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New Construction Condos: What is the Implied Warranty of Habitability?

New Construction Condos:  What is the Implied Warranty of Habitability?

Purchasing a new construction condominium can be an exciting proposition.  Generally speaking, a developer will provide an express written warranty to the purchaser of a new condominium unit that covers defective construction within the unit.  However, in addition to the interior of a condominium unit, co-owners also purchase an undivided interest in the common elements of a condominium.  See e.g., MCL 559.137(1) (“The master deed may allocate to each condominium unit an undivided interest in the common elements proportionate to its percentage of value assigned as provided in this act.”)  In most cases, the express written warranty is silent on construction defects related to the general common elements of the condominium, whether it be in an attached condominium or a site condominium.  Examples of common general common elements that would not be part of a unit are items such as beams, columns, common area doors, common area lighting, common stairwells, common area windows, clubhouses, drywall, elevators, exterior walls, fire suppression systems, foundations, gyms, hallways, lobbies, landscaping, piping, pools, roads, roofs, sidewalks, signs, storm water drainage, utilities (up to the point of connection in a condominium unit), and wiring.  As will be discussed below, in Heritage in the Hills Homeowners Ass’n v Heritage of Auburn Hills, LLC, unpublished per curiam opinion of the Court of Appeals, issued February 2, 2010 (Docket No. 286074), the Michigan Court of Appeals recognized that an implied warranty of habitability is created when a developer transfers control of the general the common elements to a condominium association.

Facts

Heritage LLC was the developer of Heritage in the Hills condominium in Auburn Hills, Michigan.  Each co-owner that purchased a condominium from the developer entered into a purchase agreement that contained the following terms:

Purchaser acknowledges that Developer has made no representations or warranties concerning the property (other than the 2-10 Home Buyer’s Warranty to be provided pursuant to paragraph 6 of the General Provisions) … No action, regardless of form, arising under the transactions under this Agreement may be brought by Purchaser more than one year after the cause of action has accrued. Purchaser agrees that all of Purchaser’s rights relating to this Agreement, the Property and the Heritage in the Hills development may be asserted only by Purchaser and not by any association or class representative.

…. In paragraph six, it stated that the only warranties made in relation to the property were contained in the 2-10 Home Buyer’s Warranty and that any other warranties, express or implied, were disclaimed. The 2-10 Home Buyer’s Warranty provided the following disclaimer: “THIS IS AN EXPRESS LIMITED WARRANTY OFFERED BY YOUR BUILDER. To the extent possible under the law of your state, all other warranties, express or implied, including but not limited to any implied warranty of habitability, are hereby disclaimed and waived.”

The condominium association, as well as an individual co-owner that was also a plaintiff, discovered various construction defects and filed a complaint alleging that the developer failed to use proper materials in constructing concrete driveways, sidewalks and aprons and those portions of the condominium were consequently suffering from premature deterioration. The lawsuit further alleged that the developer damaged utility boxes during construction, failed to properly grade the site and remove dead trees and caused water to pond in an improperly constructed road. The trial court granted summary disposition in favor of the developer, and the condominium association appealed.

The Court Defines the Implied Warranty of Habitability in Condominiums

On appeal, the Michigan Court of Appeals held that the developer of a condominium provides an implied warranty of habitability with respect to the general common elements of a condominium.  The condominium developer argued that the language of the purchase agreements with the individual co-owners precluded any implied warranty claims by the condominium association.  However, the Court of Appeals rejected this argument and stated as follows:

There were two types of transfers of property that occurred in relation to the development. The first type of transfer was the transfer of the individual units. Many such transfers occurred and each transfer was completed pursuant to the purchase agreement. Consequently, each of those transfers is subject to the terms of the purchase agreements….

The second apparent type of transfer that occurred in relation to the development was the transfer of the control and possession of the common areas from the developer to the Association. This transfer was not completed pursuant to the purchase agreement. We conclude that implied warranties are created when a developer-vendor transfers common areas to an Association. In Smith v. Foerster-Bolser Construction, Inc., 269 Mich App 424, 431, 711 NW2d 421 (2006), this Court held that an implied warranty of habitability is created when a developer-vendor transfers a new home to a purchaser. In Plymouth Pointe Condominium Ass’n v Delcor Homes-Plymouth Pointe, Ltd, unpublished opinion of the Court of Appeals, issued October 28, 2003 (Docket No 233847), this Court noted that other jurisdictions have held that the same warranty of habitability also applies to the development and purchase of new condominiums and the accompanying common areas (see Berish v. Bornstein, 437 Mass 252, 770 NE2d 961 (Mass, 2002). Such a rule is logical and necessary. If this Court were to accept defendants’ logic, developers could routinely avoid liability for defective common areas by inserting disclaimers into the purchase agreements of the individual homeowners. Associations would be left without a remedy, despite the fact that they were not parties to the purchase agreements. Therefore, we hold that because Heritage LLC was a developer-vendor, the transfers of property created implied warranties of habitability relating to the individual units and the common areas.

Finally, the Court of Appeals also held that the condominium association had standing to pursue claims against the developer for violating the disclosure requirements contained in the Michigan Condominium Act (M.C.L. § 559.184a and M.C.L. § 559.215), violating the Michigan Consumer Protection Act and Negligence.  Accordingly, while Heritage in the Hills Ass’n, supra, is an unpublished opinion, and not binding precedent, it does stand for the important proposition that a developer cannot disclaim the implied warranty of habitability related to defective construction of general common elements in a condominium through a purchase agreement with an individual co-owner.

