Construction defects plague many buildings in Florida, leading to lawsuits against developers and contractors. Seasoned developers have tried placing limits on their liability in a variety of ways, including inserting provisions in associations’ governing documents to limit associations’ and owners’ ability to bring a lawsuit against the developer. While developers have been creative in coming up with ways to limit liability exposure, this article focuses on what developers may not include in the governing documents that govern homeowner and condominium associations.

Governing Documents

To form a condominium or homeowners association, among other things, one must record a declaration in the respective county public records. Fla. Stat. § 718.104. “The declaration of condominium, which is the condominium’s ‘constitution,’ creates the condominium and ‘strictly governs the relationships among the condominium unit owners and the condominium association.’” Neuman, 861 So.2d at 496–97 (quoting Woodside Vill. Condo. Ass’n v. Jahren, 806 So.2d 452, 456 (Fla.2002)). The same applies to declarations for a homeowners association.

These declarations are binding documents and contain covenants, conditions, and restrictions for the community. Such covenants, conditions, and restrictions pertain to a range of topics including, but not limited to, whether pets are allowed; where to store garbage cans; regulation of TV antennas; and the operation of home businesses. The developer drafts these declarations and, while ambiguities are construed against the drafters,[1] developers are still given wide latitude in drafting declarations. Further, restrictions which may be found in a declaration of condominium are clothed with a very strong presumption of validity when challenged. See, e.g., Grove Isle Ass’n, Inc. v. Grove Isle Assocs., LLLP, 137 So. 3d 1081, 1091 (Fla. Dist. Ct. App. 2014) (citing Woodside Vill. Condo. Ass’n, 806 So.2d at 457).

Developers across the country have used declarations in a number of different ways in an attempt to limit their exposure. In Florida, developers have attempted to define themselves as non-developer entities with less liability exposure; to make unit owners responsible for all aspects of the maintenance and repair of the common areas; and to prevent assignment of certain claims, to name a few. Castellanos v. Citizens Prop. Ins. Corp., 98 So. 3d 1180, 1182 (Fla. Dist. Ct. App. 2012); Cedar Cove Efficiency Condominium Ass’n, Inc. v. Cedar Cove Properties, Inc., 558 So.2d 475 (1990)). These cases are illustrative of the efforts developers have gone through to limit their liability exposure. A case from Massachusetts is especially illustrative of the concerns that arise when developers seek to cut off claims through the governing documents.

In Trustees of Cambridge Point Condominium Trust v. Cambridge Point, LLC, No. MICV-2014-03136, 2016 WL 9753783 (Mass. Super. Nov. 18, 2016), appeal argued, SJC No. 2017-P-0113 (Mass. 2017) a developer attempted to limit its liability under the governing documents by incorporating prerequisites to filing suit in the bylaws for the plaintiff condominium association. Cambridge Point, No. MICV-2014-03136, 2016 WL 9753783. The bylaws incorporated into the condominium declaration required the trustees, before initiating any litigation against anyone who is not a unit owner, 1) to deliver a copy of the proposed complaint to all unit owners; 2) to specify a monetary limit of the amount to be paid as legal fees and costs in the proposed litigation; 3) to inform all unit owners that, if they consent to the initiation of the litigation, they will forthwith be separately and immediately assessed this amount of legal fees and costs as a special assessment; and 4) within sixty days after a copy of the proposed complaint had been delivered to the unit owners, to receive the written consent of not less than eighty percent of all unity owners to bring the litigation. Id.

The final requirement, that there be at least eighty percent approval, was especially troubling since the developer seeking to limit liability owned over twenty percent of the condominiums. Id. Effectively, this meant that the developer could simply withhold consent for filing suit and the community would never reach the required eighty percent. Id. The Court in Cambridge Point found that while Massachusetts’ Condominium Act allowed for such provisions, public policy prohibited such a limitation on the Association’s right to initiate litigation. Id.

The developers in Cambridge Point tried extreme measures in limiting liability through the declaration. While the case was in Massachusetts, the behavior of this developer begs the question as to what is keeping developers in Florida from doing the same thing? The answer is clear for homeowners associations, but not as clear for condominium associations.

Homeowners Associations

Declarations for homeowners associations are governed by Fla. Stat. § 720.3075, titled: Prohibited Clauses in Association Documents. This statute spells out which clauses are null and void as a matter of public policy. Fla. Stat. § 720.3075 explicitly proscribes provisions which restrict, or have the effect of restricting the filing of a lawsuit against the developer. This statute also prohibits the inclusion of clauses that allow the developer to unilaterally make changes to association documents after the association obtains control over the property, as well as clauses that allow for the developer to have more than one vote per residential lot.

