Monday, August 8, 2016

Landmark Decision by New Jersey Supreme Court Finds Developer's Insurance Covers Consequential Damages Caused by Faulty Workmanship of Subcontractors

The New Jersey Supreme Court has finally joined the majority of other states by holding that the standard developer/general contractor commercial general liability insurance policy (“CGL policy”) covers consequential damages caused by the faulty workmanship of their subcontractors.  The ruling is significant for condominium and homeowner associations that suffer from construction deficiencies because it provides an avenue to satisfy a judgment or otherwise recover funds necessary to repair construction deficiencies left behind by a defunct or assetless developer or general contractor. 

All too often developers and general contractors form assetless “shell” entities that have no means to satisfy a judgment for construction deficiencies.  In these circumstances, the only hope for recovery for community associations is through the developer or general contractor CGL policy.  However, prior to the ruling in Cypress Point Condominium Association, Inc. v. Adria Towers, LLC, et al., insurance carriers routinely refused coverage by relying on the “damage to your work” or “your work” exclusion in CGL policies which excluded coverage for property damage to the work of the developer or general contractor.  Insurance carriers argued that the “your work” exclusion was inclusive of the entire building or property because that is what the developer or general contractor was responsible to construct.  Thus, carriers steadfastly refused to settle or pay for damages caused by construction deficiencies -- such as those resulting from water infiltration or leaks.

Attorneys for community associations throughout New Jersey have long argued that the “subcontractor exception” found in standard CGL policies provided a clear exception to the “your work” exclusion. Nevertheless, carriers still refused to provide coverage to developers or general contractors.  At last, the New Jersey Supreme Court finally weighed in and agreed that the “your work” exclusion was unequivocally narrowed by the “subcontractor exception” because it expressly declared that the exclusion did not apply if the damage or work out of which the damage arose was performed by a subcontractor.  Thus, so long as the damage alleged arose out of faulty workmanship performed by the subcontractor of a developer or general contractor, it is a covered loss.  


Monday, May 9, 2016

Q&A: Accomodating Requests for Support Animals





Q:           I live in a condo. We are having some issues with residents that are moving into the building and requesting a companion dog. They always say they can a letter from their doctor.  Please advise, your help is greatly appreciated.

A:      The Federal Fair Housing Amendments Act (FHAA) requires “housing providers,” such as a condominium association, to make “reasonable accommodations” to disabled persons in rules, policies, practices or services when such accommodations may be necessary to afford a person with a disability the equal opportunity to use and enjoy a dwelling.  New Jersey’s Law Against Discrimination similarly requires accommodation of the disabled.  Decisions of federal and state courts in interpreting these laws have held that in certain instances housing providers must accommodate those with a legitimate physical or emotional disability requiring the support or assistance of an animal regardless of any restrictions on pets in the governing documents.  That said, a “letter from their doctor” is not necessarily sufficient to establish that a resident suffers from a legitimate disability requiring the support or assistance of an animal.  

A governing board may require that residents requesting such an accommodation provide information and documentation sufficient enough to allow the board to reasonably establish that the resident: (1) suffers from a disability as defined by law; and, (2) requires the physical assistance or emotional support of an animal to accommodate their disability.  For example, amongst other things, the association may request a certification from a qualified treating professional certifying under the penalty of perjury that the resident’s disability meets the standards set forth by the FHAA and that no alternative accommodation exists.  

Ultimately, a request for an accommodation of a physical or emotional disability is not something a governing board should take lightly.  The failure to make a reasonable accommodation of a disability is considered discrimination.  Therefore, even if the governing board believes that the resident does not suffer from a disability or the resident making the request is unwilling to provide information or documentation, the advice of legal counsel should be sought before declining a request for an emotional support animal.

Wednesday, April 13, 2016

Developer’s Misrepresentations Relating to the Nature and Quality of Views from High-Rise Riverfront Condominium Results in Award of Treble Damages



Developer’s Misrepresentations Relating to the Nature and Quality of Views from High-Rise Riverfront Condominium Results in Award of Treble Damages


            Were you promised “breathtaking,” “unparalleled waterfront views” or an “unbelievable panoramic range” of views of the Hudson River and Manhattan skyline from your condominium unit, only to have your view obstructed by a neighboring building constructed after your purchase?  Depending on the circumstances surrounding the sale and marketing of your condominium, you may be entitled to damages for the diminution of the value of your unit resulting from the obstruction of your view, and possibly treble damages, attorneys’ fees and costs.  This was the outcome in Etelson v. South Shore Urban Renewal, LLC,[1]where the Appellate Division affirmed a jury’s finding that a developer deliberately misled purchasers in marketing materials when the developer had actual knowledge that views in the South Shore condominiums would not be unobstructed. 

