar the claim. Willful or wanton conduct lies somewhere between simple negligence and an intentional act. The injured party must prove that the defendant showed a reckless indifference to the rights or safety of others. The statute of repose is not tolled (suspended) under the Planned Community Act. It is therefore possible for a developer to run out the clock on construction defect claims by maintaining control of the association for six years after the work is completed. Handwringing, negotiations, and endless investigation will not stop the clock. Only a lawsuit can do that. Once a defect becomes known, the association should decide whether to file suit as soon as possible. If the association waits too long, it may lose its right to recover repair costs and other damages from the parties responsible for the defects.