Multifamily Construction Defect Claims (Part 2)

In this 2 part blog post I wanted to touch on some basics of the typical “multifamily” construction defect case. Whether the project is a condominium, apartment, assisted living facility or hotel they share many of the same issues.  There are six primary considerations in bringing these claims but each of those has many subparts which depend on specific facts of the project.  Considerations 1 to 3 are here.

The fourth consideration is the type of recovery available.  Generally the cost of repairing the defective condition is the damage that can be recovered.  In the event that such repair would be economically wasteful courts may consider diminution of value to be a valid damage.  In addition, depending on the type of property there may also be lost rents, lost profits claims for the time that the property was not able to be used for its intended purpose or for partial loss of use.  Attorney’s fees are often not recoverable in defect claims in most jurisdictions. The exception to the “American Rule” is where the fees are awarded to the prevailing party through contract or statute or what is called a “proposal for settlement” or “Offer of Judgment.”  The question of recovery is maybe the most important one for owners because no one wants to spend money on experts and lawyers where the damages do not warrant such claims.

The fifth consideration is the defenses available.  I have never handled a defect claim where there was no claimed defense by one of the parties identified above.  The typical defenses are that the owner failed to maintain the condition, that the damages were not mitigated, lack of notice of the condition, failure to comply with a statutory notice procedure, the repair is a betterment, the repaired items consist of first costs that the owner would have incurred anyways.  The determination as to the validity of a given defect claim or defense rests with the trier of fact, whether that be a judge, jury or arbitrator.  The applicability of a defense is based upon the specific facts of each case.

The sixth consideration is the cost in moving forward with such claims and the prospects of recovery. Given the complicated nature of these cases they often settle.  Driving settlement is the cost of moving forward in the litigation as well as likelihood of recovery from the named defendants or their sureties or insurance carriers. Not evaluating these items at each step of a case is a trap for the unwary client or counsel.

I have represented numerous owners, condominium associations, contractors and developers in these types of cases and I can guarantee that none of them wanted to be in this type of litigation.  However, sometimes construction projects go wrong and everyone bears some of that eventual cost.