New Jersey Courts Extend the Life of Liability for Condo Contractors
In New Jersey, the time period within which a project owner may bring claims for design or construction defects, called the statute of limitations, generally begins upon substantial completion of a project. This means that a contractor or designer can only be sued within six years after substantial completion. However, there are exceptions to this rule, such as when a party cannot reasonably discover the damage, for example, mold inside a wall. This exception is known as the discovery rule. New Jersey courts recently identified another exception that will surely extend the time in which a contractor or designer can be sued on certain construction projects.
In Palisades at Fort Lee Condominium Association, Inc. v. 100 Old Palisade, LLC, the Superior Court of New Jersey, Law Division, ruled that a condominium association could bring suit against contractors more than six years after the date of substantial completion. It determined that the six-year timeframe for such lawsuits should not start at substantial completion, but instead when unit owners take control of the association.
In deciding this case, the Court explained that condominiums have a particular formation process and governance structure under New Jersey law. A sponsor, usually the developer, establishes a condominium by filing a master deed and public offering statement. Upon filing, the sponsor becomes the owner of every individual unit and the corresponding percentage of the property’s common elements. The master deed also provides for the creation of a condominium association to be governed by a board of directors. Once a certain percentage of the units are sold, control transfers from the sponsor to the condominium association. Once this transfer occurs, the condominium association has exclusive authority to bring claims regarding the common elements in the building.
Palisades involved a project with numerous undiscovered construction defects. The project consisted of multi-story additions to a residential tower and other facilities. Construction was substantially completed in 2002. Ordinarily, the six-year statute of limitations for defects would have started to run in 2002. However, the owner operated the building as a rental property for two years and then in 2004, sold the building to another entity, which converted it into a condominium and created an association. Control did not transfer to the condominium association until 2006. A year later, the association commissioned an engineering report, which uncovered the underlying construction defects. In 2009 — seven years after substantial completion, and one year after the statute of limitations generally would have expired — the association brought a claim against the contractors on the project.
The contractors challenged the timing of the suit, but the Court found that the limitations period for the association did not commence at substantial completion. Instead, the Court found it unreasonable to insist that the condominium association bring a lawsuit when the condominium was still controlled by the sponsor. The Court ruled that the time for bringing a lawsuit only began when control transferred to the condominium association. The Court further held that the discovery rule tolled the statute of limitations until 2007 when the association received the engineering report providing all of the facts necessary to support actionable claims.
Palisades significantly expands the life of liability for defects in new condominiums as it starts the clock on claims when the condominium association takes control, rather than at substantial completion. This transfer may not occur for years after substantial completion. The Palisades ruling, however, does not render project participants “forever liable” in New Jersey. Rather, in New Jersey, defendants are protected by a statute of repose, which generally bars any plaintiff — condominium association or not — from bringing a lawsuit for construction defects more than ten years from the date of substantial completion. If you are faced with what appears to be an untimely suit, please reach out to us to discuss possible defenses.
