DUTIES REGARDING DEFECTS

Duty to Investigate Potential Defects

Directors have a fiduciary duty to act in the best interest of the association and with such reasonable inquiry as an ordinary prudent person would use under similar circumstances. Therefore, if a board knows or suspects the development has construction defects the board has a duty to investigate. The law imposes a 10-year statute of repose. That means associations have a maximum of 10 years, unless the statute is tolled, to make claims against the builder for latent defects. (Code Civ. Proc. § 337.15.) More importantly, there are other shorter statutes running at the same time that will extinguish an association's rights.

Construction Defect Law Firm. Boards should contact a construction defect attorney if their property is less than ten years old and they suspect defects. If they wait, they may lose the right to seek damages against the developer. In performing their duties, directors are entitled to rely on information and opinions from experts. Investigations can be performed by construction defect law firms using a forensic architect or general contractor. Many construction defect law firms will perform an initial evaluation at no cost to the association.

Pursuing Claims. Associations have authority to instigate claims against developers for construction defects. Homeowner directors can vote to pursue claims, even if the developer still has majority control of the board. (Civ. Code § 5986.) If the board decides to take action against the developer, it must follow prelitigation procedures found in the Davis-Stirling Act.

Duty to Disclose Defects

The association is required to disclose a number of things to its members regarding defects, including damage resulting from the defects. Some of the disclosure requirements required by Civil Code § 6100:

1. A general description of the defects that the association reasonably believes, as of the date of the disclosure, will be corrected or replaced.

2. A good faith estimate, as of the date of the disclosure, of when the association believes that the defects identified in paragraph (1) will be corrected or replaced. The association may state that the estimate may be modified.

3. The status of the claims for defects in the design or construction of the common interest development that were not identified in paragraph (1) whether expressed in a preliminary list of defects sent to each member of the association or otherwise claimed and disclosed to the members of the association.

Obtaining Records. Unless otherwise provided for in the CC&Rs, associations are responsible for repairing, replacing, or maintaining the common areas. To that end, boards should obtain obtain records from the developer as soon as possible after the developer relinquishes control of the association.

Section 367 of the Code of Civil Procedure requires that "[e]very action must be prosecuted in the name of the real party in interest. The person to be benefited by, or entitled to receive the benefits of, the suit is said to have "standing" to initiate legal action and to defend, settle, or intervene in litigation, arbitration, mediation, or administrative proceedings.

HOA Standing to Sue

. “Associations have standing to initiate legal action and to defend, settle, or intervene in litigation, arbitration, mediation, or administrative proceedings on behalf of the membership.” (Civ. Code § 5980; also see Duffey v. Superior Court; Del Mar Beach v. Imperial Contracting.) The Davis-Stirling Act confers standing on a homeowners’ association to pursue legal claims in its name without joining the individual members. (Civ. Code § 5975(a); Cheveldave v. Tri Palms Unified OA (2018) 27 Cal.App.5th 1202 referencing Pinnacle Museum Tower Assn. v. Pinnacle Market Dev'l (2012) 55 Cal.4th 223, 241.) Authorizing language giving associations standing to act for their members is also found in an association's CC&Rs and bylaws. Through their boards of directors, associations can initiate legal actions involving construction defects (Civil Code § 945, which applies to construction defect actions, also provides, “. . . Associations shall have standing to enforce the provisions, standards, rights, and obligations set forth in this title.” see also: Windham v. Superior Court; Del Mar Beach Club v. Imperial Contracting.)

In Association's Name. A civil action can only be maintained by a legal entity. (Oliver v. Swiss Club Tell (1963) 222 Cal.App.2d 528, 537.) Accordingly, any lawsuit brought by a board of directors must be brought in the name of the association, not the board of directors. An association is a legal entity that acts through its board of directors. However, a board is not a legal entity capable of bringing suit in the board's name. (Irish Beach Board v. Farrell (2009); an unpublished decision). Boards should be aware that even though corporations can bring and defend against lawsuits, suspended corporations cannot.

If an association has construction defects, it has a limited time period to assert its claims. The following are general guidelines only. Boards should immediately contact a law firm that specializes in construction defect litigation for advice on how best to proceed.

Types of Construction Defects

There are four types of construction defects:

1.  Design Defects. The design of the project or various components are defective. For example, the roofing design fails to provide for proper drainage, the architect failed to specify gutters and downspouts, etc.

2.  Materials Defects. The materials used in the project are defective, such as roofing materials, windows, concrete, etc.

3.  Workmanship Defects. This involves improper installation of materials.

4.  Geological Defects. These involve soils conditions, improper compaction, slopes, drainage, soils contamination, etc.

If an association has construction defects, it has a limited time period to assert its claims. The following are general guidelines only. Boards should immediately contact a law firm that specializes in construction defect litigation for advice on how best to proceed.

Patent Defects

These are obvious defects that are discoverable by reasonable inspection by the average consumer. (Creekridge v. Whitten.) Four-year limitation for damages from persons furnishing design, specifications, surveying, planning or supervision of construction. (Code Civ. Proc. § 337.1.)

Latent Defects

Latent defects are deficiencies that are not apparent by reasonable inspection. (Creekridge v. Whitten.)  Three-year limitation on injury to realty. (Code Civ. Proc. § 338.)

Statute of Repose

Unless the time has been tolled, no action may be brought more than ten (10) years after substantial completion of the project regardless of the date the defect is discovered. (Code Civ. Proc. § 337.15.)

SB 800 Limitations on Claims

Following are limitations on construction defect claims brought pursuant to SB 800.

1 Year

• Fit and finish warranty (Civ. Code §900) builder shall provide a homebuyer with a one-year express written limited warranty covering the fit and finish of the following building components: cabinets, mirrors, flooring, interior and exterior walls, countertops, paint finishes and trim.
• Inter-unit noise transmission (one year from original occupancy of unit)
• Irrigation and drainage systems
• Manufactured products (products completely manufactured offsite – oven, microwave and other appliances)

2 Years

• Dryer ducts
• Wood posts – decay due to untreated posts coming into contact with soil
• Landscaping Systems

4 Years

• Plumbing and sewer systems (proper operation)
• Electrical Systems (proper operation)
• Cracking of exterior hardscape, patios, pathways, walkways and sidewalks
• Fences – corrosion of steel fences

5 Years. Paint and stains to be applied so as not to cause deterioration of building surface

10 Years

• All other statutory violations (”catch-all”)    
• Balconies and Balcony systems
• Ceramic tile, tile backing, and countertops
• Decks, substrate, and deck systems
• Doors
• Stairs
• Stucco and stucco systems
• Siding
• Framing and framing systems – including concrete slabs and load-bearing components
• Soils
• Columns
• Plumbing lines, sewer and utility lines
• Roofs, Roof systems, and sheet metal
• Chimney and chimney caps
• Baths
• Electrical (fire protection)
• Heating
• Wall finishes – pot shelves and plant ons

Tolling the Statute

 The 10-year statute of repose is not absolute but may be extended if the developer or contractor that performed the defective work takes any action to correct the defects during the 10-year period. Jackson Plaza Homeowners Association v. Alcal Roofing and Insulation (2002) 98 Cal.App.4th 1088.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.