Accordingly, Florida law is very friendly for homeowners, by explicitly prohibiting any clauses in declarations that limit a homeowners association from filing a lawsuit against the developer. Thus, the answer as to what keeps developers from incorporating clauses that prevent suit by a homeowners association is Fla. Stat. § 720.3075.[2] The answer is not as clear for condominium associations.

Condominium Associations

Florida Statutes Chapter 718 applies to condominiums. As to declarations, Fla. Stat. § 718.104 requires that a declaration contain a wide variety of governing provisions including, but not limited to, the name of the condominium, a survey of the land, the percentage of fractional shares of liability for common expenses of the condominium, a copy of the bylaws, and “other desired provisions not inconsistent with this chapter.” Id. Additionally, Fla. Stat. § 718.112 lists required and optional provisions to be contained in the bylaws.  Fla. Stat. § 718.112 provides that bylaws must provide for a number of association matters, including, but not limited to, administration of the association, voting requirements, meetings, budgets, and amendments to bylaws. The optional provisions in Fla. Stat. § 718.112 provide that bylaws may provide for methods of adopting or amending administrative rules and regulations, restrictions and requirements for use, maintenance, and appearance of the units and common elements, as well as “other provisions which are not inconsistent with this chapter or with the declaration, as may be desired.”

Where Fla. Stat. § 720.3075 expressly limits what can be included in a homeowners association declaration, Fla. Stat. §§ 718.104 and 718.112 list provisions that must or may be in the declaration. Both Fla. Stat. §§ 718.104 and 718.112 allow for the inclusion of “other desired provisions not inconsistent with this chapter,” but neither statute contains any guidance as to what provisions might be inconsistent with the chapter. This language gives developers broad discretion in drafting declarations of condominium when compared to homeowner’s association declarations.

A full reading of Florida Statutes Chapter 718 reveals that there is no condominium equivalent to Fla. Stat. § 720.3075. Fla. Stat. § 95.03 prevents the inclusion of contractual provisions that abridge the time period for bringing suit to a period shorter than provided for in the statute of limitations, but does not place any other limitations on provisions that can be included in a declaration. Thus, developers drafting declarations for condominium(s) appear to have much more control when it comes to limiting liability exposure.[3] However, in cases where the declaration has liability-limiting provisions that are overly aggressive, courts will likely follow the rationale from Cambridge Point and hold that such provisions are null and void as a matter of public policy.

Conclusion

By statute, homeowners associations in Florida are better protected from restrictive declarations than condominium associations. While there are inherent differences in living in a townhome when compared to a condominium with more common elements, these differences do not seem to justify the statutory disparity in owner protection. Although public policy can certainly void overly aggressive claim restrictions in governing documents, buyers of homes in associations should read the governing documents of their communities before making a purchase.

[1] Kaufman v. Shere, App., 347 So.2d 627 (Fla. Dist. Ct. App. 1977);  Santa Rosa BBFH, Inc. v. Island Echos Condominium Ass’n, App., 421 So.2d 534 (Fla. Dist. Ct. App 1982) dismissed 426 So.2d 28. (Any ambiguity in declaration of condominium is to be construed against author of the declaration.)

[2] Additionally, conditions to all homeowner association covenants must be reasonable. See Holiday Pines POA, Inc. v. Wetherington, 596 So. 2d 84 (Fla. 4th DCA 1992); Bay Island Towers, Inc. v. Bay Island-Siesta Association, 316 So. 2d 574 (Fla. 2d DCA 1975); Richardson v. Deerwood Club, Inc., 589 So. 2d 937 (Fla. 1st DCA 1991); Klinow v. Island Court at Boca West Property Owners’ Ass’n, Inc., 64 So. 3d 177 (Fla. 4th DCA 2011).

[3] Illustrative case law on the subject is lacking.

As anyone who is taking the time to read this blog probably knows, the American Institute of Architects (AIA) construction contract forms are omnipresent. Which means you also probably know that in April 2017 the AIA released an update to its A201 general conditions form, last updated in 2007.

While many of the changes were discussed, researched, written and lectured about last summer, including by me, I’ve recently started to field a lot of questions about the 2017 changes to the AIA documents, A201 in particular. This is no surprise, I suppose. After the 2007 AIA forms were released, it took a year or two before the updated forms were used more frequently.

In light of these recent questions, now seems like a good time to summarize a few of the differences between A201-2007 and A201-2017.

