FEATURE ARTICLE, OCTOBER 2005

CONTRACTORS: PAY ATTENTION TO CONDOMINIUM WARRANTIES
David Willis

Willis

Contractors who opt for A and B may find that their choice is neither cheap nor fast, particularly if they are among the hundreds of contractors getting in on today's condo craze. That's because warranty issues are significantly different when it comes to condominium projects, as opposed to most other types of construction.

Condo Market Revving Up

In many states, and in Florida particularly, condominium developments once were found primarily in coastal communities. These days, the condo market is revving up in downtown urban markets and suburban settings, fueled by factors such as land scarcity and rising unit prices.

In these burgeoning markets, many contractors and subcontractors may never even have bid on a condo project before, having established their businesses in commercial construction or within single-family home communities. In commercial and single-family construction, warranty issues are pretty straightforward: a 1-year warranty is standard.

But in the condominium market, warranties are a far more thorny issue. In Florida, for example, all buyers of new condominium units receive a 3-year warranty on the “fitness and merchantability” of the unit as it relates to the major structural components. That 3-year minimum is guaranteed by Florida's condominium law, one of the most stringent in the nation.

That's why it's important for all contractors and subcontractors to consider potential warranty issues before diving into the condo construction market. The potential consequences can not only be serious, but long-lasting as well.

The Times Are Changing

There is one big thing to remember for any contractor or subcontractor considering the potential of having of a condo warranty issue: the complaining party often is the condominium association — not the developer and not a single-home owner. And, condo associations can be difficult to handle.

It used to be that condo developers held onto their projects for a period of several years and thus held control of the homeowners association. For warranty issues arising shortly after the completion of construction, solutions were relatively uncomplicated.

In today's market, condo developers usually pre-sell more than half of their available units before construction begins. Selling out typically happens not long after construction is completed, and the condo association is turned over to the homeowners who govern it themselves, usually with the aid of a management company.

As owners united by common interests in the upkeep and maintenance of their buildings, condo associations often have well-deserved reputations for being vocal, cantankerous and demanding. And remember: condo associations can be well-funded pursuers of warranty claims.

Warranty Rules and Issues

In commercial or single-family construction, warranty rules are comparatively simple. On such projects, for example, warranty issues typically are limited to the parties involved. Normally, this means that an owner with a warranty claim typically goes after the builder or the subcontractor.

However, in Florida, the condominium law grants far more expansive rights to consumers. Condominium owners can pursue the developer, the general contractor and the subcontractor collectively or individually on an array of warranty issues. While Florida law provides that such a warranty exists, it does not specify the contractor's or subcontractors' obligations under the warranty. As a result, condominium owners attempt to pursue claims beyond the cost of fixing the problem. For example, condominium owners in Florida have sought reimbursement for the costs of temporarily moving out while repairs were made and a variety of other incidental damages. Condominium developers also have pursued claims against general contractors and subcontractors for “loss of reputation” and poor sales in other projects.

Warranty issues for condominiums typically relate to the major structural components of the project. These include: the roof, mechanical systems, heating and ventilation systems, electrical, plumbing and fire protection. Claims against general contractors and subcontractors have been pursued for anything ranging from common air-conditioning systems that didn't work as promised to rainwater intrusion — which occurred as result of a design defect — that produced interior mold.

Tips to Get in on the Condo Craze

For any contractor or subcontractor thinking about getting in on the condo craze, here are some tips on how to protect your business:

•Build a margin into your estimate. A bare-bones budget with no room to cover potential warranty issues later on can wipe out a contractor's profit. Also remember that the costs, and the potential margins, are much higher for condominium towers than they are for one- or two-story structures.

•Have legal counsel review your contract. Opportunities may exist to specify and limit your obligations under the warranty. For instance, language could be added providing that your sole obligation is to correct your defective work and any physical damage caused by the defect in your work. Recognize that little, if any, law regarding the enforceability of such limitations. Without such limiting language, however, you have no ability argue for a limitation of your damages under the warranty.

•Don't let a problem snowball. If warranty issues do arise, it is best to address them quickly rather than engage in arguments over who is at fault. Delays in addressing warranty issues — especially in a condominium setting — could have greater consequences later on.

•Re-double quality-control effort. Most contractors practice the habit of “get it right the first time.” But considering the potential costs of having to deal with a warranty issue, an increased focus on quality control at the outset of a project will be well worth the effort.

David Willis is an attorney at Rumberger, Kirk and Caldwell, P.A., a law firm based in Orlando, Florida.

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