Missouri

Missouri

Protect Valuable Property Rights in the event of construction defects and the resulting damage to your condominium or townhome project.


An Overview of the Survivor’s Guide to Construction Defect Resolution in Missouri

EVALUATING CONSTRUCTION QUALITY

The Association’s Responsibilities

Typically, a condominium association has the obligation to maintain common areas. Even though damage occurs within a unit, if the cause is a common area defect, the association has a duty to deal with the problem. Even where the building exterior is part of the unit itself and not considered part of the common area, as in many associations not governed by the Condominium Act, the association still may have a duty to maintain roofs, siding and other building envelope components. In such a situation, an association may have the duty to deal with building envelope problems even though the building envelope may not be part of any common area.

Association board delay in addressing defects in parts of a project that the association has a duty to maintain will result in increased physical damage, a more costly fix, and the potential loss of valuable rights.

Top 10 Construction Defects

Among the defects often found in residential projects are poor flashing, window defects, inadequate ventilation of crawl spaces and attics, improperly sloped roofs, decks and balconies, improperly installed plumbing systems, excessive sound transmission between units, poorly installed waterproofing, and inadequate soil preparation.

Why Construction Defects Are So Common

In many situations, the builder’s objective is to complete the project as quickly as possible and to “pass inspection” by the building department. If the defect isn’t caught by the building inspector, it often doesn’t get corrected. And building inspectors may miss or ignore a lot of defects. That is why the fact that construction may have been approved by the City or County does not ensure that the construction is Code compliant or done in a good and workmanlike manner.

Working With the Developer

An Association will normally want to try to work with a developer to resolve claims. However, a developer may want to minimize the scope of repairs and may offer temporary “band-aid” fixes which merely disguise the problems rather than solve them. Counsel can advise an association during the negotiation process with the developer. Counsel will help the board to understand the association’s rights, the time limits on the association’s ability to exercise those rights, and the importance of obtaining a fix that adequately addresses the problems.

Why There is a Need for Professional Evaluation of a Project’s Construction

Frequently, defects remain hidden inside a building envelope for many years. Often, the result is that by the time they are discovered, substantial damage already has occurred and the rights of an association and its unit owners may already have expired.

To avoid this unfortunate situation, a board should hire a qualified professional to evaluate the construction quality of the project while the enforcement period for any statutory or other rights is still in effect.

The evaluation should be made by an engineer or architect or by a contractor with specialized training and experience in evaluating construction quality. This person should be selected by the Board and not by the developer. And the evaluation should include a look inside the building envelope to see how well the building envelope system is doing in keeping water out and in getting water that has entered into the building envelope to exit the building.

A Board should not make its decision on who to hire to perform the evaluation based solely on cost. Most qualified professionals charge about the same hourly rate. A lower bid may mean lower qualifications or a less thorough investigation and an insufficiently detailed report of findings.

ASSOCIATION RIGHTS

Express Warranties

Express warranties are warranties voluntarily and specifically provided by a developer in its sales agreements. They are of some value, but their value is often limited. The reason is that express warranties are typically of limited duration, and the unit owner or association is usually required to take formal action to enforce the warranty before the warranty runs out. Often the warranty period is only one year. But serious defects may remain hidden and not become obvious until several years after unit sales. Thus, by the time an association board realizes there is a problem, express warranty rights may already have run out.

Statutory Condominium Warranties

Under the Missouri Condominium Act, a declarant warrants that a unit and the common elements of a condominium are suitable for ordinary use and have been constructed in compliance with the Building Code, according to sound engineering and construction standards, and in a good and workmanlike manner, using defect free materials.

Declarant disclaimers of the above warranties are likely to be ineffective in most situations.

The statute of limitations, or period within which formal legal action must be taken in the event of a breach of these warranties, usually is six years. For common area defects, the six years starts to run on the latter of the sale of the first unit or completion of the work of improvement in question.

The limitations period runs regardless of when the defects are discovered.

Also, the declarant can shorten this limitations period from six years to two years if purchasers sign a separate document agreeing to the reduction. It is not entirely clear whether such reduction agreements will apply to common area defects as well as defects within the units themselves.

Common Law Implied Warranties

Common law implied warranties are warranties created by court decisions rather than by a specific statute. Under Missouri Common Law, there is an implied warranty that any newly constructed dwelling (and site improvements integral to use of the home, such as porches, driveways, etc). is free from significant defects.

The common law implied warranty is limited to owners who purchased from the developer, and this warranty can be disclaimed by the developer. However, the disclaimer must satisfy certain minimum legal requirements, and many disclaimers will be ineffective because the disclaimer fails to satisfy those requirements.

It is unclear whether this common law warranty applies to condo projects. Since there is a specific statutory warranty applicable to condominiums, that statutory warranty may override the common law warranty if the dwelling is part of a condominium.

