What’s in a Warranty?

Kristen is an attorney with Rees Broome and her practice is devoted to representing community associations in Virginia and D.C. She advises her clients on general and collection matters and prior to joining RB, she was counsel for a real estate developer and title company.

Ruhi works with Rees Broome’s Community Associations Group, whose aim is to assist community associations in providing services and amenities that preserve the nature and character of the community, protect property values and meet the expectations of the owners. Since joining the firm, she has worked on a number of collections issues and assisting with other general legal issues. Before joining Rees Broome, Ruhi worked with client representatives’ large lending institutions to develop sound litigation strategies for foreclosures, lien disputes, complex title issues and bankruptcy proceedings.

A common issue that all communities must deal with during transition from the developer are the inherited defects in the construction, design, and maintenance of the common areas and in the homes. The issues can lead to endless negotiations, disputes, and sometimes, expensive lawsuits. However, a community can avoid (or at least lessen) the dark realities of transition, by educating itself on what is covered under the developer’s warranty.

In Maryland, along with the express warranties in the contract, plans, specifications and models associated with a community, section 10-203 of the Maryland Code requires the developer to transfer four implied warranties with the conveyance of every home. The developer must warrant that the home is: (1) Free from faulty materials; (2) Constructed according to sound engineering standards; (3) Constructed in a workmanlike manner; and (4) Fit for habitation.

Section 11-131 of the Maryland Condominium Act includes additional implied warranties on the unit which begin upon transfer and extends for one year. The warranty obligates the developer to correct defects in materials or workmanship in the construction of walls, ceilings, floors, and ensures that the HVAC systems are installed within acceptable industry standards. The section also includes warranties from the developer on the common elements of a community. The warranty applies to the roof, foundation, external and supporting walls, mechanical, electrical, plumbing systems, and other structural elements.

Similarly, the Section 11B-110 of the Maryland Homeowner’s Association Act transfers the same implied warranties noted above to common areas within a homeowner’s association. Both Acts extend the warranty period for common areas until at least two (2) years after control of the association is transferred to the homeowners. This ensures that the initial homeowner-controlled association will have a fair opportunity to evaluate and investigate the common areas for defects and potential claims.

Section 55.1-1955 of the Virginia Condominium Act warrants units against structural defects in each unit for 2 years from the date of conveyance to the first purchaser and all common elements for 2 years. This means that unit components or common elements are free from defects that reduce the stability or safety of the structure below accepted standards or restrict the normal intended use of all or part of the structure and that require repair, renovation, restoration or replacement. Typical unit components include flooring and other interior finishes, and systems serving only that unit. Common elements typically include the roof, building exterior, lobby, elevators, and building-wide mechanical systems. The declarant also warrants that the unit is fit for habitation and constructed in a workmanlike manner.

Virginia. Code Section 55.1-357 offers implied warranties for new homes in a homeowner’s association. Unless waived or modified by contract, the developer warrants the home and its fixtures is sufficiently free from structural defects; constructed in a workmanlike manner; and if the developer is in the business of selling or building homes, that the home is fit for habitation. The foundation has a 5-year warranty and everything else has a 1-year warranty from the transfer of title.

Additionally, performance bonds are posted with the locality to ensure the association’s site improvements, such as sidewalks, roads, landscaping, will be completed in accordance with approved plans. The bond will not be released by the locality unless the site improvements were built according to the approved plan.

The D.C. Condominium Act provides in Section 42-1903.16 that the declarant warrants against structural defects in each unit for 2-years from the date the unit is first conveyed and all of the common elements for 2 years 1 . The declarant must also post a bond equal to 10% of the estimated construction costs to satisfy any costs that arise from the declarant’s failure to satisfy their warranty obligation.

For homeowner associations in D.C., an owner or association may be entitled to relief under D.C. Code Section 28-3904 (Consumer Protection Procedures Act) if the developer failed to disclose major defects at the time the property was sold.

In conclusion, the warranties available to owners and associations vary by state, statute, and applicable governing documents. When seeking defect remedies, it is imperative that each are reviewed to determine coverage, scope and availability.