“Tolling the Statute of Limitations for Community Association Construction Defect Claims” – CAI NJ Community Trends

“Tolling the Statute of Limitations for Community Association Construction Defect Claims” – CAI NJ Community Trends

On January 11, 2022, New Jersey Governor Phil Murphy signed into law a statute that amends the Statute of Limitations (SOL) for the filing of a lawsuit against a developer, its design professional and subcontractors for construction defects. While it was common interpretation of applicable case law that an owner-controlled board had at least six years from the date owners assumed a majority of the seats on an association board of trustees, the New Jersey Supreme Court turned that understanding upside down in the 2017 case of The Palisades at Fort Lee Condo Ass’n, Inc. v. 100 Old Palisade, LLC, 230 N.J. 427 (2017). Under the unique circumstances of that case, the court held that the six-year SOL period started to run when the developer-controlled board learned of a defect in the association’s common elements. Application of that ruling meant that, in some instances, by the time the owners took control of the board, the SOL could have already run, precluding the ability to file suit. Further, since the developer-appointees to the board would be unlikely to ever tell the owner members of the board when they learned of a defective condition, the owner-controlled board would not know when the six-year SOL had started to run.

Soon after the Palisades decision, community association attorneys brought the case to the attention of the CAI Legislative Action Committee (LAC) and urged it to seek an amendment to the SOL law to toll the running of the SOL until owners gained control of the board. The LAC worked over three years to bring this amendment about. Ultimately, the New Jersey legislature understood the plight of associations under developer control and overwhelmingly passed the bill late in 2021. The SOL now contains the following specific exception, which tolls such claims for community associations: “c. The period of time for the filing of a claim by a condominium association, cooperative corporation, or other planned real estate development association against a developer or any person acting through, on behalf of or at the behest of the developer…shall be tolled until an election is held and the owners comprise a majority of the board…N.J.S.A. 2A:14-1(c).”

This law also applies to claims associations filed prior to its passing, as long as such claims have not been subject to final judgment (meaning that there are no trial or appellate court proceedings pending). Only when a community association’s board is controlled by its owners does the period of time the association has to file a claim against a developer start to run.

It is important to note, however, that New Jersey’s ten-year Statute of Repose remains in effect. That law provides that no one may sue a developer, subcontractor, or design professional more than ten-years after “substantial completion” of an improvement. Hence, in a matter where the owners took control of the board seven years after substantial completion of at least some of the components of a community association project, the board would have only three years to file a claim concerning those components, not the full six years provided by the SOL.

If your community is going through the process of transition, or if you have any questions about the Statutes of Limitations or the Statute of Repose, you should immediately consult with your legal counsel to ensure that your construction defect claims are appropriately preserved.

Reprinted from the May 2022 issue of the CAI-NJ’s Community Trends®.