March 23, 2011

The Limited Liability of Conversion Condominium Declarants

The Washington Court of Appeals recently issued an unpublished decision involving a condominium that was converted from an apartment building in 2005. The Court’s opinion focused on whether implied warranties contained in the Washington Condominium Act were violated by the entity that created the condominium. The Act states that:

[1st] A declarant and any dealer impliedly warrants that a unit and the common elements in the condominium are suitable for the ordinary uses of real estate of its type and [2nd] that any improvements made or contracted for by such declarant or dealer will be:

(a) Free from defective materials;
(b) Constructed in accordance with sound engineering and construction standards;
(c) Constructed in a workmanlike manner; and
(d) Constructed in compliance with all laws then applicable to such improvements.

The Court concluded that the construction defects covered by the motion at issue related to the original construction of the apartment building in 1962, not the improvement work “made or contracted for by” the conversion declarant more than four decades later. As a result, the second type of implied warranty provided in the Act was not applicable to those defects and did not support a claim for damages. The Court did indicate that the first type of implied warranty relating to the suitability of the property might still support finding the conversion declarant liable at trial.

Condominiums that have been converted from apartment buildings carry increased risk that construction defects will be discovered that are not covered by statutory warranties. It is important to understand that conversion condominium declarants have limited liability for construction defects and that the cost to repair any defects related to the original construction of the building will most likely have to be paid by the owners.

March 1, 2011

The Link Between Homeowners Associations and Property Values

The Everett Herald included a well-written article about homeowners associations on Sunday. Columnist Steve Tytler provided a concise overview of the nature and purpose of such associations while tackling the question of whether a dormant association should be revived. He pointed out that covenants running with land are primarily intended to maintain attractive neighborhoods and enhance home values. He went on to note that homeowners associations, which typically have the power to collect dues from owners, fine misbehaving owners, and place liens on owners' homes, are in most cases the only realistic way to maintain common areas and address covenant violations.

Mr. Tytler concluded his article by contending that homeowners associations may not be necessary in some circumstances. In my experience, those situations are exceedingly rare. Most groups of owners seem to need the structure of an association to consistently achieve common goals. Without that structure, common areas tend to be neglected, covenants tend to be ignored, and property values tend to decline.