§1.1.8 Initial Decision Maker

A201-2017 adds a sentence shielding the Initial Decision Maker (IDM) from liability for “interpretations or decisions rendered in good faith.” While this new sentence requires the IDM to act in good faith, it nevertheless appears to be a broad liability waiver for someone who could be making key decisions relating to cost, time and scope.

§ 1.2.1.1 Savings Clause

A “savings” clause has been added to A201-2017 – meaning that if a court finds that part of the agreement violates the law or is otherwise unenforceable, the remainder of the contract is nevertheless enforceable. Further, if a section is deemed unenforceable, the court may revise the section to make it legal rather than throwing out the entire section.

§1.6 Notice

Whenever “notice” is required by A201-2017, such notice is now required to be in writing. Continue Reading A201-2017: A Brief Summary of the Differences a Decade Makes

On April 3, 2018, Oregon Governor Kate Brown signed into law HB 4144, which eases licensing requirements for construction contractors, especially those in rural areas. Under the new Construction Contractors Board rules, an individual with at least eight years of experience in the construction industry may apply for a new residential contractor’s license without having to complete the previously required training. Applicants under the new rules must still pass the CCB licensing exam, and must also form a sole proprietorship through the Oregon Secretary of State. The CCB will waive the initial license fee for certain application types.

So, why the change? As is often the case when the State and the construction industry mix, the answer lies in the economy. According to the CCB, the Governer requested HB 4144 “to help turn wage earners into job creators/employers.” According to Governor Brown, the demand for rural jobs and affordable housing also warranted the changes. With increasing construction demand in rural areas, the state decided to loosen the requirements for new license holders to spur business ownership.

Notably, important changes to the rules are actually designed to encourage contractors to own their own companies. Under the new rules, an existing fund at Business Oregon (Oregon’s economic development agency) will be used to help first-time applicants with up-front costs such as insurance, bonding, and equipment purchases. The funds will be available only for use by contractors working on affordable, low, and moderate-income housing in rural Oregon. HB 4144 also directs the Oregon Higher Education Coordinating Commission to give grant funding to new, small contractors so as to recruit and hire Oregonians new to the construction workforce.

With the new rules going into effect January 1, 2019, contractors have time to consult with attorneys to discuss licensing and business formation issues. As always, and in light of the fact that contractor training requirements are being reduced, project owners should do their homework before hiring a contractor. A contractor’s license, bond, insurance, and complaint history can be accessed 24 hours a day through the CCB’s website: http://www.oregon.gov/CCB.

Property owners and contractors alike dread at least one phase of the building process more than others: permitting. For many, obtaining a building permit or getting a set of building plans approved by the local building department can seem more like a trip to the dentist than a step toward a new house or commercial building. Long lines, complicated forms, and expenses can be enough to take a toll on even the most seasoned permit puller.

But now, for many Oregonians, the process is about to become murkier. For years, smaller Oregon towns have contracted with private companies to handle the day-to-day operations typically handled by a city-run building department. That’s about to change.

The Oregon Department of Justice and the Office of Legislative Counsel recently issued opinion memoranda stating that private third-party inspections programs violate the Oregon Constitution. Because private companies shouldn’t make government decisions, private building inspection programs are unlawful, according to the State. While the opinion letters are long and complex, the major takeaway is that private companies cannot take over the operations of an entire building department, for two reasons: (1) the Constitution prohibits delegating discretionary governmental powers to private companies; and (2) such wholesale delegations to the private sector does not afford for the necessary amount of government accountability. The DOJ drew a distinction between “ministerial” aspects of building inspections—which may be delegated to third-parties—and “discretionary” functions—which may not be delegated. Full-scale delegation of entire inspection programs, such as electrical or whole-building inspections, cannot be delegated to private companies, according to the DOJ.

The State has recommended that the Oregon Building Code’s Division (itself a division within the Oregon Department of Consumer and Business Services) cease approval of any new private delegations and discontinue all delegations currently in place.

The new rules are expected to take effect on July 1, with about three dozen Oregon communities expected to be impacted. This will likely throw a wrench into any construction plans for those towns as they try to figure out who should be approving plans, issuing permits, and inspecting work. Smaller Oregon towns are now scrambling to evaluate their options. Towns that can afford it may create their own building departments. Others are expected to form small groups, with two or three cities or towns sharing a joint department.

Regardless of how cities react to the new system, delays will be inevitable. Contractors, homeowners, or anyone looking to construct a building this summer would be wise to plan ahead, and expect delays and backups in permitting as communities adapt to the new rules.

