A lawsuit filed in March of this year in Utah highlights the risks involved in managing and advising community associations struggling with deficient construction and inadequate reserves.

In the case of Daybreak Townhome 1 Owners’ Association, Inc. v. Hamlet Homes Corporation, et al, the homeowners’ association has filed a lawsuit against the developers of the project, alleging that is has discovered serious construction defects and ensuing damage to the owners’ homes. The association is not just suing the developers of the project, however. The association is also suing the former community management company for the association, former attorneys for the association, and the former board members.

As for the defendant community management company, the association alleges that after turnover from the developer-controlled board to the unit owner board, the board members were volunteers with little or no training or experience in running a community association. As such, the association alleges that the post-turnover board relied on the advice, experience, and knowledge of the management company. By contrast, the association alleges that the community manager had over 40 years of experience in community management, and should have advised the board to undertake “serious” inspections “of any construction elements that the Association has a duty to maintain” in order to determine “whether any construction defects exist in the building elements.” Other faults are tied to the community management company but the primary issue raised in the lawsuit seems to be the failure to obtain building inspections that would have discovered the construction defects.

With respect to the former attorneys of the association, the lawsuit alleges that they were experienced in advising associations, and were negligent in the following ways: (1) failing to advise the association about turnover and actions that should be taken at turnover; (2) failing to advise the association to obtain an inspection of the property maintained by the association; (3) failing to advise the association of the statute of limitations and statute of repose that applies to any new construction; (4) failing to advise the association on the conflict of representing the master association and the association; and (5) failing to advise the association about potential legal claims for the defective construction. One of the damages claimed against the attorneys is any damage caused “if any applicable statute of limitations or statute of repose defense is raised in this case successfully by the Developers.”

Finally, for the claims against the former board members of the association, the lawsuit alleges that these individuals all served on the pre-turnover board. The association alleges that as such, they managed the association before the unit owners were granted control of the association at turnover. Among other things, the lawsuit alleges that these board members failed to require building inspections of the homes, and consequently failed to discover the construction defects. Because they did not do this, the association alleges that the board members failed to establish an adequate plan to address the construction defects, including preparing adequate reserves to pay for the construction defect problems.

The lesson of this lawsuit is clear. Board members, particularly pre-turnover board members, attorneys, and community managers all need to understand that they can be held liable for not proactively confronting the very real threat that construction defects pose to communities in Utah. Given the statute of limitations for construction defect cases, everyone from board members, to attorneys, to community managers, should be conscious of the need for adequate building inspections by qualified consultants at the earliest opportunity.

By:Ball Jank Team