Joseph McCarthy, a real estate attorney in Stoel Rives’ Seattle office, was recently interviewed by television station KIRO 7 in Seattle for a segment titled “Law meant to protect Wash. homeowners instead pushing up condo prices.” The piece discusses how the consumer warranties contained in the Washington Condominium Act, found at Chapter 64.34 RCW, fostered excessive construction defect lawsuits that have caused developers to avoid condominiums and to instead build apartments, which are not subject to the act.

In the last five years, 1,235 condo units were registered by developers in King County, while 34,100 apartment units were registered. Some advocates for condo owners (many of whom bring suits against condo developers) have argued the act provides important protection for the consumer, but developers, many of whom have been sued by condo associations, believe that the act, which McCarthy says is vague and does not explicitly state what is warranted, should be revised to clarify the warranties required by the developer.  “It’s vague, uninsurable, and expensive,” he said.  You may view the KIRO 7 news segment here.

The warranty provisions of the condo act are disliked by developers, because they are quite broad, and they are imprecise. The warranties require that each condo project is:

  • Free from defective materials;
  • Constructed according to sound engineering and construction standards;
  • Constructed in a workmanlike manner; and
  • Constructed in compliance with all laws.

These standards are open-ended, so it is easy for any hired expert to testify that some aspect of the building construction violates them. Neither the developer nor the condo owner can know what is warranted until a lawsuit is brought, the experts testify and the judge or jury decides whether the construction violated one of these standards.

When compared to the single-family construction industry, where warranties almost always contain specific measurable parameters for construction items, the condominium warranties are unpredictable and difficult to insure. Many developers have stories of projects built to very high standards that were nevertheless (and in their view unjustifiably) criticized by an expert hired to increase the value of a lawsuit.  This situation has consequently driven up condominium prices as high insurance premiums are required to deal with the construction defect claims that are routinely asserted against condo projects.  Some industry insiders estimate that a developer has more than a 90% chance of being sued on a condominium project, due to the ease of bringing a warranty claim. With the prevalence of construction defect claims that inevitably appear to follow from condominium developments, one can readily appreciate the chilling effect that the act has on developers considering condominium construction.

The Washington Condominium Act attempts to balance the interests of the claimants with at least some protection to the owner/developer community, such as specific condo defect claim limitations periods and detailed notice requirements.  For instance, RCW 64.34.452 requires that claims for breach of the express and implied warranty obligations under the act be brought within four years after the cause of action accrues.  A claim regarding the common elements (such as the building envelope) accrues at the time of the first unit sale. A claim as to a unit (such as interior flooring) accrues on the closing of the unit.  (This is shorter than the six-year statute of limitations period for general breach of contract claim.)  Additionally, the condominium declarant’s potential third party claims against its contractor and architect may be impacted, if not foreclosed, by the ultimate six-year statute of repose.  Under the act, the claim accrual (and hence the limitations) periods differ and very much depend on the type of claim being asserted (e.g., breach of warranty as to an individual condo unit or breach of warranty as to each common element) and such periods may not be reduced by either an oral or a written agreement.

These claim filing limitations also may be subject to the construction defect claims notice requirements of RCW 64.50.020, which could add another layer of complexity to the procedure for asserting causes of action arising from residential construction projects. The statute of limitations and statute of repose periods for construction-related claims appear to be tolled under the Washington Condominium Act (see RCW 64.34.452(4)) for 60 days after the period during which the filing of an action is barred under the construction defect notice statute (RCW 64.50.020).  However, provided the claimant has received, upon contract execution, a notice from the construction professional regarding the pre-litigation notice and the contractor/builder’s right to cure pursuant to RCW 60.50.050(1), a claimant may only enjoy the benefit of any tolled limitations period if the written notice of defect(s) is served within the applicable time for filing an action under the act, which, again, is greatly influenced by the particular factual basis for the claim. See RCW 64.34.452(4).

Based on the requirements and claims procedures of the Washington Condominium Act, condominium developers should work with their legal, marketing, sales and construction team to develop a robust risk management strategy as part of any condominium construction.