A contractor often enters into a contract negotiation or bid process where there is little to no ability to negotiate the terms of the contract. It is for all practical purposes a “take it or leave it” deal.  Sometimes, this is a result of the owner’s or prime contractor’s unwillingness to negotiate. Sometimes, this is a result of flow-down provisions that the contractor has no ability to negotiate.  Sometimes, the job opportunity is so great it is worth signing on the dotted line despite less than desirable terms. With that said, a contractor can successfully navigate unfavorable terms that may exist in the contract.  The key is to identify the pitfalls and train your management and field personnel to avoid them. This is where an attorney can help to review a contract to provide a road map on what to look for to avoid potential dangers.

Knowing the requirements set out in the contract and educating personnel on the procedures are the first steps. If there is a detailed change order process set out, with specific deadlines, the appropriate personnel need to know the requirements up front. Your standard internal practices may not align with the procedure required by your contract or the prime contract. If the prime contract requires a flow-down of terms to all subcontractors, the internal team needs to understand what requirements are non-negotiable and apply to subcontracts. You don’t want to breach the contract before ground is even broken. If the prime contract requires subcontractors to add the owner as an additional insured, then the internal team needs to ensure this is done and include any additional cost in the bid. Identifying these procedures for both accounting and the project managers to follow is half the battle.

Some of the provisions you have agreed to in the contract may have unintended or unforeseen consequences. If the addition of time to the schedule is the result or part of a change order, what does the contract require be provided with the change order? Do you now need to submit certified payroll or is a summary enough documentation? Does the changes clause presume that the change order includes all costs, including unidentified or unknown impacts and delays? No contractor wants a change order to be denied for lack of documentation, poor timing, or a failure to reserve future claim rights. A lawyer’s review of the contract documents can often help your company manage the risks and allow for effective planning.

In the end, the best defense is often a good offense, and following the process set out in the contract to avoid a conflict can be your best move. This is where your legal team can help. These contracts can be large, foreboding, and confusing documents. On the right project, spending time with your lawyer at the beginning of the project to properly understand your contract and to identify potential landmines is far better than spending even more time with your lawyer during or after a project trying to put the pieces back together after stepping on that mine.

The federal Fair Housing Act (“FHA”) and Americans with Disabilities Act (“ADA”) require property developers to provide reasonable accommodations for disabled individuals. In turn, property owners rely on their architect and engineer to design compliant projects. If a project is not compliant, it is typical thinking that the property owner will seek indemnification and defense from the architect or engineer who was paid and insured to make it compliant.

The federal courts prohibit this, however. That is because the national consensus is that the FHA and ADA preempt state contractual law. The courts have looked at the statutes for an express private right of indemnification by an owner against a negligent designer, and they have not found one. As such, they hold that the requirements of the FHA and ADA on property owners are “non-delegable,” and that the liability for their breach cannot be shifted on to any other party.

The recent case of The Chicago Housing Authority v. Destefano and Partners, Ltd., 45 N.E.3d 767, 2015 IL App (1st) 142870 (2016) is illustrative. There, a review by the United States Department of Housing and Urban Development (“HUD”) revealed a range of noncompliance issues at seven properties, necessitating over $4 Million in renovations and new work. The Housing Authority had worked with the architects and engineers expressly to achieve compliance, requiring compliance in the design contracts. The Housing Authority therefore sued the architect and engineer to recover the cost of achieving compliance, under both breach of contract and indemnity theories.

The Illinois Court reviewed a lead case on the matter, Equal Rights Center v. Niles Bolton Associates, 602 F.3d 597 (4th Cir. 2010), noting that the federal trend has been consistent that property owners cannot contractually delegate their duty to comply with the federal accessibility standards. The Illinois Court ultimately held that the Housing Authority had no recourse against its designers whose negligence had caused the noncompliance, because no recourse was provided for in the governing federal standards. Recently, contractors have also been taking advantage of this caselaw to further isolate developers when claims arise. Continue Reading Property Developers Need to Take Extra Steps to Protect Themselves from ADA and FHA Liabilities

