With housing demand at record highs in the Puget Sound region, many have wondered why so few of the cranes dotting the landscape are building new condominiums. A decade of condominium litigation lawsuits deterred both developers and their insurers from pursuing this important sector for home ownership.
The Washington Legislature is considering an initial step toward improving the legal landscape to encourage more condominium development. On January 31, the House Judiciary Committee will hold a hearing on House Bill 2831. The bill sponsored by Rep. Tana Senn, D-Mercer Island, requires condominium homeowner associations to undertake some significant due diligence with its membership — including taking a vote — before initiating any litigation over construction defects. The bill is patterned after a measure that was adopted in Colorado last year.
Prior to serving a summons and complaint against a construction professional (the definition of which includes developers, contractors, subcontractors and design professionals), the association board would be required to provide all homeowners and each construction professional against whom an action is to be commenced a notice describing:
- The alleged defects with reasonable specificity,
- The relief sought,
- That there will be a meeting to discuss taking legation, which must take place no less than 20 days after and no more than 30 days after the notice is sent, and
- That the homeowners will have to take a vote, which must be completed within 90 days of the notice being sent.
Any construction professional against whom the defect action is proposed must be invited to attend the meeting and must be given an opportunity to be heard. The construction professional may, but is not required to provide an offer to remedy any alleged defect.
The association must include in the notice information necessary for the homeowners to make an informed decision, including the following:
- A good faith estimate of the benefits and risks, including anticipated legal fees and expenses for the action,
- Potential increased costs to the association for maintenance and operations and/or repair costs and potential increases in assessments or special assessments that might result from the alleged construction defects,
- Any statutes of limitations or other legal deadlines that might be relevant,
- Any impacts on the duties to disclose known defects to potential buyers,
- The difficulty of financing or refinancing where a construction defect is claimed,
- The absence of any guarantee that the association will recover enough funds to repair the alleged defect,
- If the association does not prevail on its claim, the association may be responsible for paying its attorney’s fees and possibly the fees and costs of the opposing party, and
- The association must provide a copy of the homeowner mailing list to each construction professional who is sent a notice, and if an action is commenced the homeowner mailing list and record of the vote must be filed in court under seal.
A majority vote of the homeowners association is required prior to commencing the action. The only exceptions are if the defect involves the portion of the premises used for non-residential purposes or if the cost to repair the alleged defect does not exceed $100,000. The bill would exclude units owned by a “development party” defined as a contractor, subcontractor, developer or a builder responsible for design, construction or repair of any portion of the common interest community and any affiliates from being counted in the vote. Any units owned by banking institutions is excluded from voting “unless a vote from such an institution is actually received by the association.”
The bill appears to be a step forward in improving transparency in the process that condominium homeowner associations use to make decisions before commencing litigation. Additional reforms may be necessary to reduce the legal risks of condominium development.