A new law attempts to slow construction defect litigation.
You have likely heard about the Minnesota Common Interest Ownership Act (MCIOA) amendments for some time — legislation, H.F. 1538, which was recently signed into law by Governor Dayton. These changes add language to the MCIOA concerning construction defect claims. These changes do not prevent construction defect litigation; however, they do present new steps that must be taken before initiating a suit.
Associations Versus Builders
These MCIOA amendments are the answer to the constant friction between associations and builders regarding construction defect claims. Associations have argued for a continuation of the status quo, which have allowed minimum considerations before starting a construction defect claim. These changes, associations argue, make it easier for builders to complete shoddy work and not be responsible for correcting it. Builders, on the other hand, have argued the decline of available multi-unit housing (is in part) due to the glut of frivolous construction defect claims associations bring against housing builders. For years builders have argued for a stricter gatekeeper for construction defect claims. These MCIOA amendments provide a gatekeeper that does just that.
The new law provides four main hoops associations now need to jump through to bring a defect claim.
I. “Construction Defect Claim” — Now Defined
The amendments to MCIOA define “construction defect claim”. In summary, it is defined as any claim arising out of damages or loss to property caused by a defect in the initial design or construction of an improvement to a part of real property within the common interest community. The definition limits claims to deficiencies caused by defects in the initial design or construction, and thus excludes damages or losses that occur as a result of an association’s’ later maintenance. This means a construction defect claim can only be brought when the builders’ construction site is untouched by the later work. If, however, an association performed modification or repairs, they are then barred from later claiming the damages were caused by the builders’ defective work.
II. Notice — Now Required
The MCIOA amendments require an association, prior to filing a defect claim, to: (1) send notice of the claim to all association owners; and (2) obtain approval of the action by a majority of the noticed owners. If these two requirements are not met, associations will be unable to proceed with their claim.
Associations were staunchly opposed to this notice requirement, as it makes it more difficult and cumbersome for an association to bring a construction defect claim. Builders, on the other side, are praising it since it helps ensure only valid claims are brought against them.
III. Maintenance Plans — Now Mandatory
The MCIOA amendments require the board of the association to prepare in writing: (1) A preventative maintenance plan; (2) A maintenance schedule; and (3) A set maintenance budget for the common elements. Each of these three documents must be distributed to all owners within the association. As with the previously discussed amendments, an association that does not enact the three maintenance-related requirements will be barred from bringing a construction defect claim.
These maintenance requirements place a heavy burden on associations to safeguard the construction done by builders from falling into disrepair. The legislature, in passing this amendment, statutorily agreed with multi-unit-housing builders’ arguments that reasonable ongoing maintenance from an association would significantly reduce litigation. Any failure to comply with these obligations relieves a builder from the obligation to make subsequent repairs.
This change significantly impacts the day-to-day maintenance and repairs done by associations. Compliance will require paying close attention to the amendments, and can potentially alter associations past well-established practices.
IV. Claim Resolution — Now Obligatory
Lastly, the MCIOA amendments alter the mode in which most construction defect claims are resolved. The association is now required to submit the matter to mediation prior to initiating any construction defect litigation. (Mediation is exempt when the parties have completed home-warranty-dispute resolution.) This prerequisite mediation affords builders the chance to quickly and cheaply get rid of frivolous claims, and puts yet another hurdle in front of an association wanting to initiate construction defect litigation.
No matter which side of the debate you are on, it is undeniable that the MCIOA amendments change the construction defect claim process significantly. The changes put a higher burden on associations throughout the life of builder improvements. From mandatory maintenance plans, to requiring mediation before initiating litigation, compliance with these changes will require close attention and due diligence on the part of an association.