The limitations period for enforcement of the common law implied warranty is five years, measured from when the damage was or should have been discovered.

Amount Recoverable

The amount recoverable for breach of the statutory condominium warranty and for breach of the common law implied warranty is normally the cost of repair. Loss of use or relocation damage and expert investigation costs may also be recoverable.

In an action based on the Condo Act warranties, an attorney fee award may also be made.

Breach of Fiduciary Duty Claim

The limitations period on a statutory warranty claim under the Condo Act runs even if the association is not aware of defects, and runs even during the period of declarant control. Also, as noted above, that limitations period can be reduced by declarant from six to two years. Therefore, the limitations period can run out during Declarant control, or shortly after declarant control ends. This is much more likely to occur if declarant has reduced the limitations period for enforcement of the Condo Act warranty from six years to two years.

In that situation, an association may be able to assert a breach of fiduciary duty claim against declarant and the declarant appointed board members for failing to evaluate construction quality and to take action to enforce the statutory warranty during the period of declarant control.

The limitations period for bringing a breach of fiduciary duty claim is five years from when the damage resulting from the breach is “sustained and objectively capable of ascertainment”.

Violation of the Merchandising Practices Act

A failure of declarant to disclose defects declarant knew or should have known about may give rise to a claim for violation of the Missouri Merchandising Practices Act. There is a five year limitations period for claims arising out of a violation of that Act. It starts to run when damages were sustained and ascertainable. Attorney fees may be awarded to the prevailing party in an action based on violation of that Act.

THE CLAIMS RESOLUTION PROCESS

Pre-Suit Notice of Claim

Before filing a construction defect suit, a claimant must give the developer a written notice of claim and allow the developer to inspect the claimed defects and to offer to make repairs. The claimant is not required to accept the offer.

The notice of claim process usually takes about 90 days, although this period may be extended an additional 45 days or so if the parties agree to mediate their dispute during the notice of claim process.

Is It Really Necessary to File a Lawsuit?

Without a lawsuit, often it is difficult to resolve a defect claim where the cost of repair is substantial. The developer and its contractors may not be willing or able to make the necessary repairs or to fund the cost of repairs to be made by the association. Also, the developer and its contractors may be unable to agree on how the repair costs should be allocated between them.

Once a lawsuit is served, insurers for the developer and its contractors may have a duty to attempt to resolve the claim against their insureds. That duty, plus the prospect of a jury trial down the road if the claim is not resolved, usually result in a settlement of the claims at some point prior to the trial date. Thus, a lawsuit should simply be viewed as an often necessary part of the dispute resolution process.

Association Standing to Sue

Under the Condo Act, a condominium association automatically has standing to sue for defective construction unless the association’s governing documents provide otherwise. For an association not governed by the Condo Act, there is no specific statutory authority for the association to sue for defective construction. However, there is case law that such authority exists in appropriate circumstances. Also, an association not governed by the Condo Act may be able to acquire such authority by taking an assignment of claims from unit owners.

Limitations on a Board’s Authority to Initiate Legal Action on Behalf of the Association

Sometimes an association’s governing documents purport to require a “super majority” of “all” unit owners to approve a lawsuit against the Declarant before a board can initiate legal action. If the association in question is a condominium, such a limitation on board authority is probably unenforceable.

Mediation

Most lawsuits are resolved by mediation sometime after suit is filed. In a mediation, the mediator acts as a “facilitator”, but has no authority to decide anything. However, a skillful mediator is usually successful in persuading the parties to come to an agreement that resolves the case.

What If the Developer Goes Out of Business?

Developer entities frequently go out of business. However, their insurers rarely do so. If the developer had liability insurance, any insurance coverage for the developer’s liability would still apply even though the developer may no longer be in business.

Claims Against a Dissolved Declarant

Many declarants simply go out of business without following any formal dissolution process. If a declarant is an LLC and files and publishes a “notice of winding up”, claimants have three years in which to take legal action. There is a similar statute for a dissolved corporation, but the period in which a dissolved corporation can be sued is two years rather than three years.

What If the Developer Goes Bankrupt?

A developer’s bankruptcy will impact how a claim against that developer will be resolved. However, a developer’s bankruptcy usually does not affect an insurer’s liability arising out of a claim covered by that insurer’s policy naming the developer as an insured.

CONCLUSION

Associations and their unit owners usually have substantial statutory or common law warranty rights protecting them against defective construction. However, there are time limits within which the association or its unit owners must take legal action to enforce those rights.

Association boards should seek legal advice from an attorney with substantial experience in the resolution of construction defect claims. That attorney can explain those rights as they apply to that particular association, applicable time limits, and how the board may want to proceed. That attorney may also be willing to pursue a claim on a contingent fee basis. In that event, the attorney fee would be limited to a percentage of the recovery. Thus, if there was no recovery, there would be no attorney fee.