Update (January 17, 2020): In a decision this week, the Minnesota Supreme Court has answered the issues discussed below.
In sales of condominiums in a newly constructed building, it is now clear under Minnesota law that there is a single warranty date for a condominium building rather than different warranty dates for each unit. (See here at p. 17.)
Further, in the case described below, which concerned two buildings, built sequentially, a condominium development, the two buildings were deemed to be two separate improvements to real property for purposes of applying the repose period in Minn. Stat. 541.051. (In the case described below, that meant that the unhappy condo owners could not make a claim that their lawsuit was timely based on the date of discovery of the defect in “Building A” measured against the date of “substantial completion” of “Building B.” Each condo owner had to look only at the dates of “discovery” and “substantial completion” of their own buildings. By that analysis, their claims were all time-barred.
The decision is good news for builders, their insurers and those who love them.
Original post (May 13, 2019): Minnesota law, consistent with the second law of thermodynamics, implicitly acknowledges that buildings, over time, inevitably develop problems. It’s no one’s fault. It’s the ravages of time.
On the other hand, sometimes latent construction defects are built in from the get-go.
Because of these two facts, Minnesota law allows for lawsuits for badly built buildings but also sets a time limit on just how long after “substantial completion” such claims can be brought.
To address this tension (and also due to the fact of lost memories and witnesses, making defenses difficult), the legislature has to balance the interests of builders, who obviously do not want open-ended and timeless potential liability for every building they have ever built and building owners who cannot possibly appreciate what might be expensive hidden construction defects until, years later, they burst out into the open.
The Minnesota Supreme Court is poised to review a Court of Appeals decision on this issue, which is complicated by virtue of the fact that the construction involved two separate buildings, not built at the same time, and condominium owners wh0 bought their units at different times.
Under these circumstances, when does the clock run on the “statute of repose” (the ultimate time limit for most construction defect claims)? On substantial completion of “Building A”? “Building B”? Are the buildings a single “improvement” or two? And when do the statutory warranties start to run? From when each condo is bought? From when the first condo was bought?
In the linked case, a condo association noted allegedly problematic pipes connected to fan coil stacks in every one of its condominium units in two separate buildings (part of the heating, ventilation, and air conditioning system, or “HVAC”). The repair cost (both buildings): $842,585.
The condo association sued the developer, the general contractor, and the HVAC subcontractor (collectively “the Builders”). The Builders successfully moved to have the case thrown out based on the ten-year statute of repose.
On appeal, the Court of Appeals first tackled the question of whether these two buildings were “One Improvement or Two?” This was relevant to determine whether the date(s) of “substantial completion” for purposes of calculating the date for the statute repose. The Court found that two buildings are two “improvements,” not one. Right or wrong, the determination has at least a veneer of intuitive sense.
(This is bad new for the plaintiff condo association because they wanted to push out the date for substantial completion for both buildings as late as possible.)
Next, the Court had to figure out whether “substantial completion” would occur when one condominium unit was “ready to be occupied,” or when more than one was ready, or all of the units? The Court, noting that statutes “must be given a ‘common-sense interpretation,'” felt compelled to conclude that, when all but two of the condos and the common areas were completed, the building as a whole was “substantially completed.” Thus, any claims related to “Building A” were outside the statute of repose.
Where the Court of Appeals decision gets controversial (that is, of great concern to those in Minnesota’s building industry) was when it tackled the issue of the plaintiffs’ statutory warranty claims. These also have a ten-year limitation (with regard to certain claims).
But ten years from when? From the purchase of each condominium unit? So held the Minnesota Court of Appeals, which is disturbing news for Minnesota builders because, in theory, this could extend the ten-year warranty period far beyond ten years from completion of the construction.
[I]n a multi-unit condominium building, the “effective warranty date,” which starts the running of the statute of repose, is determined on a unit-by-unit basis. For each condominium unit, the “warranty date” is the earlier of the date of the initial vendee’s first occupancy of his or her unit or the date on which the initial vendee takes legal or equitable title to his or her unit.Minn. Ct. App. Opinion at p. 25.
The Minnesota Supreme Court has granted petitions to review these issues. Minnesota Litigator makes no prediction but those of our readers who practice in construction litigation will want to monitor the case.