Developers often maintain control of homeowners associations for years after construction is complete, partly in order to ensure that the warranty process runs smoothly. However, it can also unintentionally create long-term problems for the association and the developer. For example, in a recent Washington Court of Appeals decision, a developer’s continued control of the association concealed construction problems from the owners and ultimately ended up exposing the developer/general contractor to liability years after the statute of limitations would have otherwise run. A copy of the Alexander v. Sanford opinion is here: http://www.courts.wa.gov/opinions/pdf/696378.pdf.
When a developer builds a condominium, the law requires that the developer form the homeowners association for the condominium. For those purposes, the developer is called the “Declarant.” The declarant controls the association until turnover. Turnover may happen very soon after the condominium is built if the units are sold quickly. Sometimes, where there are many unsold units or where the Declarant does not facilitate turnover, it can take years. In other situations, the Declarant may appoint a transitional board, which may consist entirely of friends or employees of the developer.
In situations where the developer (or board members appointed by the developer) control the association for many years, construction defects may be not be revealed to the owners. Later, when owners control the board of directors of the Association, they may find the construction defects and bring a lawsuit against the developer and other responsible parties. The developer may argue that the statute of limitations has passed, because the Association knew of construction defects while the Declarant/developer or its appointees controlled the board.
The Washington Court of Appeals addressed this exact problem in Alexander v. Sanford. The court concluded that it would be unfair to let the statute of limitations run while the developer or general contractor’s allies controlled the board. The court adopted the theory of “adverse domination,” which is a legal term for a simple concept: the statute of limitations should not run against an organization for the time when the other party controlled the organization. Oregon previously adopted this doctrine, but has never explicitly applied it to homeowners associations. Compare this to Florida, where the statute of limitations does not begin to run before turnover of a condominium. Fla. Stat. § 718.124.
The Alexander case has other important holdings that are not addressed in this post, but one takeaway is clear: in Washington, there is a strong risk that a developer’s continued control of an association will toll the statute of limitations, especially where concealment of construction defects occurs. This is also a risk in Oregon. The condominium acts in Oregon, Washington, and Florida describe the steps that must be taken prior to turnover and at the turnover meeting. Following these steps and avoiding delay in this process will ultimately be beneficial to the association and to the developer.