Condominium Construction and the Second “Final” Closeout

By Christopher Weiss, Partner at Holland + Knight

Ideally, contractors and developers should possess knowledge of Statutes of Limitations, repose and understand what latent and patent defects are prior to the bid phase or contract negotiations. In any event, prior to participating in inspections and settlement negotiations with condominium associations, unit owners, and others. Equally as important, contractors should appreciate the differences between traditional, owner controlled, and contractor controlled insurance programs. In addition, contractors should consider the benefits of maintaining a post construction management plan to receive, evaluate, and resolve defect and warranty claims.

Express Warranties are typically stated in writing pursuant to contractual requirements and provided by general contractors and their subcontractors, suppliers, and vendors for one year from the date of substantial or final completion of the project. Longer express warranties may be provided for specific building components pursuant to project specifications or other contractual requirements.

In contrast, Implied Warranties for condominium projects may require contractors to provide guarantees for durations which are often not determinable until after the project is completed. Moreover, in certain jurisdictions the determining factors for implied warranty periods are often beyond the control of the contractors, perhaps linked to the percentage of individual units sold by the developer and/or the date of turnover of control of the condominium by the Developer to the homeowner controlled condominium association. Pursuant to Florida law for example, Implied Statutory Warranties are provided by the general contractor, subcontractors, and suppliers in favor of the developer, the condominium association and directly to each condominium unit purchaser for specified periods of time (one year or three years, depending on the building component in question) after “completion of all construction” or “completion of a building or improvement" (again, depending on the building component in question). To further complicate matters, the time within which legal action can be taken to enforce these warranties is tolled if there is a delay in turnover of control of the condominium by the Developer. Accordingly, contractors should understand the relationship between warranties, developer sales, and the transfer of control of the condominium to the homeowner controlled condominium association.

Contractors should also understand the applicable laws governing the period of time for filing a lawsuit after an event (such as a breach of warranty), frequently referred to as the Statute of Limitations. Although laws vary by State as to what starts the countdown, it typically begins after completion of all construction and/or issuance of a final Certificate of Occupancy. Laws regarding hidden defects, often referred to as Latent Defects, may extend the limitations period for a claimant to file a lawsuit by delaying the commencement of the limitations period until the defect is discovered or should have been discovered with the exercise of due diligence. The determination of what is ‘discoverable’ is subjective and accordingly, the conservative approach is to consider condominium associations and homeowners unsophisticated with regard to construction and design matters unless demonstrated otherwise.

Contractors should also consider the applicable Statute of Repose, a term used to describe the absolute deadline for a potential claimant to file a lawsuit. The governing repose period varies widely depending on the jurisdiction. In Florida, the legislature changed the length from 15 years to 10 years.

Post-Construction Management

The good news is that litigation is not inevitable. In recent years proactive contractors and developers have successfully resolved post-construction defect and warranty claims by condominium unit owners and condominium associations without litigation. Additionally, implementation of a post-construction management plan incorporating proactive claim avoidance measures and claim resolution strategies may further mitigate the costs and risks associated with condominium construction. The following suggestions are provided for consideration in this regard.

Temporary Certificate of Occupancy Phase (“TCO”)

1. Establish a post-construction management team to receive, investigate, and respond to warranty, construction defect, and design defect claims.

2. Facilitate internal meetings between the post construction management team, project staff, and counsel to review applicable laws relating to warranty and defect claims and claim resolution strategies.

3. Facilitate external meetings between the post construction management team, project staff, developer, and key subcontractors to discuss and establish protocols for responding to warranty and defect claims.

4. Address potential problems when discovered, preferably before the potentially responsible parties receive a retainage reduction and/or final payment. If not timely addressed, the issue will likely be discovered later by the condominium association’s or owner’s engineers during the turnover inspection, and will ultimately be more costly in terms of repair costs, legal costs, and loss of reputation.

5. Promote a philosophy of client and customer care. Establish relationships with property management personnel and unit owners. Consider the permanence of first-impressions and the possibility the jobsite is open to visitors, i.e. future condominium board members and residents, consultants, engineers, and attorneys.

6. Copy and store key documents for post-construction management including the prime contract, change orders, subcontracts, as-built drawings, as-built specifications, warrantees, maintenance manuals, RFI’s, submittal and RFI logs, and key submittals. Maintenance of documents by the Post-Construction Manager should facilitate efficient claim assessment and timely responses to the claimants.

Final Certificate of Occupancy Phase (“CO”)

1. Carefully document and report modifications to building components and systems by others. Include the information in the post construction management documents for consideration during future claim assessment. Monitor the activities of the developer, condominium association, property management, and unit owner contractors and representatives. Examples of significant modifications include contractors moving walls, modification of plumbing, electrical, and HVAC components, removal of caulking from the exterior of sliding glass door frames by tile subcontractors to create aesthetically pleasing finish against the door frame, and modifications of building envelope during cable, satellite, audio visual, and other installations.

