CONDOMINIUM CONVERSIONS & TIME LIMITS
Neither the legislature nor the courts have clearly defined a converter's liability for construction defects. There is no doubt that condo conversion buyers suffer from construction defects.
Why developers convert to condominiums?
- Avoid liability under SB 800 or California Civil Code Section 6000.
- Try to avert claims for strict liability.
- Require HOA's to jump through additional hoops.
- Market conditions are not ripe for sales.
What is a conversion?
- A conversion is defined as a change of a residential dwelling to a condominium, cooperative or similar form of ownership.
Converters are subject to:
- Subdivision Map Act
- Davis Sterling Act
- Department of Real Estate, Subdivided Lands Act
- Local Government: county or municipal codes
- California Statutes of Repose, Sections 337.1, 337.15,
California Civil Code Section 1134
- CC 1134 (a): obligates the converter to deliver to a prospective purchaser a written statement listing all substantial defects or malfunctions in the major systems of the property, or provide a written statement disclaiming knowledge of any substantial defects.
- CC 1134(c)(1): "Major systems" includes but is not limited to
- Air conditioning
- Electrical systems
- Other components of similar or comparable nature
- Recreational facilities
- CC 1134(d): "Any person who willfully fails to carry out the requirements of this section shall be liable in the amount of actual damages suffered by the buyer."
- While this area of law is undecided, associations have been successful in construction defect claims under the following legal theories:
- Negligence - developers and contractors are liable for their own acts and omissions and the acts an commissions of those they hire or supervise. Look to see: did the converter patch or replace components, were repairs performed negligently?
- Negligence Per Se - if the converter violates local county or municipal ordinances or statutes, then they are liable. This would now apply with violations of any building standards identified in SB 800.
- Negligent Misrepresentation - a converter cannot turn a blind eye to the condition of the building. If there are obvious problems they are on notice.
- Strict Liability/Implied Warranty have not yet been extended to converters by California courts.
- Fraud - failure of a seller to fulfill the duty of disclosure constitutes actual fraud. An "as-is" provision does not relieve the seller of liability.
- If Express Warranty in marketing documents is provided this may be another theory.
- Breach of Fiduciary Duty - if the converter fails to properly determine operating costs and fund a maintenance reserve account.
- All of these cases are driven by insurance. Insurance policies do not cover claims for fraud & misrepresentation. Careful review of available insurance and builder entities are vital to a successful recovery.
- From the date of substantial completion(California Code of Civil Procedure Section 337.15)
- The 10-year period shall commence no later than the date of one of the following, whichever is first:
- The date of final inspection by the applicable public agency.
- The date of recordation of a valid notice of completion.
- The date of use or occupation
- One year after termination of work on the improvement
- From the date the board discovered each defect (California Code of Civil Procedure Section 338)