SJC Decision Narrows the Window for Filing Construction Defect Suits

“Don’t ask for whom the bell tolls,” an essay by John Donne cautions.  “It tolls for thee.” For condominium associations, the statutory bells signaling deadlines for filing construction defect suits are going to start tolling a lot sooner now, thanks to a recent decision by the Massachusetts Supreme Judicial Court (SJC).

 In that decision (D’Allessandro  v. Lennar Hingham Holdings, LLC), the court held that in a phased development, the clock on the six-year ‘statute of repose’ (the time period within which suits must be filed), begins to run on completion of each segment, not, as previous courts have ruled, on completion of the entire development. This is good news for developers, contractors, architects and others involved in the construction process, because it significantly limits their potential liability for construction defects.  But it is a gigantic heads up and potential threat for condominium associations, which may be precluded from seeking remedies for those claims.   

Our firm represented the plaintiff, a 150-unit project encompassing 28 buildings constructed in 24 phases between 2008 and 2015.  As each phase was completed, the developer submitted affidavits of substantial completion and the town issued  certificates of occupancy for the individual units and separate buildings in that phase. 

In 2017, the trustees filed suit against the developer, the contractor and others, alleging extensive defects in:  “Decks and columns,” “roofing and flashing, the building envelope and the irrigation system, among other components. 

The developer argued that the claims were barred against six of the buildings, because the six-year statute of repose for those buildings had expired  after they were completed.   The District Court sided with  the condo association, agreeing that the six-year countdown did not begin until after the entire development had been completed. 

That was the question on which the District Court asked the SJC to rule:  Is the statute of repose triggered only once in a phased development, when the entire development has been “substantially completed”  and is open to use; or is it triggered multiple times, when each individual building is certified as complete and available for occupancy?  

Seeking the Plain Meaning

To answer the question, the SJC focused on the “plain meaning” of the statute, which states that construction defect claims pertaining to the “administration” or “improvement” of real property must be initiated within six years of the earlier  of two dates: 

·         “The opening of the improvement to use”; or

·          The “substantial completion of the of improvement and the taking of possession for occupancy by the owner.” 

Did an “improvement,” as envisioned by the statute, consist of the entire development or each individual building ?  The court said the  statutory language wasn’t clear, but it found the legislative intent, reflected in the statute’s history, to be persuasive.  The court noted that the original language described the “triggering event” for the six-year tolling as “the performance or furnishing of[the] design, planning, construction or general administration [of a development].”  The legislature replaced that language with a  1984 amendment specifying that tolling begins either  when an improvement is open to use or is “substantially complete” and occupied by the owner, whichever occurs first.  

The association’s argument, that the trigger should be substantial completion of “the last building in the last phase” of the development “would stray too far from the statutory language and the legislative intent behind it,” the court said.  Pointing to the  legislative history, the court noted that the construction defect statute responded to court decisions holding that the liability of those involved in a construction project did not end when the work was completed. 

“The primary objective [in enacting the statute],” the court explained, was to cap what would otherwise have been potentially unending liability for those involved in the design and construction of real property. “In establishing the six-year limit, the Legislature struck what it considered to be  a reasonable balance between the public’s right to a remedy and the need to place an outer limit on the tort liability of those involved in construction.”

Consistent with that goal, the court said, “we have consistently enforced [this] statute of repose as we have other statutes of repose, ‘according to [its] plain terms, despite the hardship [it] may impose on plaintiffs.”

In this case, the court concluded, that meant:  “The issuance of a certificate (or certificates) of occupancy for each individual building (or for all the units in a building) triggered the statute of repose for the common elements and limited common elements pertaining to that building. We further hold that where a particular improvement is integral to and intended to serve multiple buildings within a single phase, or buildings across multiple phases, or even the condominium development as a whole, the statute of repose begins to run when that discrete improvement is substantially complete and open to its intended use.”