            In Etelson, ten unit owners filed an action against the developer alleging violations of the New Jersey Consumer Fraud Act for, among other things, the loss of their view of the Manhattan skyline.  The developer actively marketed South Shore condominiums for its unparalleled waterfront views, which were depicted on the developer’s website, display boards, sales brochures, billboards, handouts and videos.  A painting of the condominium in the developer’s sales offices even depicted a smaller building being constructed in front of South Shore.  In contrast to the marketing materials, the developer was in fact actively seeking approval, and eventually constructed, a building obstructing the plaintiffs Manhattan skyline views.  As a result, the Court found that the developer could not hide behind generalized warnings and disclaimers in the Public Offering Statement, Master Deed and sales contracts.  The jury in Etelson awarded the unit owners $1,253,420.00 in damages for diminution in value of their units, and the Court entered a final judgement in Plaintiff’s favor for $4,817,638.12, which included a trebling of damages, attorneys’ fees and costs pursuant to the New Jersey Consumer Fraud Act. 

The knowing concealment, suppression, or omission of any material fact in connection with the sale or advertisement of real estate is strictly prohibited by the New Jersey Consumer Fraud Act.  If you are a condominium owner, and the developer failed to disclose certain material facts in connection with the sale or advertising thereof, you should consider consulting with an attorney.  In the same vein, developers should always consult with their attorney prior to making any representations in marketing materials. 


[1] Docket No. A-0570-11T4 (App. Div. March 10, 2014). 

Wednesday, March 9, 2016

Failure to Provide A Smoke Free Environment Entitles Co-op Owner to Reimbursement of Substantial Maintenance Fees


A recent decision of a New York trial court proved very costly for a cooperative.
An owner successfully sued the co-op for breach of the warranty of habitability, constructive eviction and breach of contract based on the infiltration of second hand smoke into the owner's apartment.

The New York Real Property Law § 235-b, applicable to cooperatives, provides a lessor's warranty that a unit will be free from any conditions that are dangerous or hazardous to the occupant's life, health or safety.

The co-op was found, inter alia,  to have breached the warranty of habitability by permitting the apartment to be infiltrated by second hand smoke. 

According to the decision, the plaintiff's complaints about the smell of smoke were ignored by the co-op and the plaintiff was forced to vacate.

The court noted that "as a matter of fact, the value of a smoke polluted residential apartment is zero    .  . .    and that the plaintiff is entitled to a 100 percent abatement . . . "  Reinhard v. Connaught Tower Corp., 602503/2008, NYLJ 120275100993 (Sup. NY Decided January 25, 2016)  As such, the plaintiff was entitled to reimbursement of maintenance fees in excess of $100,000.00!

In addition to the abatement of fees, pursuant to the terms of the proprietary lease, as the prevailing party, the plaintiff was entitled to reasonable attorney's fees incurred in connection with the lawsuit.

The decision leaves open questions concerning a co-op's options. Should it to exclude smokers from the building or  "smoke proof" units.

Wednesday, March 2, 2016

In Re Rones Revisited: Court Rules Condo Lien Cannot be Strippped Off



Don't leave money on the table by  assuming  that a Chapter 13 bankruptcy filing by an owner wipes out or limits payment of a  condominium  association's pre-petition claim for unpaid  fees and assessments.

A recent decision of the United States District Court, on appeal from an order of the U.S. Bankruptcy Court, is a solid victory for condominium associations in this regard. The decision impacts the amount of money a condominium association, with a recorded priority lien, will be entitled to receive
when an owner files a Chapter 13 bankruptcy.

Based on the decision, the limited super priority afforded to a condominium claim of lien pursuant to the New Jersey Condominium Act, specifically, N.J.S.A. 46:8B-21 (b)(1), prevents the lien from being stripped off or crammed down under a debtor's chapter 13 plan. Since the lien was entitled to a limited priority over the first mortgage, and was secured by the debtor's principal residence, the lien could not be modified or stripped off.

Therefore, under a Chapter 13 plan, the entire lien will secured and not just the limited super priority portion.

Tuesday, February 9, 2016

Homeowners Awarded Treble Damages for Developer’s Failure to Disclose



On February 4, 2016, the Appellate Division affirmed an award of treble damages to three new home purchasers, where the developer knew, but failed to disclose, that the garage could not practically fit a normal-sized sedan.[1]  Plaintiffs purchased model homes with a two-car garage, but the garage bay on the left side was not able to fit a normal-sized sedan.  The residential developer and others involved in the construction and sale of the homes were aware of this issue and failed to disclose it to the purchasers.  Plaintiffs filed an action alleging a breach of the New Jersey Consumer Fraud Act (CFA) and sought damages to repair the condition.  

