Northwest Condo & HOA Law Blog : Washington & Oregon Construction Defect Lawyer & Attorney : Barker Martin Law Firm : Homeowner Associations, Condos : Seattle, Portland

Friday, March 7 was the last day to consider opposite house bills in the legislature, so any bills that have been voted on by both houses will not pass this year.  Of the numerous condo and HOA-related legislation introduced this year, only two bills passed both houses and now await signature by the governor.  The governor has five days, excluding Sundays, to take action on bills passed by the Legislature unless adjournment occurs within those five days, in which case the governor has 20 days to sign or veto (excluding Sundays.)

HB 2014, relating to protection of tenants of conversion condos, passed both houses and awaits signature.  HB 2014 was revived from last session, but amended with a substitute bill in the Senate on January 18.  The bill passed both the senate and the house in this form. 

The second bill to pass this year is SB 6215 relating to reserve accounts for condominium associations.  After passing the senate, SB 6215 was amended by the House Committee on Judiciary to include a few clarifying terms and to require disclosure of the lack of reserve study if none has been undertaken.

The bill creating a cause of action for negligent construction, SSB 6385, amended in the Senate committee to exclude condominiums, passed the senate in that form and was passed out of the House Judiciary Committee on February 28.  On February 29, it was passed to Rules for a second reading, but never made it to the House floor. 

ESB 6745, which was the bill recommended by the HOA task force, was substantially amended on the floor of the senate, including amendments to make its application retroactive, to add numerous clarifying definitions, to remove the “open meetings” provision for board meetings, and to reduce the quorum requirement for association meetings.  Another amendment disallowed the use of liens against a person’s homes for failure to pay fines as opposed to assessments.  The engrossed bill passed the Senate unanimously.  It was then referred to the House Judiciary Committee on February 20, but inexplicably never made it out of committee.

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Currently, SHB 2014 provides that a condominium converter must give the current tenant 120 days’ notice of the conversion and must provide notice of any relocation assistance. In addition, any construction work commenced during that 120 days must not disturb the tenants’ “quiet enjoyment.” The bill defers to the local cities and counties whether to require the conversion declarant to fund relocation assistance.  

Track the status of SHB 2014 here. 

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There is a common misconception among builders and buyers of condominium conversions that builders who convert apartments into condos are only liable for “what they touch” or the parts of the condominium that they actually improve. This is not correct. In fact, there are a number of avenues for recovery when a conversion condominium experiences leaks or other problems relating to original construction defects even when the converter did not touch that part of the building. Among these is a claim against the converter under the implied warranty of suitability, which is just now getting some focus in the industry. 

In addition to the well-known warranties of quality for work actually done by a builder converting a building into condos, the Condo Act also provides that the creator of the condominium warrants that “a unit and the common elements in the condominium are suitable for the ordinary uses of real estate of its type.” This is called the implied warranty of suitability or fitness. Unlike the implied warranties of quality, this warranty applies to units and common elements, regardless of whether the developer did any work on those elements. 

It is unsettled what “suitable for ordinary uses” means because there is no further definition of the term in the statute, nor are there any published legal opinions relating to this matter in the context of conversion condominiums. It may be that this warranty equates with a warranty of habitability, meaning the building is so unsafe as to be virtually uninhabitable under certain circumstances. But it may mean just what it says – that the building is “unsuitable” for its ordinary uses rather than uninhabitable. We have and will continue to argue that a building that leaks is unsuitable for use as someone’s home. To our knowledge, this theory has not been tested in the courts, but we expect to see breach of this warranty pleaded in the near future, especially where, for example, a 75-year-old apartment has been converted for current use as condos with little to no renovation.

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In 2004, a legislative task force comprised of industry attorneys and experts created what is now RCW 64.55, which generally requires design documents and third party inspections focusing upon the building envelope prior to obtaining a permit for a multi-unit building. It also sets forth an alternative dispute resolution process for construction defect cases. 

Building Envelope Inspections for Conversions

One aspect of the new statute requires that developers who convert buildings (such as apartments) to condominiums hire a qualified, independent party to inspect the building envelope prior to selling units. The law applies to all conversions for which a Public Offering Statement (sales documentation required in the sale of a condominium) was delivered after August 1, 2005. Because of the delayed applicability of the statute, we are just now beginning to see condominium conversions where the developer was required to, but did not, conduct the building envelope inspection. 

The point of the inspection requirement is to make sure that people buying units in older buildings converted to condos have a realistic picture of the condition of the building envelope, which cannot generally be seen by buyers and problems which are rarely identified by home inspectors because the problems lie beneath the surface. 

Remedy

The statute provides that failure to do a building envelope inspection entitles the association to “actual damages” or an amount equal to three percent of the purchase price of each unit (10 percent if the failure to do so is found to be malicious). For example, a building with 50 units with an average purchase price of $300,000, would be entitled to at least $450,000. 

An Association may elect to pursue its “actual damages” which may be the cost to repair the building if there are substantial building envelope problems that would have been disclosed in a building envelope inspection. To our knowledge, no court has yet ruled on what the measure of actual damage would be since this area of the law is relatively new. 

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