Conclusion

As demonstrated by Heritage in the Hills Ass’n, supra, Michigan courts have recognized a claim for breach of the implied warranty of habitability when a developer performs defective construction on the general common elements of a condominium.  However, condominium associations must be aware that there are time limits in which a condominium association may successfully bring a claim against a developer and that the transitional control date is important in determining the statute of limitations in claims against a developer.  Specifically, pursuant to MCL 559.276, if a claim accrued before the transitional control date, when the developer controlled the association, a condominium association has 3 years after the transitional control date or 2 years after the date the claim accrued to pursue a claim against a developer.  If a claim accrued after the transitional control date, when the developer was still completing the condominium, but no longer controlled the board of directors, the condominium association would have 2 years after the date that the claim accrued to pursue a claim against a developer under MCL 559.276.  In determining when a claim accrues, the court in Heritage in the Hills Ass’n, supra held as follows:

In a claim for a breach of a warranty of fitness, “the claim accrues at the time the breach of the warranty is discovered or reasonably should be discovered.” MCL 600.5833. No statutory section expressly states when a claim for breach of an implied warranty of habitability accrues.  As a result, that claim in Count IV accrued “at the time the wrong upon which the claim is based was done regardless of the time when damage result[ed].” MCL 650.5827. Furthermore, the term “wrong” in the accrual statute has been interpreted to mean the time that the plaintiff was harmed.  Stephens v Dixon, 449 Mich 531, 534-535; 536 NW2d 755 (1995).

… Based on the above-cited authorities, the Association’s claims did not accrue at the time the concrete was installed.  Rather, the claims accrued, at the earliest, when the concrete began to prematurely deteriorate.

Accordingly, it is important to remember that claims against a developer do not necessarily accrue when construction of the condominium is completed, but they accrue when a construction defect is manifested.  However, the time period in which a construction defect becomes evident is often a fact intensive inquiry that is subject to discovery in a lawsuit.  As such, the board of directors of a condominium association should contact a condominium attorney as soon as it becomes aware of common element construction defects in order to reach a resolution with the developer or pursue litigation if necessary.

Kevin Hirzel is the Managing Member of Hirzel Law, PLC and concentrates his practice on commercial litigation, community association law, condominium law, Fair Housing Act compliance, homeowners association law and real estate law. Mr. Hirzel is a fellow in the College of Community Association Lawyers, a prestigious designation given to less than 175 attorneys in the country. Mr. Hirzel has been recognized as a Michigan Super Lawyer’s Rising Star in Real Estate Law by Super Lawyers Magazine, a Leading Lawyer in Condominium & HOA law by Leading Lawyers Magazine, and as a Best Lawyer in Real Estate Law by U.S News and World Report’s Best Lawyers Publication. He represents community associations, condominium associations, cooperatives, homeowners associations, property owners and property managers throughout Michigan. He may be reached at (248) 450-0339 or kevin@hirzellaw.com.

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kevin@hirzellaw.com

Kevin Hirzel is the Managing Member of Hirzel Law, PLC. Hirzel Law has offices in Farmington, Grand Rapids, and Traverse City and services clients throughout the State of Michigan. Mr. Hirzel focuses his practice on condominium law, homeowners association law, and real estate law. He is a fellow in the College of Community Association Lawyers (“CCAL”), a prestigious designation given to less than 175 attorneys in the country. Mr. Hirzel formerly served on the CCAL National Board of Governors and is a former member of the Community Associations Institute’s (“CAI”) Board of Trustees, an international organization with over 40,000 members worldwide that is dedicated to improving community associations. Mr. Hirzel has been recognized as a Leading Lawyer in Michigan by Leading Lawyers, a distinction earned by fewer than 5% of all lawyers licensed in Michigan. He has been named a Michigan “Rising Star” in real estate law by Super Lawyers Magazine, a designation is given to no more than 2.5% of the attorneys in Michigan each year. Mr. Hirzel was also named as a “Go-To-Lawyer” in condominium and real estate law by Michigan Lawyer’s Weekly. Hirzel Law was also voted the best law firm in Metro Detroit in the Detroit Free Press Best of the Best awards. He is the Co-Chairman of the State Bar of Michigan’s Real Property Law Section Committee for Condominiums, PUDs & Cooperatives. Mr. Hirzel has authored numerous articles on community association law for publications such as the Michigan Community Association News, Michigan Real Property Review, Macomb County Bar Briefs and the Washington Post. He is also the author of “Hirzel’s Handbook: How to operate a Michigan Condo or HOA”, which is available for purchase on amazon.com. Mr. Hirzel has been interviewed on community association legal issues by various media outlets throughout the country, such as CBS, CNBC, Common Ground Magazine, Community Association Management Insider, the Dan Abrams Show on SiriusXM Radio, the Detroit News, Dr. Drew Midday Live on KABC Radio, Fox Business News, Fox News, HOALeader.com, the Law & Crime Network, Michigan Lawyer’s Weekly, NPR, WWJ News Radio and WXYZ. Mr. Hirzel is a dynamic speaker and frequently lectures on community association law throughout Michigan, as well as nationally at the CAI National Law Seminar, and is a two-time winner of the best manuscript award at the CAI National Law Seminar.

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