By Tyler P. Berding, Esq.
[ INTRODUCTORY NOTE: Statutes of Limitation are intended to protect defendants from stale claims. They are also traps for the unwary claimant. If the time period expires before an appropriate claim is made, legal rights can be permanently lost. Here's a story about an artful attempt by a developer to deprive a new community association of some valuable time that it needs to evaluate the condition of the project before the limitation periods run out. ]
You just moved into a new condominium project. You bought one of the first units sold in the second phase. Sales in that phase are just about done and then the project will be sold out. The project is just a little over two years old, so you are satisfied that any warranty items will get fixed. How hard could it be with the developer still on the board and with a few units left to sell? Everything seems to be going as expected.
But all is not perfect. The iron fences around the project are corroding badly. And the common area landscaping has a lot of dead spots where the irrigation system apparently doesn't reach. There are places where rain and irrigation water pond for days and mosquitoes are breeding. You've also noticed that some of the wood fences in the project appear to be leaning. You went to the board meeting last night. Two owners are on the board along with three developer representatives. You raised those issues with the board, and one of the developer representatives told you that it was not the developer's problem any longer, that it was the association's responsibility to fix those particular defects. You argued that the developer is responsible for defects for ten years. You also pointed out that you only noticed these problems a few months ago. So how could it no longer be the developer's responsibility to fix clearly defective components?
It not only could be it actually was no longer the developer's responsibility. As to those components, its legal liability had lapsed. How did this happen? First of all, Title 7 of the California Civil Code specifies standards for residential construction, commencing at Section 896. In the same section it also lists special, shorter, periods for bringing actions on certain building components. A deteriorating manufactured product like iron fences and irrigation and drainage problems have a very short 1-year limit on claims. Wood fence post claims expire after 2 years. But you just found out about it, and you came to the board meeting a couple of days later, certainly a year (and definitely not two) hasn't passed. Or has it?
Some of the Section 896 limitation periods accrue (start to run) on a fixed date: "close of escrow," and certain fence, irrigation and drainage claims are among that group. But how does that apply to a community association with dozens of escrows closing at different times? The statute provides that for a claim filed by a community association, the phrase, "close of escrow" actually means something very different.
With respect to claims by a community association, California Civil Code 895(e) defines "Close of Escrow" as: "...the date of substantial completion, as defined in Section 337.15 of the Code of Civil Procedure, or the date the builder relinquishes control over the association's ability to decide whether to initiate a claim under this title, whichever is later." Obviously, this is not the day some owner went down to the title company and signed closing documents.
If you go to Section 337.15 you will find the definition of "substantial completion." There are 4 options:
(1) The date of final inspection by the applicable public agency
(2) The date of recordation of a valid notice of completion
(3) The date of use or occupation of the improvement
(4) One year after termination or cessation of work on the improvement
"...whichever first occurs."
Among that group (1) and (2) would probably be candidates for the first occurring event, and whichever one it was, it probably happened well over a year ago, probably two years ago, when the project was completed. But what difference does that make? The developer still has 3 out of 5 seats on the board of directors, clearly controls the association, and is not likely to relinquish control until the last units are sold, so "close of escrow" hasn't happened yet, and no periods of limitation have started to run, right?
This particular development has a unique set of bylaws that may not be as unique as we think. Subsection 1.6 of the bylaws states: "The sole and exclusive authority to initiate claims on behalf of the Association in connection with (Title 7 claims) shall rest with the Board members elected solely by Class A members (those elected by the members other than the developer)...The decision of a majority of the non-declarant board members shall control..." (Emphasis added)
The result? This provision effectively surrenders the developer's control over the decision to make a construction defect claim as of the date that the non-developer board members were appointed, and if that event occurred over a year ago, it is quite likely that these shorter limitation periods (and perhaps other, longer periods) have already expired. Why? Do you remember the language of Section 895(e)? The period in which to make a claim for certain of the building standards in Title 7 commences on: "...the date of substantial completion, as defined in Section 337.15 of the Code of Civil Procedure, or the date the builder relinquishes control over the association's ability to decide whether to initiate a claim under this title, whichever is later." (Emphasis added)
"What are Bylaws?"
Bylaws are the rules by which the Community Association governs itself. They include rules for the Board of Directors, Elections, and Meetings.
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