  1. Educate Yourself About the Project. If you are working with an owner that is new to you or if you are a subcontractor working with a general contractor with whom you have not worked previously, ask others about their reputation. Before venturing into a relationship, investigate the project’s financing and the reputation of those holding the purse strings.
  2. Condition Your Bid. Condition your bid on fair contract terms. This need not be limited to boilerplate exclusions and clarifications. Instead use the bid process as an opportunity to set the stage for contract negotiating.
  3. Read Your Contract Before Signing It. Even if the contract appears to be a standard AIA or Consensus Doc, read it. Scrutinize it. Make sure you understand it and make efforts to negotiate those terms that ask you to take on unbalanced risk.
  4. This Means Read All of the Contract Documents. Read all exhibits as closely – if not more closely – than the contract itself. Exhibits can include lien waiver forms, broad indemnity agreements and change order forms that release various rights otherwise set forth in the contract. If you are a subcontractor, ask for and review the prime contract as most subcontracts incorporate the prime contract, plans, specifications and all addenda thereto.
  5. Be on the Lookout for Risk-Shifting Clauses. As part of your risk management practice, develop a list of contract provisions that have caused you problems on past projects. Examples include: pay-if-paid vs. pay-when-paid clauses, overbroad indemnity clauses that ask you to indemnify against the indemnitee’s own negligence or to indemnify direct rather than third-party claims, no damages for delay clauses where the delay was caused by the owner, etc.

Continue Reading 10 Ways to Improve Your Company’s Chances of Getting Paid

In a recent case, the Oregon District Court adopted a liberal interpretation of “property damage.” The Oregon Shakespeare Festival Association (OSF) suffered a loss during its season: nearby wildfires caused smoke to infiltrate a partially outdoor theater where performances were being held, necessitating cancellations. Oregon Shakespeare Festival Association v. Great American Insurance Company, 2016 WL 3267247 at 1-3 (D. Or. June 7, 2016).

OSF’s insurance policy covered “direct physical loss or damage” to its property and the “actual loss of Business Income” caused by such loss or damage. Id. at 4. Thus, to get coverage for the business losses it sustained by cancelling performances, OSF had to show that the smoke infiltration, the undisputed reason for the cancellations, was “direct physical loss or damage” to property.

OSF argued that “physical loss or damage” means “any injury or harm to a natural or material thing.” Id. at 5. Great American Insurance, OSF’s insurer, argued that air is not “property,” and that covered damage must be “physical”—not just smoky air. Id. at 5-6. The court agreed with OSF, holding that Great American’s definition was too restrictive: there was nothing in the policy, the court said, to suggest contaminated indoor air is not covered, nor could Great American explain why air is not “physical.” Id. The court explained: Continue Reading Oregon Court Endorses Broad Definition of “Property Damage”

The breathless growth of Portland’s housing market has nurtured a growing income opportunity to developers who purchase homes for renovation and resale; so-called “house flippers.” Such homes not only provide potential profit for developers, but also provide turnkey renovations for home purchasers and improved aesthetics for surrounding neighborhoods. However, misconceptions about the flipping and sale process can spark disputes between developers and their eventual purchasers. Most of these troubles can be avoided through better contracting and more candid communication on both sides. The following are recommended steps toward reducing the risk of future problems, from the perspectives of purchasers and developers.

  1. Purchasers

Recently flipped homes offer the best of both worlds: old-home charm with new-home fit and finish. But that blessing is also a curse, because new renovations can mask undiscovered problems. Too many purchasers see beautiful finishes and promptly neglect the potential for hidden old-home problems. The purchase process – when done right – is more complicated for a flipped home than a new home. Several pieces of advice will help.

The first and best piece of advice is to know your contract. In the recent case of Shell v. The Schollander Companies, Inc., 358 OR 552 (2016), discussed below in a post by David Delmar, an owner sued for construction defects in a home she purchased when new. However, because hers was a contract for sale rather than a contract for construction, a different time limit applied. This distinction between a construction contract and a sale contract is far more critical with a flipped home. Purchasers tend to perceive the seller’s renovations as something akin to new construction and believe that new construction standards should apply. This is not necessarily true; a typical sale contract contains no obligation to perform construction services according to any particular standard. Moreover, the “as-is” clause could prevent a purchaser from asserting certain claims later. Continue Reading Don’t Fret Your Flip: Mitigating Risks Particular to Homes Renovated for Resale

A client recently asked me to confirm when a joint venture must be licensed to bid and perform construction work. I explained that the answer depends on the name of the joint venture, where the work will be performed, and – depending on the state in which work is to be performed – the stage of construction.

Both Washington and Oregon generally require contractors to be registered or licensed to perform construction work in their respective states. RCW 18.27.020 requires every contractor to be registered with Washington’s Department of Labor and Industries to advertise, offer, bid, or perform any construction services in Washington. Similarly, ORS 701.021 requires every contractor to be licensed with Oregon’s Construction Contractor’s Board to offer, bid, or perform any construction services in Oregon.

In Washington, RCW 18.27.065 further provides: Continue Reading Joint Ventures and Contractor Licensing Requirements in Oregon and Washington