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Compensation for Construction Defects

Homeowners' Associations: New Ruling Supports Compensation for Construction Defects

Lisa Magill
November 4, 2010

Court Holds that Homeowners' Associations Can Recover Damages for Breach of Common Law Implied Warranties from the Builder or Developer.

Florida's Fifth District Court of Appeal recently issued a significant ruling finding home buyers and homeowners' associations are entitled to a common law implied warranty of fitness and merchantability with respect to the roadways, drainage systems, retention ponds and underground pipes in a residential subdivision. The Court considered the marketing materials indicating that homes were available for immediate occupancy, essentially "move-in" condition.

The decision, Lakeview Reserve Homeowners v. Marondo Homes, Inc., No. 5D09-1146 (Fla. 5th DCA), was filed on October 29, 2010.  Since it conflicts with case law from another Florida district, the question whether to extend the home buyer's warranty to improvements that are necessary to live in the home, even if those improvements do not physically support the structure of the home itself, was certified for consideration by the Supreme Court of Florida.  

There is a tremendous amount of work that takes place in a subdivision before construction of the homes or recreational facilities and placement of landscaping.  The infrastructure in large communities can cost millions of dollars.  The Developer usually funds that work*, hoping for an even big return by selling the individual houses.  

Correcting defects in the infrastructure can likewise cost millions of dollars.  How many of us are familiar with portions of neighborhoods that flood every time it rains?  How many people that you know had sewage back up into their homes repeatedly, only to discover later that the underground drainage pipe wasn't connected properly?  If the municipality owns and services the underground infrastructure, it will correct problems, but that is not the case for many homeowners' associations. 

The Court found that certain types of improvements were necessary to live in a home - drainage systems, underground pipes, etc.  It further said since a home buyer:

  • cannot really inspect this portion of the property before purchase,
  • does not have the ability to correct the work during the construction phase, and
  • would not typically recognize problems with these portions of the property even if they were allowed on to the site during this early construction phase

they "must rely on the expertise of the builder/developer for proper construction of these complex structures".   Consequently, according to this case, If the builder/developer represents that everything is ready for immediate occupancy, it must warrant that the improvements necessary for occupancy are fit for their particular purpose.  Clearly a significant ruling.

The Court declined to extend this notion of implied warranty to subdivision features it did not consider essential, such as a clubhouse or recreational facilities.  That doesn't mean, however, that homeowners' associations cannot seek to recover damages from builders or developers for defects in these areas.   Defect litigation and alternative dispute resolution pursuant to Chapter 558 (the Construction Defects statute) are viable courses of action to resolve complaints about the inadequacy of construction, violation of building codes and the like.  For more information about construction defects generally, please visit our companion blog, Florida Construction Law Authority.

* I say 'usually' because there are various different methods of financing infrastructure.  If your community is located within a Community Development District (CDD) or Special Taxing District (STD), these costs may be passed on to the home owners.   

http://www.floridacondohoalawblog.com

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