Attached Housing: Its Unique Approach
By Jan A. Gruen
By a show of hands, how many of you have designed or built attached housing product in the last 10 years, or plan to do so? How many of you really raised your hand? (Just checking). Due in part to the fact that homeowner associations typically have a board of directors to represent the interests of its unit owners, and the fact that associations and owners "own" different parts of the attached product, claims relating to defects and deficiencies in attached housing product have long been a testing ground for streamlined litigation procedures.
Before the Right To Fix It Bill (SB 800) was introduced in California, a different form of alternative dispute resolution already existed to resolve defect disputes between associations, owners and their builders. This predecessor to SB 800 is known as the Calderon Act and is found in Civil Code section 1375 et seq. The Calderon Act still applies to attached product sold before January 1, 2003 and requires an association, before filing suit, to provide a builder with notice of claimed defects and, to the extent available, proof of the claims. Once a builder receives notice of a claim they must, within certain time frames, provide a response to the notice and notify subcontractors and design professionals of the claim. There are established procedures for site inspections, destructive testing, the free exchange of documents and information and, ultimately, for dispute resolution through a mediation process. If a builder fails to follow the procedures of the Calderon Act, the association can commence formal litigation. The Calderon Act does not provide for an absolute right to repair. Although it will become inoperative July 1, 2010, for now this predecessor to SB 800 remains in effect.
SB 800, the most recent method of resolving defect claims by providing builders, their subcontractors and their design professionals with an opportunity to repair deficient work, also includes attached product such as community apartment projects, condominium projects, planned developments and stock cooperatives. Interestingly, condominium "conversions" are not included in SB 800.
ATTACHED PRODUCT: WHO CAN MAKE A CLAIM AGAINST A BUILDER?
That depends. Under the Calderon Act and SB 800, both the owner and the association have the right to make a defect claim. Normally, the proper claimant will be determined by the CC & R's, which define who owns what, who must repair and maintain which portions of the project and what constitutes common area and separate property. While an individual owner can sue for damage to his or her property, many unit owners own only the paint and airspace within their unit. In contrast, an association can sue for common area deficiencies, individual unit owner damages linked to defects in common area and damages to a unit owner's property if the association is obligated to maintain or repair it.
An example will help. Assume Jayne and Ted buy a condominium. The CC & R's state that they own the puce-colored paint on the walls, their airspace and their roof. The association owns the siding on their unit, which is defined as "common area." Under the CC & R's, the association also has a duty to repair and maintain Jayne and Ted's roof. Who can sue? Let me give you a hint: Jayne and Ted can sue for the damage to their paint caused by water intrusion through the siding. They can also sue for roof leaks and the damage it causes to their unit. On the other the hand, the association can sue for all of these problems because they involve common area, areas the association has a duty to maintain and damage to the owners' property due to common area defects. Based on this example, it is fair to say that under SB 800, you will continue to see claims brought by associations in connection with project conditions.
ATTACHED PRODUCT: ARE THERE ANY EXCEPTIONS TO THE REQUIREMENTS OF SB 800?
No. When you design or build attached housing under SB 800, you have all the same rights to fix defects before a suit can be filed. All of the requirements and obligations of SB 800 also apply. This means that plans and specifications for attached product must meet or exceed the minimum building standards of SB 800. It means that a builder, general contractor, subcontractor, material supplier, individual product manufacturer and design professional will be liable for construction falling below the standards and resulting damage until the defect is properly repaired. It means that maintenance manuals and warranties must be provided to both unit owners and the association and should be written separately to address the unit owner interests and the association's common area interests. It means that when establishing operating budgets and long-term maintenance budgets for an association, adequate reserves, through monthly dues, should be established at the outset by the builder to assist with maintenance and repairs.SB 800 is here to stay. Historically, attached housing has been a pioneer in tackling defect claims in an expedited fashion without the need for formal litigation. SB 800 continues this trend.
Jan A. Gruen is the managing partner of the Walnut Creek office of Newmeyer & Dillion LLP, a statewide business and real estate law firm. Ms. Gruen possesses more than 19 years of litigation experience representing builders, landowners and businesses in day-to-day risk management, real estate, business and insurance matters, as well as complex large-scale construction defect claims, contractual disputes, subcontractor liability, loss recovery and warranty-related matters. Ms. Gruen can be reached via e-mail at jan. gruen@ndlf.com.
January 2007 Builder Architect Edition Issue