The Basics of Litigating the Typical "Multifamily" Construction-Defect Case

Sanjay Kurian contributed the following post concerning the basics of litigating a typical "multifamily" construction-defect case on behalf of a property owner:

In this blog post, I wanted to touch on some basics of the typical “multifamily” construction defect case. Whether the project is a condominium, apartment, assisted-living facility or hotel, disputes concerning multifamily properties share many of the same issues.  There are six primary considerations in bringing these claims but each of those has many subparts which depend on specific facts of the project.

The first consideration is to identify the true owner and determine whether that entity is able to recover for the defective construction.  Is there a condominium association or building owner? Maybe it is the hotel or facility operator that is the aggrieved party or is the developer of the building?  Knowing who has the rights to make the defect claims is a critical first step.

The second consideration is to determine against whom any claims may be asserted.  Is there a claim against the developer of real property who designed, built, and sold the units or buildings in question? Or maybe there are claims against the general contractor and subcontractors who coordinated and performed the work?  What about the design professionals who designed the building improvements?  The reality is that all of these entities could be responsible for defects in the improvements.  How much each of them is responsible for is dependent upon the warranties, contracts and legal theories at play where the property is located as well as any contracts that may exist between the parties.

The third consideration is what types of claims available, which depends greatly on the jurisdiction you are in.  There may be contractual express warranties that arise out of the contracts negotiated between the parties. There could be implied warranties pursuant to the common law at play.  In some jurisdictions and depending on the type of property, Florida condominiums for example, statutory implied warranties may exist that protect the owner.  Most states still allow claims for negligence in the construction or design of the structures.  An important note is that not every claim can be made against every party. Careful consideration is needed as to what claims should be asserted against whom.

The fourth consideration is the type of recovery available.  Generally the cost of repairing the defective condition is the damage that can be recovered.  In the event that such repair would be economically wasteful, courts may consider diminution of value to be a valid damage.  In addition, depending on the type of property there may also be claims for lost rents other lost profits for the time that the property was not able to be used for its intended purpose in whole or in part.  Attorney's fees are often not recoverable in defect claims in most jurisdictions. The exception to the "American Rule" is where the fees are awarded to the prevailing party through contract or statute, or what is called a "proposal for settlement" or "Offer of Judgment."  The question of recovery is maybe the most important one for owners because no one wants to spend money on experts and lawyers where the damages do not warrant such claims.

The fifth consideration is the defenses available.  I have never handled a defect claim where there was no claimed defense by one of the parties identified above.  The typical defenses are that the owner failed to maintain the condition, that the damages were not mitigated, lack of notice of the condition, failure to comply with a statutory notice procedure, the proposed repair is a betterment, the repaired items consist of first costs that the owner would have incurred anyways.  The determination as to the validity of a given defect claim or defense rests with the trier of fact, whether that be a judge, jury, or arbitrator.  The applicability of a defense is based upon the specific facts of each case.

The sixth consideration is the cost in moving forward with such claims and the prospects of recovery. Given the complicated nature of these cases they often settle.  Driving settlement is the cost of moving forward in the litigation as well as likelihood of recovery from the named defendants or their sureties or insurance carriers. Not evaluating these items at each step of a case is a trap for the unwary client or counsel.

I have represented numerous owners, condominium associations, contractors and developers in these types of cases and I can guarantee that none of them wanted to be in this type of litigation.  However, sometimes construction projects go wrong and everyone bears some of that eventual cost.