Thursday, August 14, 2014

A Property Manager's Guide to Construction Defect Claims

A New Publication for Property Managers and Boards of Directors!

I'm pleased to announce the publication of this brand new guide to construction defect claims. Each month we will publish another chapter here. The publication will be available in hard copy shortly and we will tell you how to obtain a copy.

A Property Manager's Guide to Construction Defect Claims


By Tyler P. Berding, J.D., Ph.D. and Julia Hunting, J.D., P.E., S.E. and Anna P. Fabiano, J.D.
For decades, litigation over the defective construction of multi-family projects has been a frequent component of a property manager's portfolio. Low-rise, wood frame condominiums, apartments, and townhouses have long been susceptible to construction mistakes which lead to disputes with contractors and developers. High-rise projects can also exhibit poor construction. Community associations and owners of apartment buildings have found many reasons to sue builders. What leads to construction defects? Often it is a shortage of skilled labor in times of high real estate prices and demand. When there is strong sales potential, builders are eager to supply inventory, but good construction takes time and talent; when time and talent are in short supply, substitutions are made, which can lead to poor quality and subsequent claims.
Construction defects may be noticed almost immediately by new buyers, or they may lurk within a building for years before the damage they cause is detected. These problems can be as obvious as an actively leaking roof, or they can be as subtle as cracking caused by soil problems that develop several years after purchase. They can be easy to fix or potentially catastrophic, and their severity will strongly influence whether or not the builder or contractor will make repairs without the compelling force of litigation.
Here we cover construction defects in new construction. Defective repairs in new and older buildings are a topic covered in our companion book: “A Property Manager's Guide to Reconstruction Projects.”1 Property managers must have a basic understanding of the elements of a construction claim, so they can adequately advise their clients, retain or recommend appropriate professionals, and monitor the claims process. That information follows. We hope this resource will be useful to both you and your clients.
Next month: Chapter One--What are Your Client's Objectives?
1  Tyler P. Berding. J.D., Ph.D., Paul W. Windust, J.D., and Julia Hunting, J.D., P.E., S.E., A Property Manager's Guide to Reconstruction (2013).

Monday, February 10, 2014

When are Community Association Reserves like Public Employee Pensions?

The following excerpts appeared in a 
February 9, 2014 newspaper editorial:

       Kudos to Gov. Jerry Brown for demanding last week that they stop kicking debt further down the road. “…they have shortfalls -- debt we are now passing on to future generations because of past failures to properly fund the system. …The longer we postpone paying it off, the greater the cost, as anyone with a credit card should understand. "No one likes to pay more …but ignoring their true costs for...years will only burden the system and cost more in the long run." That means the money…previously collected was insufficient. Fixing the actuarial assumptions creates new unfunded liabilities -- debt that must now be paid off with increased (assessments.) It also means they should be collecting larger payments in the future to cover  (future needs.) The board has tried to keep (assessments) low, leaving more funds available for other (expenses.) But at each step, the board has softened the landing by minimizing or postponing the impact of the changes. As a result, (associations) continue to under fund (reserves) and stare at more (assessment) increases -- and greater interest payments -- in years to come. As the Governor notes, it’s pay now or pay more later.

              Sound familiar? Maybe the community association reserve funding crisis is finally getting noticed by California? Not quite. These excerpts are from an article on the public employee pension crisis with a few edits. You can see the entire article at this link. But the similarity between these two funding crisis is striking. Artificially keeping owner assessments lower than necessary to adequately fund reserves is largely political and is gradually creating an enormous funding gap that will devastate future generations of homeowners. Reserve accounts that rely on static funding and incomplete investigations will encounter significant shortfalls that can only be made up by large special assessments from those owners unlucky enough to be the last ones standing when the debt comes due.