2. Carefully document and report unusual maintenance practices by the condominium association, property management, homeowners, and housekeepers. Examples include the use of caustic cleaning solutions, window cleaning crews damaging gaskets and glass, and excessive use of water in areas not designed for such use.

3. Continue efforts to establish and cultivate relationships with condominium association board members, property management company personnel, unit owners, and the consulting engineers. Building engineers and property management personnel are a valuable source of information regarding post construction activities, complaints, and maintenance issues. Develop early warning systems and protocols for addressing potential issues before the condominium association or residents have the opportunity or need to ring alarm bells and make an otherwise minor issue more difficult and costly to resolve.

4. Facilitate external meetings between the post construction management team, property manager, and condominium association board members to discuss the differences between maintenance issues and construction issues. Establish protocols for reporting warranty claims.

Warranty and Defect Claim Resolution Phase

1. Notification: Activate e-mail and/or phone notification systems for reporting of warranty and defect claims. A twenty-four hour answering service may be established to receive and forward calls to the post-construction manager from unit owners, developers, condo associations, and property managers.

2. Evaluation: The post-construction manager may take the following action as appropriate/necessary:

• Interface with counsel and business unit operations manager to determine if claim/notice is relevant to pending matters, claims, or negotiations;
• Consider whether claim raises latent defect, patent defect, warranty, and/or nuisance issues;
• Consider whether claim involves unit owner(s), condominium association, developer, and/or others;
• Review/Consider applicable laws with counsel regarding claims, defects, warranties, condominiums, Statute of Limitations, Statute of Repose, and other relevant factors;
• Review drawings/as-built, project specifications, change orders, RFI's, submittals, warrantees, product data sheets, operation & maintenance manuals, and other relevant documentation;
• Evaluate order of magnitude: isolated occurrence/location or multiple locations/occurrences;
• Obtain and evaluate relevant milestones such as the The Turner/Law Partnership issuance of the Certificate of Occupancy, and homeowner controlled condominium association takeover dates;
• Evaluate and consider relationships/history of implicated subcontractors, including status of closeout process, retainage, prior claims/defaults, etc. Ascertain if claim relates to pending or prior insurance or surety claim;
• Consider whether claim relates to design deficiency. Evaluate and consider relationship with Project Architect and other Project Design Professionals;
• Evaluate and consider relationship with developer, including closeout process, retainage, settlement negotiations, pending claims, and possibility of developer liability;
• Evaluate and consider general contractor’s exposure, including scope gaps and deviation from contract documents. Contact project manager, engineer, superintendent, or others for additional insight;
• Evaluate available insurance coverage. Evaluate whether the project is insured under a traditional, owner controlled, or contractor controlled insurance program. Verify additional insured status;
• Determine whether implicated subcontractors are bonded or enrolled in a subcontractor default insurance program;
• Notify and coordinate efforts with corporate claims as appropriate.

3. Action Plan:
• Post-construction manager, operations manager and counsel should determine action plan on case-by-case basis;
• Evaluate need and strategic advantages to delegate to counsel, quick response contractor, etc.;
• Determine if consultants are required. If so, consider notice requirements and procure necessary approval from entities such as insurance carrier;
• If multi-component claim, attempt to ascertain which issues are most important to claimant and determine plan and structure negotiations accordingly.

4. Execute Action Plan:
• Post construction manager, operations manager and counsel should execute Action Plan as appropriate;
• Prepare/send notice letters and other correspondence to subcontractors, insurance carriers, sureties, developer, architect, attorneys, etc.;
• Schedule, orchestrate, and attend meetings and inspections with claimants, condominium association, property managers, subcontractors, consultants, developer, design professionals, attorneys, etc.;
• Document findings - utilize work product/attorney client privilege to the extent possible;
• Evaluate preliminary findings of consultant and determine if written report is appropriate. If so, work closely with consultant to obtain report - utilize work product privilege to the extent possible
• Coordinate with counsel and operations manager as appropriate;
• Orchestrate and cultivate strategic alliances with involved parties (subs, developer, etc.)
• Determine and execute ongoing strategy and action plan on case-by-case basis

A well thought out plan of action for dealing with the inevitable claims and issues that arise after the “completion” of a condominium project represents a sound investment in risk management and mitigation of the potential for expensive litigation.


All of the suggestions provided herein are based on years of experience and successful application. They are intended to complement existing procedures not replace them. If you have questions, comments, or would like to discuss the subject matter in additional detail, please contact Christopher J. Weiss Esq. at (407) 244-1110.