Learning to Let Go: How Adverse Domination Tolls the Statute of Limitations for Construction Defect Cases2020-04-23T00:25:19+00:00
06.05.2014 // CONSTRUCTION LAW WATCH
Learning to Let Go: How Adverse Domination Tolls the Statute of Limitations for Construction Defect Cases

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.

ABOUT BALL JANIK LLP

Ball Janik LLP was founded in 1982 with six lawyers and a four-person support staff in Portland, Oregon. Since our firm’s inception, we have expanded our capabilities, our professionals, and geographic footprint. What started as a firm focused in real property and land use (known then as Ball Janik & Novack), has grown to include the insights of a team of 30-plus attorneys, with a combined six centuries of experience, and capabilities including Real Estate and Land Use, Construction Defect, Commercial Litigation, Insurance Recovery, Construction and Design, Employment, Finance and Corporate, Public Agencies and Schools, and Community Associations. With offices in Florida and Oregon, our regional growth has earned us a national reputation for upholding the rights of our clients.

Ball Janik LLP has been recognized by Chambers USA, U.S. News & World Report and Best Lawyers®, The Best Lawyers in America©, and Corporate International. Ball Janik LLP’s success and integrity have repeatedly made it one of “Oregon’s Most Admired Professional Firms,” according to the Portland Business Journal’s survey results of CEOs throughout the region.

Heather J. Oden
Oregon , Portland
No Blog Tiles found.