Potential Hardships

This interpretation does create potential hardships, the court acknowledged, citing problems we had noted in our suit, primary among then:  Developers, who retain control of the association until the development is complete, could ignore defects identified in earlier phases, essentially running out the statute of repose clock to avoid liability for those problems.   While developers “are not likely to agree to sue themselves,” the court agreed in a footnote, “this concern…is appropriately addressed to the Legislature.”

In another footnote, the court suggested that owners have other remedies while the developer retains control.  “Although it is not a perfect substitute for a direct suit,” the court noted, “unit owners have standing to file a derivative suit to enforce the rights of the association…..[and] once control…passes from the developer to the unit owners, the association could….bring a claim [for breach of fiduciary duty] against the developer-controlled entities that formerly maintained control of the association….”

To describe these alternative remedies as less than “perfect” is an understatement.  Litigation is an expensive undertaking, which unit owners, understandably, are reluctant, and may be unable, to afford, especially given that they could not count on recovering their legal expenses even if they prevailed.

Equally important, suing  the developer after the development is complete could produce a legal victory without a financial remedy.  Developers typically establish single-purpose entities (limited liability corporation) for each project they undertake.  In a condominium development, the only assets in that entity typically are the units the developer controls.  When the last unit is sold and the developer cedes control to owners, the entity no longer has any assets with which to pay damages a court might award.   It’s like holding the winning ticket for a lottery that has no funds. 

The best strategy for owners before they obtain control of a new condo development is to commission an engineering study to identify any serious construction flaws.  This is an expensive undertaking, but it is about the only way owners can protect their interests in the pre-transfer phase.  If the study finds flaws, the owners spearheading this initiative can use the threat of litigation as leverage to persuade the developer to address the problems. 

Owners will need an attorney to represent them. Yes, that will be expensive and litigation will be more expensive still if the developer refuses to cooperate.  The costs and the difficulty of organizing an effective owners’ group to fight this battle are the major reasons few owners do so – leaving the association (consisting of its owners) to face  the risk of incurring an immense construction defect bill they would have to finance with a special assessment, a bank loan, or both.

A Legislative Fix

The solution for condo associations is the legislative remedy to which the court alluded, a remedy the Legislative Action Committee of the Community Associations Institute of New England (CAI-NE) has been pursuing for several years.  The legislation addresses deadlines established by two statutes:  The six-year statute of repose at the heart of this SJC decision, and the three-year statute of limitation, which is triggered at the point the association knew or should have known about the defects.  The two bells toll simultaneously. If a board knows about a defect, it has three years from the discovery to initiate legal action. As a result of this SJC decision, a suit alleging defects in any phase of a development must be filed within six years after that phase was completed, regardless of when the problem is discovered. 

The pending bill would specify that the clocks for both the three-year statute of limitations and the six-year statute of repose would not begin to run until after the developer has turned over control to owners.  The House has passed this measure before, but the legislative session ended before it reached the Senate floor.  This year, the bill has once again been reported favorably by the Judiciary Committee, and Matt Gaines – a partner in our firm -- who co-chairs CAINE’s Legislative Action committee (LAC), says he’s hopeful the House will approve it again, teeing up a battle for Senate approval. 

The Home Builders Association of Massachusetts, not surprisingly, is opposing the measure; the LAC is working hard to make the case for its approval. Toward that end, Matt says, the committee is trying to find condo owners and board members around the state who will contact their representatives to explain their experience with construction defects and the need to hold developers accountable for them.  “It’s one thing for legislators to hear from lobbyists; it’s a lot more effective if they hear directly from voters in their districts,” Matt explains.

The tragic collapse of the “Surfside” condominium in Miami Beach a year ago may strengthen the arguments in favor of the legislation, underscoring the potential risks created by construction defects and the importance of ensuring that associations can address them in a timely fashion. That’s a message the LAC will deliver to lawmakers.  

For condo associations and owners in phased developments, Surfside and, even more directly, the SJC’s  decision also send a clear message: Keep one eye fixed on the developer and the other fixed on both the statute of repose and the statute of limitations.  Those bells are indeed tolling for you.