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Construction Defects…Who Pays?

Community associations confronted with construction defects face some very difficult financial choices. Often, these choices come on the heels of turnover, when a newly minted, owner-controlled board is just getting their bearings on planning and managing their operating and reserve accounts. Or, the defect may emanate from an expensive major repair project funded by member special assessments. Typically, the choices involved in these scenarios are: (1) do nothing; (2) make necessary repairs and pay for them entirely out of member assessments; or (3) hire a construction defects lawyer with the view of securing money from the responsible parties to reduce or, possibly, eliminate the amount of repair costs that would be otherwise funded entirely by owners. Let's look at the key risks and potential rewards involved with each.

1. Do Nothing

It should go without saying that the "do nothing" approach is ill-advised in almost every case. In Florida's harsh climate, any defects which compromise the building envelope or structural components are a ticking time bomb. At worst, an association taking this path may be faced with a Champlain Towers-style tragedy. Short of that, small problems eventually turn into large problems; the money saved by ignoring the issue today will surely turn into a significantly larger financial burden on owners when the problem can be ignored no longer. Plus, when the problem finally becomes too big to ignore, Florida's statute of repose and statute of limitations may shut the door to any claims against the responsible parties.

2. Self-Fund and Make Repairs

Perhaps the association is inclined to bite the proverbial bullet, making and paying for the needed repairs entirely out of association funds. Obviously, this serves the purpose of correcting the defective conditions expeditiously to prevent further damage and deterioration. However, here the association is faced with self-funding 100% of the costs to repair the shoddy work. This will be an unanticipated drain on reserve funds; alternatively, it may require a new round of special assessments. There will be some very unhappy, unwilling, or even unable owners confronting this association's board of directors. Un-repaired defects and/or high assessment default rates can severely harm an association's ability to obtain affordable property insurance and lines of credit. Time and time again, option 2 can effectively turn into option 1 due to members either unwilling or unable to approve and/or pay for the funding needed to perform the repairs.

3. Hire a Construction Defects Lawyer and Pursue a Claim

Very few people in this world enjoy the prospect of having to "lawyer up."At the end of the day, however, this usually turns out to be the most economically positive choice when faced with significant construction defects in your community. The goal of any experienced construction defects law firm is to return a positive net result to the client – a result that reduces owner-funding of repair costs by some or, even, all. Think of it this way, under options 1 or 2 the owners will pay for everything. Under option 3, the owners may pay nothing, but even if not, anything short of 100% is a win. In our experience, 97% of construction defect lawsuits settle without trial resulting in positive net cash flow to the association. That net cash flow can be used to reduce (or perhaps eliminate) the repair cost burden. This is true even where the claim amounts involved do not merit a full-contingent fee arrangement. In other words, even in instances where the claim amount might only attract a lawyer working on an hourly fee basis, the net result should ultimately result in, at worst, the association only bearing a portion of the overall repair costs.

4. Conclusion

A community association faced with construction defects has 3 options for covering the costs of repairing those defects: (1) do nothing; (2) make and pay for repairs; or (3) engage a construction defects lawyer to pursue claims against responsible parties. Options 1 and 2 will always result in 100% homeowner funding of repair costs. In most instances, option 3 will result in reducing homeowner funding by some or all. And, as a sage person once said, "something" is usually better than "nothing."