The CFA prohibits, amongst other fraudulent conduct, the knowing concealment, suppression, or omission of any material fact in connection with the sale or advertisement of real estate.  A violation of the CFA may result in the award of three times the damages caused thereby and attorney’s fees.  Here, the Court found that the inability to park a car in a garage was a material fact required to be disclosed under the CFA because a reasonable person would attach importance to such information in purchasing a home.  Therefore, because the Developer knew, but did not disclose this condition to the plaintiff purchasers, the Court found that the Developer violated the CFA and awarded damages of $9,200 to each plaintiff, which was trebled to $27,600 each.  The Court also awarded plaintiffs approximately $102,000 in attorney’s fees.   

The decision should be of particular interest to all new home purchasers because it sets forth that the CFA does not require the violation of a building code before the omission of material information constitutes consumer fraud.  If a reasonable person would attach importance to the existence of certain information in determining whether or not to purchase, and the developer knew, but failed to disclose such information, the developer may be liable for treble damages under the CFA.  We recommend that you consult with an attorney if your condominium association has discovered that the developer or others involved in the design and construction of the property failed to disclose certain material facts in connection with the sale or advertising thereof.


[1] See Hazaray, et al. v. The Estates at Bordens Crossing, LLC, et al.,  Docket No. A-5135-13T3 (http://www.judiciary.state.nj.us/opinions/a5135-13.pdf)

Tuesday, February 2, 2016

The Discovery Rule May Defer Statute of Limitations Applicable to Construction Defect Claims Filed by Condominium Associations in New Jersey

In a recent decision the New Jersey Appellate Court held that a lawsuit by a condominium association against the developer and other parties responsible for the negligent design and construction of a condominium, that was filed more than six years after substantial completion of construction, was not barred because the six year statute of limitations that runs from substantial completion was deferred until the association received a report from its engineer identifying the various construction defects in the property.[1]  While prior decisions of the New Jersey courts have held that such claims are, at a minimum, deferred until the unit owners gain control of the Board,[2] the Palisades Court found that the association was entitled to the benefit of the “discovery rule,” which defers the limitations period until a party knew, or should have discovered by reasonable diligence, that a claim exists.

The statute of limitations for construction defect claims generally begins to run upon substantial completion, but the equitable principle of tolling may be applied to condominium associations’ claims to defer the running of the limitations period.  For example, in Palisades, construction was substantially complete on May 1, 2002.  The unit owners, however, did not gain full control of the Board until July 2006.  Shortly after gaining control, the board retained an engineering company to undertake an evaluation of the property and in June 2007 a report was supplied to the board identifying various construction defects.

On March 12, 2009, the association filed a complaint in the Superior Court of New Jersey against the construction defendants based on the findings in the June 2007 report.  The construction defendants sought dismissal of the complaint arguing that at the time the engineering report was produced one year still remained on the six year limitations period and therefore the association had ample amount of time to seek recourse and equitable tolling ought not to apply.  On appeal, the Appellate Division reversed the decision of trial and rejected the argument of the defendants, finding that the discovery rule deferred the limitations period until the engineering report was supplied because that is when the board first discovered, through reasonable diligence, that a claim existed.

The decision in Palisades is significant because it affirms that the discovery rule applies to construction defect claims by a condominium association.[3] It is important that associations act with reasonable diligence to discover potential construction defects and timely assert any claims for damages.  If your condominium has recently transitioned from developer to unit owner control, we suggest that you immediately consult with an attorney.


[1] See The Palisades at Fort Lee Condominium Ass’n Inc. v. 100 Old Palisade LLC, Docket No. A-4292-13T3 at http://www.judiciary.state.nj.us/opinions/a4292-13.pdf

[2] See e.g., Terrace Condominium v. Midlantic National Bank, 268 N.J. Super. 488, 503 (Law Div. 1993) (limitations period tolled when unit owners are not in control of board ); accord Skyline Condominium Assoc. v. Falkin, Nos. A-3913-98, A-3860-98, A-3792-98 (App. Div. Sept. 10, 2001) (inability of association to commence action until unit owners acquired control of association mitigates barring complaint as untimely).

[3] See also Belmont Condo. Ass'n, Inc. v. Geibel, 432 N.J. Super. 52 (App. Div. 2013) (pursuant to discovery rule, statute of limitations on condominium association's Consumer Fraud Act (CFA) claim against developer was tolled until property manager had reason to believe that it had suffered an ascertainable loss from water leaks).