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
    • Roofs
    • Walls
    • Floors
    • Heating
    • Air conditioning
    • Plumbing
    • 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."

Legal Theories:

  • 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.

Insurance coverage:

  • 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.

10 Years

  • 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

3 Years

  • From the date the board discovered each defect (California Code of Civil Procedure Section 338)