Berding | Weil Community Association ALERT Newsletter
Legal News and Comments for Community Association Boards and Managers Issue #47 • June 2010
Why "As Is" Really Isn't How It Is:...
The Legal Effect Of "As-Is" Clauses in the Context of Homeowners Association Defect Claims - Part 2
by Matt J. Malone, Esq.
In the first part of this article, we examined "as-is" provisions from a legal perspective, and saw how they do not operate as an absolute bar against later claims by a buyer. Now, we turn from the legal to the practical, and move our attention away from case law and statutes and toward the homeowners association specifically. First, we will see how homeowners associations are distinct legal entities, empowered to bring their own claims. And since they are not signatories to the agreements containing "as-is" provisions, those provisions cannot bar their claims. Second, we will look at condominium conversions specifically, to see precisely why "as-is" clauses have no more impact in the conversion context, even though conversions are by definition not new construction.
"As Is" For HOAs: Understanding the Association's Independent Right to Bring Defect Claims
In the homeowners association context, the "as-is" clause has an additional wrinkle in its application. Homeowner associations have the power to bring their own independent claims, separate and apart from those of their owners including claims for construction defects. And in virtually no case does an association sign a purchase and sale agreement containing an "as-is" provision. Developers often argue that because all of the owners had to sign the same purchase and sale agreement, its terms should be imputed to the association, which is, after all, comprised of the owners. But this is not the law. In fact, "as-is" clauses in individual owners' purchase and sale agreements do not prevent an association from bringing its own claims for defects in construction.
Understanding why this is the case requires a brief discussion of corporations law (a proposition that threatens to be terribly boring, but is terribly important). A homeowners association is a corporation and is effectively its own legal "person." It may bring its own claims for construction defects without joining its individual members. These include claims for damages to common areas, or damages to separate interests that arise from or are integrally related to common area damages.
The board of directors is responsible for making decisions on behalf of the corporation. In homeowners associations, the CC&Rs almost universally spell out the board's power in this regard. But even in the absence of such specific language, the law is clear that "the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board."
Ultimately, then, the association's power to enter into contracts and to waive its claims resides with its board. As a result, no individual owner can waive an association's claim. At most, when a buyer signs an agreement containing the "as-is" provision, all that has happened is a waiver of some of that individual's claims against the developer/seller. But it does not waive the association's separate claim. First, the association did not execute the purchase and sale agreement containing the clause it is not a party to that agreement, which is between the owner and the seller. And second, it does not matter that the owners, who are parties to the agreement, will eventually become members of the association. Even if all of the owners separately signed purchase and sale agreements containing "as is" clauses and/or warranty waivers, this would not prohibit an association from bringing its own claim. Why? Because the board has not authorized the waiver. It signed no "as-is" provision and it is not a party to the purchase and sale agreements containing the clause.
Berding|Weil Q&A of the Day
By Matt J. Malone, Esq.
My association is currently in litigation. Despite my repeated requests, the Board will not share certain documents with me, including letters from the association's attorney that discuss the status of the case. The Board says they are privileged and cannot be shared with me. As an owner and a member of the association, I feel I have a right to review these materials. Is it proper for the Board to refuse my request?
Absolutely. While it seems counterintuitive, sharing information like this with an owner who is not a Board member can actually waive the attorney-client privilege. That privilege extends to confidential communications between a client and its counsel. In homeowners associations, where the association is the client, the privilege extends to the Board (which is the decision-making body for the association) and its agents, such as the manager. It does not extend to each and every member simply because they are members. Indeed, the consequence of sharing such information with a member is that the privilege could be waived, meaning the materials could thereafter be viewed by the very people your association is suing. So the Board was not just right to refuse your request, it was protecting your interests when it did so.

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