All of these costs get passed on to the condo buyer.
Other states have faced the same problem, and in recent years, several of them decided to to address it by updating their legislation, including Colorado , Idaho , Minnesota , and Nevada. Washington has faced a broken Condominium Act for three decades, and in , the state passed a set of amendments to improve it. One provision was intended to ease risk by standardizing insurance , but the private insurance market has not offered policies that meet the state guidelines. Another provision established a new requirement for inspections to ward off water infiltration damage.
It also would have made it easier for builders to avoid court by simply repairing defects. Image by Weber Thompson, used with permission. It reduces the incentives for condo association board members to file lawsuits by explicitly stating that they cannot be held personally liable to pay for defects they did not sue builders for causing.
And it prunes out bogus claims by refining the definition of a warrantable defect. Condo board members are just ordinary people, elected by their neighbors and rarely legal experts. Understandably, they are defensive about their own liability for defects in their buildings. Some lawyers advise board members that the only way to protect themselves is to sue the builder for every possible defect that may arise, a scenario that begets a lot of lawsuits.
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In fact, under the current law, in all but cases of extreme negligence board members cannot be held liable. But to put the issue to rest, the draft bill carefully spells out board member immunity. It shifts the burden of proof to the appellant, and keeps cases from devolving into protracted battles of competing expert witnesses. Finding this article interesting? Donate now to support our independent research! How much would these incremental tweaks spur condo construction? Enacting these fixes promises lots to win and little to lose. For other ideas to tame the condo law and boost construction, see the appendix below.
Despite the recent surge in new condo projects, the law still needs fixing. The risk and cost it inflicts creates an especially high barrier to lower-priced condos, which are in shortest supply. No need to throw the whole thing out—condo buyers deserve protection.
Condo Owners Cannot Sue Original Builder for Implied Warranty: Economic Loss Rule Applied
Strengthen right to repair: For cases in which the builder is clearly at fault, a common sense solution is to let the builder fix the defect, saving both sides the time and expense of a legal battle. California mandates that if mediation fails owners must accept repair offers , but allows the owner to choose a different contractor from a list that the builder is obligated to provide. Refine the definition of a defect: Minnesota defines a construction defect to only include those caused by initial design or improvements done by the original builder; Nevada defines it to only include those posing unreasonable risk of injury.
Ideally the definition is precise as possible without being too narrow. Extend requirements for owner approval: In Colorado and Minnesota , a majority of the condo owners must vote in favor of proceeding with a lawsuit. However, it would be politically challenging to pull off: no such caps exist in many other areas of law.
Alternatively, state condo law could ban so-called contingent fees, those based on a percent of the settlement. Remove the right of appeal of arbitration awards: This reform would make arbitration more reliable for avoiding court, but would require changing a separate state law. As an alternative, purchase contracts can provide for binding arbitration to prevent appeals.
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Loosen restrictions on pre-sale deposits: Industry insiders with whom I spoke flagged another factor that may put condos at a disadvantage in Washington: the 5 percent limit on non-refundable deposits for pre-sales and the prohibition on using those funds to help finance construction. In Vancouver, BC, for example, typical deposits fall in the 15 to 20 percent range. Buyers with money to lose are less likely to bail if the market sours, and that reduces risk for the builder. Laws in most states require builders to hold the whole deposit in escrow, but Florida only mandates that for 10 percent of the purchase price.
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Florida builders can use any part of the deposit above that 10 percent as cash equity to help secure construction loans, and that helps more condo projects get off the ground. You can power us forward on sustainable solutions. Make a donation to Sightline now. It would be nice if you could research the condo lawsuits and back up the rhetoric with actual data. How many condo defect lawsuits have been filed in last years? How many lawsuits are frivolous vs. I agree and we tried.
We conducted standard caselaw research and only found a handful of cases. I have bought two condos in the last several years. Construction defects, some oversight and other deliberate abounded. I have wondered if it might not be better to build and design as condos, but rent for about five years — then after the faults are discovered and repaired resell as condos. Let us recall WHY this law exists. The defect law may have caused fewer Condo projects, but they are by and large done correctly.
Condominium Warranty Bonds for New Construction
Many owners walked away, some declared bankruptcy. Never again. Condo conversions are a growing trend in population-dense cities such as Washington, DC, because they provide homeowners with affordable options in an urban area while providing a profitable revenue stream for investors. The condo conversion process is different in each state or district.
The conversion process was established in the following laws:. Law A brief overview of the condo conversion approval process in Washington, DC, is outlined below.
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Choose an application based on whether or not the property that is to be converted was previously occupied or not. Next, you must form the Public Offering Statement. The POS consists of two sections: a narrative portion and an exhibit portion. Use this section to summarize significant features of the proposed condo, but it also allows you to present information that potential purchasers would find useful. Gather all legal documents required to operate a condo association.
This includes:. Declaration and Bylaws commonly referred to as "Condo Documents". Letter from Previous Owners if property was not previously rented. The owner of the new condo community can begin taking sales contracts on individual condo units. Once those actions are completed, the condo owner can sell his or her ownership of each deeded unit.
Choosing a Contractor
The condo conversion with no construction varies but typically lasts between four and six months. However, if there is construction involved in the conversion, the duration can last closer to months. It is important to remember a couple key pointers, when buying a brand new condo, especially given the amount of real estate that has been popping up in key areas in D. The developer of the condos is able to manage the building during its two-year warranty bond period.
Buyers should be cautious of this conflict of interest, although it is in fact legal. Developers want their entire warranty bond back after the two-year period, so more often than not condo owners will have their interests overlooked. Another way to protect yourself is to insist on having a private inspection done by an inspector of your choice. If the property isn't up to code in terms of structural issues, you should have a case to access the warranty funds being held by DCRA. I consent to receiving emails containing real estate related information from this site.
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