The Three-Year Trap and
Other Problems with an Association's Records in Litigation
E-mail correspondence between board members and the manager discussing roof leaks and what could be causing them. Letters to the community's developer asking it to fix the leaking windows some of the members have complained about. Meeting minutes that include discussions of the discolored and crumbling stucco on the association's buildings that persists despite routine maintenance by the association. Reports from a company hired by the association to look at the community's decks and determine why they leak into the units below. What do these documents have in common? They are all documents found in the records of associations that later turn up in the association's litigation against their community's developer for defects in construction.
These are documents that must be turned over to the developer once an association has initiated a construction defect action. These records can open potential statute of limitations defenses to the developer or provide the developer with opinions on the cause or repair of a construction problem that conflict with the association's expert. This can result in the association incurring additional attorney and expert fees or reduce the association's potential recovery to fix the construction problems. However, some advance planning in e way an association maintains its records and investigates potential construction defects can help an association avoid the pit-fall of creating documents in its own files that negatively impact its case.
As has been discussed in previous Community Association ALERT Newsletters, statutes of limitation generally set the time limit for bringing an action for deficiencies in construction. Once the limitations period has run, an association has likely lost its ability to bring a claim and recover any money for defects in construction. Statutes of "repose" set the outside time limit for bringing an action. The most common of these in a construction case is CCP 337.15 which provides that no action may be brought beyond 10 years from various trigger dates. Provisions of the California Civil Code also specify even shorter limitation periods on actions for defects in specific building components.1
A number of factors determine which limitation period applies to a community association and whether that statute has run as to the whole community or just as to specific building components (such as landscaping, roofs or asphalt paving). These factors include when the original buyers signed the purchase agreements for their homes, when a developer turned over control of the board of directors, or when the association first became aware of problems in the construction of the community or parts of the community.2 Because of the complexity of determining what statute of limitations applies to a community and whether that statute has been triggered for all or particular portions of the project, specific statute of limitations questions should be answered by an attorney with experience in the area of construction defect actions.
The Three-Year Statute of Limitations
Unlike the various statutes of repose, there is another statute, unrelated to the age of an association or when the buildings within a community were "substantially completed". This is the three-year statute of limitations3 that begins to run once an association has actual knowledge that there is a defect in the construction of its project. Even if the association is well within statutes of repose based on the date of completion of its community or the date the developer relinquished control of the association's board, if a developer can show that the association had actual knowledge of a defect in a component of the construction more than three years before filing litigation the association could lose its claim for that component.
Quite often it is an association's own records that can create a defense that the three-year statute of limitations has passed as to specific building components. A defendant can argue that the date of e-mail correspondence or meeting minutes discussing roof leaks is when the three-year statute of limitations was triggered - even though the association may not have had any idea why the roofs were leaking or the asphalt was deteriorating. The association's attorney might counter that defense by arguing that general knowledge of some roof leaks may not equate with knowledge of the specific problem. However, the association could incur significant attorneys' fees in fighting a developer on this issue, and settlements may be greatly reduced if the developer is able to assert a defense based on the early “discovery” of building defects.
Creating Potentially Conflicting Opinions
Another potential problem with the association's records in litigation is possible conflicts. To support its construction defect action, the association will hire experts who will perform an investigation of the problems in the construction of the association's buildings and provide a report with opinions about the construction deficiencies in the building, how they should be repaired, and the cost of those repairs. If the association has records that contain conflicting opinions on these issues, the developer can use those documents to defend it. The developer can also call the association's expert's opinions into question by showing that another contractor or engineer had a different opinion as to the cause of a problem or had a cheaper or less extensive repair that they told the association would fix the problem.
In this case, the association's expert may have to spend additional time reviewing that contractor or engineer's report and showing why their opinion was incorrect or that they were working without the complete information that the association's expert has. This will cause the association to incur additional expert fees that may not otherwise have been necessary. It may also result in the developer offering the association less money in settlement if the developer believes it could show that the documents in the association's own file do not support the repairs required by the association's expert.
How to Avoid the Trap of Potentially Damaging Documents in an Association's Files
An association won't be able to prevent all damaging documents from discovery but they can often avoid the document traps discussed above by being careful in how it prepares its meeting minutes, what is discussed over e-mail, and how it goes about investigating potential construction defect issues.
Keep It Privileged
As discussed above, documents that can result in potential statute of limitations defenses and create conflicting opinions are reports created by a contractor or engineer hired by the association to perform an investigation of construction problems prior to filing litigation. An association can avoid turning over such a document if the contractor or engineer was hired and the report was written in anticipation of the association filing litigation under the guidance of the association's legal counsel. In that case, the document would be privileged, and the developer would not be entitled to it unless the association ultimately decided to hire that contractor or engineer as an expert for its litigation.
If an association believes that it has potential construction defect issues that it would like to investigate, it should contact its attorney prior to hiring a contractor or engineer. The association's attorney can help the association retain the expert and make sure any resulting information or reports remain privileged from disclosure. The association can then evaluate the defects in the construction of its community and make a decision as to how and whether to proceed to recover money to fix those defects without risking creating potential statute or conflicting opinion problems.
Avoiding Unnecessary E-mails and Meeting Minutes
Association boards often communicate with one another, and with the association's manager, by e-mail. While this type of communication can be very convenient as relates to the day-to-day issues that association boards must deal with, it can create problematic records when the e-mail communications discuss construction issues. If e-mail in an association's files show that the association board members were discussing a particular construction issue more than three years before the association initiates litigation, it may provide a defense that the association has had knowledge of a particular defect at the community for more than three years.
Meeting minutes can raise many of the same issues. If the minutes reflect that the roof leaks or asphalt paving issues were discussed at a certain meeting, but the association took no action until more than three years later, a developer can use those meeting minutes to argue that the association has known about those issues for more than three years. Board members and managers should always keep in mind that those types of written communications may later end up in the hands of a developer or other defendant.
Be Aware of the Law
Notwithstanding the evidentiary impact of the association's documents, an association should always be aware of the various statutes of limitation on construction claims. An association should realize that if it has knowledge that the buildings or grounds in its community may be suffering from construction issues, it has no more than three years from the date that knowledge was obtained, to bring a claim against the developer or any other contractors or subcontractors who worked on the building of the community. Finally it is also important to understand that regardless of when a community association discovers a construction problem, there are statutes of repose that impose an absolute outside limit on a claim. There are several other articles in the Berding Weil library4 that cover these various limitation periods in more detail. Understanding these provisions and the manner in which certain documents should be handled can often protect valuable claims.
1 Title 7, California Civil Code, Section 896
2 Also be aware of provisions in the association's governing documents that artificially relinquish the developer's control at a very early stage of the association's life such that periods of limitation on actions might begin to run much sooner than normally expected. See: What You Don't Know
3 California Code of Civil Procedure Section 338.