Discovery of Construction Defects and the Condominium Association

Palisades at Fort Lee Condo Ass’n v. 100 Palisade, LLC, 2017 N.J. LEXIS 845, (N.J. 2017)

                  The New Jersey Supreme Court recently held that a construction-defect cause of action accrues at the time that the building’s original or subsequent owners first knew or through the exercise of reasonable diligence, should have known of the defects.   From that point, the plaintiff has six years to file a claim.  The Court rejected the approach that the six-year statute-of-limitations clock is reset when the property changes hands.

In Palisades at Fort Lee Condo Ass’n v. 100 Palisade, LLC, 2017 N.J. LEXIS 845, (N.J. 2017), the Palisades at Fort Lee Condominium Association filed lawsuits alleging that the defendants: the general contractor and three subcontractors, defectively constructed a building complex that is now under the control of the Association.

Under N.J.S.A. 2A:14-1, a construction-defect action must be filed within six-years “after the cause of action shall have accrued.”  In this matter, the trial court determined that the statute began to run when the building was substantially complete in May 2002.  Therefore, suit would have to have been filed before May 2008.  Because the Association didn’t file its lawsuit until after May 2008, the trial court dismissed the Association’s claim.

The Association appealed and the Appellate Division reversed.  The Appellate Division determined that the Association’s claims accrued in June 2007 when transition to full unit-owner control of the building occurred and the Association became “reasonably aware” of the defects. Palisades at Fort Lee Condo. Ass’n v. 100 Palisade, LLC, 2016 N.J. Super. Unpub. LEXIS 193 (N.J. Super. Ct. App. Div. 2016) Accordingly, the Association’s claims could go forward.  Defendants appealed to the New Jersey Supreme Court.

The Supreme Court held that neither the trial court nor the Appellate Division applied the proper standard for determining when the construction-defect action accrued under N.J.S.A. 2A:14-1.  The Supreme Court applied the Discovery Rule to the accrual of the Association’s claim.  Under that rule, the statute-of-limitations clock does not begin to run until a plaintiff is able to discover, “through the exercise of reasonable diligence” the facts that form the basis for a claim.

Accordingly, the Court held that even though a building may change hands over time, a construction-defect lawsuit must be filed within six years from the time that the owners (original or subsequent) first knew–or through the exercise of reasonable diligence—should have known about the defect.  Because the Supreme Court was unable to determine when the clock began to run in this matter; the case was remanded to the trial court for a hearing to settle the issue.

What does this decision mean to Condominium Associations?  A suit alleging a construction- defect could be time barred if the developer knew or through the exercise of reasonable diligence should have known about the defect.  Associations may have to work quickly to preserve their claims.  What does this mean for builders and their subcontractors?  Transfer to a new owner or transition to the unit-owner Association doesn’t reset the six-year statute of limitations clock.