Asserting Claims Against Developers

What is a Warranty?Types of Warranties:
1. Express Warranties
  1. Statutory
    1. Virginia Code Sec. 55-70.1: statutory warranty on “new dwellings” (specifically excludes condominiums).
    2. Virginia Code Sec. 55-79.79: Condo Warranties. No distinction between new and renovated condominiums.
  2. Contractual
2. Implied Warranties. There probably are no implied warranties in Virginia (Bruce Farms v. Coupe; led to adoption of Sec. 55-70.1).
How to determine whether or not a warranty claim exists
1. Legal Analysis.
2. Engineering Analysis.
3. Financial Analysis.
4. Hire your own attorney, engineer, and accountant.
5. Distinction between warranty claims relating to units vs. common elements (different claimants, statutes of limitations, analyses, etc.)
How to document developer warranty claims
1. Unit owners’ Association Records: Minutes, Financial Records, management contract. Identify directors and officers in office at each relevant period.
2. Documents: Public Offering Statement(s) (“P.O.S.”); advertising/marketing/promotional/ sales brochures and other similar types of ‘materials; sales contract form(s); settlement documents; recorded condominium instruments; repair bills; correspondence.
3. Oral representations.
4. Chronology/Diary (with all the “W’s” – who? what? where? when? why?).
When and how to negotiate developer warranty claims
1. objective of negotiations; get the significant problems fixed as quickly as possible at the lowest possible net cost.
2. Value of legal representation.
3. Cost of reasonable compromise vs. the costs of delay and litigation. Critical need for expertise sufficient to evaluate probability of a favorable result. Frequently overlooked issue: difficulty and cost of enforcing collection of a favorable judgment.
4. The art of negotiating. The most frequently overlooked criterion for selecting the right attorney is his/her skill in the art of negotiating.
  1. Training and track record of success in negotiating warranty claims.
  2. Track record of success in litigating.
  3. Reasonableness; “We” have a problem; knowledge of constructive/warranty issues.
5. Special problems in dealing with groups (unit owners, home owners, etc.)
  1. Changing membership of the Board of Directors; continuity of goals; informing new members, etc.
  2. Managing the dynamics of the larger group; liaison; telephone trees, etc.
When to litigate
1. Statutes of Limitations set the outside limits unless waived/extended by developer and others.
2. Filing suit to gain negotiating leverage.
3. Postponing/ suspending litigation to gain negotiating leverage.
4. Expenses of litigation:
  1. Attorney Fees: Hourly vs. contingent. Importance of existing base of legal research and experience.
  2. Experts
  3. Cost of depositions, transcripts, duplicating, long distance telephone, etc.
5. Funding litigation: Special assessments, increased monthly assessments, fund raisers, etc.
Theories of Liability
1. Breach of Contract
2. Breach of Warranty
  1. Express warranties
    1. Statutory
    2. Written Contract
    3. Oral Contract
  2. Implied Warranties
3. Negligence, including negligent misrepresentation
4. Breach of Fiduciary Duty. This is a frequently overlooked but powerful theory of liability where it can be established. The directors and officers of the unit owners’ association have a fiduciary duty to the unit owners. Where the election or appointment of these directors and officers is controlled by the developer, the developer may be vicariously liable for their breach of their fiduciary duty to the unit owners.Frequent problem areas where fiduciary duty may be breached:
  1. Reasonableness of the budgetary projections, especially the adequacy of reserves for replacements.
  2. Collection of assessments on developer owned units.
  3. Improper acceptance of defective common elements inadequate inspections.
  4. Inadequate maintenance, repair or replacement of common elements.
  5. Affirmative misrepresentation/non-disclosures/inadequate disclosures of material facts.
5. Fraud
  1. Elements of fraud
  2. Actual vs. constructive fraud
  3. Strict liability for constructive fraud?
6. Violations of the Condominium Act.
7. Violations of the Condominium Instruments.
8. Violations of the Consumer Protection Act.
9. Other miscellaneous theories (civil conspiracy, Truth in Lending Regulation Z, etc.)
Potential Remedies
1. Compensatory damages
2. Punitive damages
3. Rescission