Under Maryland law (Md Real Property Code Annotated, Section 11B-110), a developer of improvements upon common areas owned or to be owned by a homeowners association remains responsible for certain aspects of such improvements under an implied warranty created by such statute. To determine how long the developer is responsible and to what the warranty applies requires a careful read of the statute.
The statute provides that there is an implied warranty to the homeowner’s associations that the improvements to common areas are:
(i) Free from faulty materials;
(ii) Constructed in accordance with sound engineering standards; and
(iii) Constructed in a workmanlike manner.
These warranties apply to the adequacy of the materials and the actual construction of the improvements. It does not apply to defects caused through abuse or failure to perform maintenance by a lot owner or the homeowners association. The statute specifically provides that these scenarios are not applicable under the implied warranty. Therefore, the parties to any potential claims, either claims by the homeowners association, or claims against a developer, should be carefully considered to determine if any defects or necessary repairs resulted from lack of or improper maintenance or ordinary wear and tear, or if they truly result from one of the implied warranty categories. Often common area improvements constructed in larger communities that take many years to develop may have been completed in the early stages of project, and therefore could be in place and completed for many years before the warranty period expires. In those instances, determining the cause of any defects may be more difficult to ascertain. Keeping good records, as noted later in this article, will be helpful to all parties once transfer of control is provided.
Additionally, how long the warranty lasts depends upon a number of factors. The statute first provides when the warranty commences: “The warranty on improvements to the common areas begins with the first transfer of title to a lot to a member of the public by the vendor of the lot. . . .The warranty on improvements to common areas not completed at the first transfer of title to a lot shall begin with the completion of the improvement or with its availability for use by lot owners, whichever occurs later.”
The statute then discusses how long the warranty period lasts. “The warranty extends for a period of 2 years from commencement [as discussed above] or 2 years from the date on which the lot owners, other than the declarant and its affiliates, first elect a controlling majority of the members of the governing body of the homeowners association, whichever occurs later.” Therefore, a developer must pay attention to when they transfer control of the homeowners association to the homeowners, as that date may affect when the 2 year warranty period begins and ends. Any delay in transfer of control will also delay the 2-year period during which the warranty applies.
The law requires that notice of any warranty defects must be provided to the developer prior to the end of the 2-year warranty period. Therefore, understanding when the 2-year period ends is important for all parties. Any defect claims not included within such notices before the end of the 2-year period cannot be considered. Then, the party providing the defect notice has another 1-year period to bring a suit to enforce any such claims within the warranty defect notice. During that 1-year period, presumably the parties will review and discuss the claims, and to the extent they are deemed valid, will hopefully negotiate and come to a resolution prior to the end of the 1-year period before a suit can be filed. Parties should also pay attention to the governing documents of the homeowners association to determine if any arbitration, mediation or other dispute resolution procedures are required for conflict resolution between the homeowners association and the developer before filing a lawsuit that may end up being dismissed due to the dispute resolution provisions.
Developers should keep detailed records of all plans, permits and inspection reports. They should also make certain that any contracts with subcontractors include strong warranties and indemnification provisions for the work that each subcontractor performs and for the materials that they provide.
The parties may also want to consider a joint walk-through of the entire project, upon transfer of control, with engineers who are knowledgeable with such inspections, in order to have all parties view and know and possibly agree upon the status of improvements at the time of transfer. Video recordings of such inspections can also be helpful. This creates a line in the sand of the condition of improvements upon transfer of control. Therefore, it may be easier to then determine if an improvement was thereafter no properly maintained by the homeowners association during the following 2-year period.
Ultimately, proper planning and good record keeping will go a long way toward being ready to address any potential warranty claims that may be asserted.
Please contact Michael Faerber at 301-251-1180 or mfaerber@mcmillanmetro.com if you would like to discuss homeowners association issues, real estate issues, and business consultation.
