Implied Warranty Issues (January 21, 2011)

Generally, the implied warranty on the common areas (HOA) is two (2) years as compared with the implied warranty on the common elements (Condominiums) which is three (3) years[1].  However, in light of new laws which went into effect on October 1, 2010, please note the following:

For homeowners associations, the warranty begins on the date that the first lot is transferred; however, if the improvements are not completed on that date, then the warranty begins on the date such improvements are completed or the date when the improvements are available for use by the owners, whichever is later. In the case of condominium associations, the warranty commences on the date the first condominium unit is transferred; however, as to any common elements not completed on this date, the commencement date as to incomplete common elements begins when those common elements are complete or are available for use by all owners, whichever occurs later. However, since condominium units in almost all cases involve some common elements (and particularly in this matter where there is a 2/2 product type), essentially the commencement date does not begin until the last units (with any related common elements) are completed[2].  Therefore, generally the HOA warranty will commence before the Condominium warranty for completed improvements.

In homeowners associations, the implied warranty extends for a period of two (2) years from the commencement date described above or two (2) years from the date the owners, other than the developer, first elect a controlling majority of the board members, whichever occurs later. On the other hand, for condominium associations, the warranty extends for a period of three (3) years from commencement date (as described above) or two (2) years from the date a controlling majority of the board members are elected by owners, other than the developer, whichever is later.  However, please note that since transfer of control for a condominium association generally occurs before transfer of control for a homeowners association (i.e., the law requires condominium transfer within 60 days following the date 50% of the units have been settled while the transfer in homeowners associations does not need to take place until 60 days after 75% of all units have been settled), the expiration of the implied warranty period for homeowners associations may actually expire around the same time or later than for a condominium association. 

Notwithstanding the above, you can control when the transfer takes place in the homeowners association and thereby control when the implied warranty expires for completed improvements.  You should consider holding the transition meeting earlier in the project and creating some type of advisory committee in the homeowners association documents which delegates the primary duties of selection of vendors and adoption of the budget to the developer (as the advisory committee) until the last lot or unit is settled, which will reduce the extension of the warranty period on completed improvements but provide you with retention of some control of the HOA by other means.  While some may argue this action defeats the purpose of the law, it is not prohibited under current law. 

[1] See footnote 2 below.

[2] Title 10 of the Real Property Article provides certain implied warranties affecting condominium units (and the common elements pursuant to case law discussed below in this footnote).  The warranty coverage includes that the improvements are free from faulty materials, constructed according to sound engineering standards, constructed in a workmanlike manner and fit for habitation.  The warranty covers the condominium unit for one (1) year and any structural defects are covered for two (2) years after the date of completion, delivery or taking of possession, whichever is earlier.  Further, by virtue of the case known as Starfish Condominium Association v. Yorkridge Service Corp., 195 Md. 693 (1983), the Court of Appeals held that the Title 10 warranties are applicable to newly constructed condominium units and common elements.  Therefore, the Court held that one or more owners have standing to sue for breach of Title 10 implied warranties of the common elements and can seek the entire damages for the common elements, even if the claims of other owners are time-barred.  The action may be brought by the condominium association in its representative capacity of 2 or more owners with viable claims.

Please contact any of the community association attorneys in our office if you have any questions.

Rachel M. Hess, Esquire and Winegrad, Hess, Friedman & Levitt, LLC ©2011. All rights reserved.

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