By Alan Garfinkel, Esq. / Published April 2017
Is your association going to pay for “Florida’s billion-dollar stucco problem”?1 Here’s what you need to know in order to avoid being the next victim. Over the past few years, national homebuilders have made bad headlines throughout Florida from improperly installing stucco and then flatly denying home warranty claims. Florida homeowners continue to notice stucco cracks on their homes, condominiums, and particularly townhomes. Most times damages are hidden by subtle water intrusion. However, what lies beneath is major property damage caused by cracks through walls and windows. Homeowners, condominium, and townhome unit owners are told: (1) stucco cracks are not defects at all but rather cracks “from settling;” or (2) cracks “are within tolerance;” or (3) stucco cracks are “expected” in Florida due to the harsh weather; or (4) cracks are part of “standard homeowner maintenance;” and… by the way, (5) all cracks in stucco are “exclu-ded from warranty;” and finally (6) homeowners are universally told that they should simply “caulk the cracks and re-paint every three years.”
However, hundreds of consumer complaints over these stucco complaints and deceptive trade practices denying stucco warranty repairs resulted in the Florida Attorney General’s Office investigating builders and then filing lawsuits. Recently, a lawsuit against KB Homes settled for almost $100 million (and counting since KB homes now has an obligation to continue repairing communities). KB Homes admitted that it “spent $71 million to repair affected homes, including 1,688 homes in need of repair from water intrusion issues arising from construction defects.”2 Similarly, a Florida jury recently awarded a $9.6 million verdict against DR Horton. The jury awarded the full claim without any deduction.3 These are only two examples of hundreds of building damage claims pending against builders and developers in Florida for poorly installed stucco and the devastating damages that in most cases are totally hidden from plain sight. In fact, most community association boards simply caulk and paint, and caulk and paint until they realize it’s too little too late.
Notwithstanding this construction defect epidemic in Florida, few managers and boards have programs in place to ensure their communities do not become the next victim; i.e., levying special assessments on their memberships rather than demanding repair from the folks responsible. This article suggests two actions I recommend to shift the burden of these (in many cases) multi-million dollar repairs to those responsible for the defective development, design, and construction of your community.
First, I would recommend your community be proactive, investigating the cause of damages before painting or making band-aid repairs. Often, defects are “latent,” or hidden, and the damage is not obvious. For this reason, it is critical that you fully inspect your building’s stucco around three years from turnover and no later than nine years from the certificate of occupancy. This is because there are two critical time limitations that can affect whether your association can force anyone to make the repairs or pay for the repairs. Construction defect claims in Florida have a Statute of Limitations and a Statute of Repose. Both are governed by §95.11(3)(C), Florida Statutes. For latent (hidden) defects, the statute provides for a four-year statute of limitations from when the association discovered the defect or should have discovered the defect with the exercise of due diligence. The statute of limitations does not begin to run until the unit owners (in condominiums) have elected a majority of the members of the board, commonly referred to as the date of “turnover.” This means that a building suffering from window leaks for nine and a half years may still have a valid claim if turnover occurred within the last four years. A defect is either patent (obvious) or latent (hidden). When the association “should have discovered the defect with the exercise of due diligence” is a question a jury must decide, and a jury decision (rather than a judge) is better for homeowners and worse for developers and insurance companies.
The second time restraint is the Statute of Repose. The Statute of Repose provides that the lawsuit must begin within 10 years of the latest of the following events: (1) date of actual possession of the owner; (2) the date of the issuance of a certificate of occupancy; (3) the date of abandonment of the construction if not completed; or (4) the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer. Florida appellate courts are beginning to give homeowners a break and broadly construe the “latest of the events.” For example, if a certificate of occupancy was issued to building 1 of a 15-building complex in 2005, but the certificate of occupancy for building 15 was not issued until 2009, the Statute of Repose may not begin to run on any of the buildings (including building 1) until the last building was completed. Likewise, one appellate court recently confirmed that “completion of the contract” requires both performance by the contractor (i.e., completing the buildings) and final payment by the owner. It is common for final payment to be issued months (or even years) after the buildings were completed. This means that your association may still have a case even if the project was completed more than 10 years ago.
However, don’t let your claims expire. Our recommended time periods for evaluations are one year prior to the deadline dates above. The bottom line is, if your buildings have damages, it may be from construction defects. If that’s the case, let’s get the folks responsible to make the repairs instead of assessing your membership.
Second, I recommend your community consult with competent professionals—engineers and attorneys. Your hired consulting engineers and attorneys should have specific, significant experience with both generally representing community associations and handling construction claims with a documented track record of success. The attorneys should assist the board with the engineering investigation (and in many cases, front all the expenses). Most importantly, your construction defect claim team must provide counsel on all critical time periods mentioned above and ensure your claims are filed tim-ely, or they will be forever lost, with your association left holding the bag and responsible to repair all damages.
Most attorneys charge hourly for this type of representation and many associations are reluctant to incur these costs, for good reason! Recognizing this problem, a few law firms provide both general community association representation and specific construction defect representation, offering both free legal and engineering analysis to evaluate your specific case. Look for law firms both concentrating in community association law and offering the option of fully contingent representation, where the law firm puts their own money in and advances all the attorney’s fees and engineering costs and only gets paid if successful—a classic case of putting your money where your mouth is.
In conclusion, the time to act is now since Florida communities built in 2007, 2008, and 2009 are those we regularly find suffering the most significant stucco defects and damage. There are resources available for you to receive cost-effective and economically sensible advice that can be the difference between a multi-million dollar recovery from those responsible or a multi-million dollar assessment.
Alan Garfinkel, Esq.
Alan Garfinkel has counseled homeowners, townhomes, condominium associations, and individuals throughout Florida from his same Central Florida office for 25 years. He continues to passionately work for those living in and working for community associations. Garfinkel received the highest ethics rating (AV) for more than a dozen consecutive years. Attorney peer review ratings provide objective grades based on confidential evaluations by attorneys and judges measuring a lawyer’s ethical standards and legal ability. Garfinkel Whynot only represents community associations, not big corporations like developers, banks, and insurance companies that can develop conflicts with communities. For more information, visit www.MyGWLaw.com.