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Transition not substantial completion starts the clock: New Jersey amends statute of limitations for homeowner and condominium association construction defect cases

6/28/22

By: William Cheney

In 2017, the New Jersey Supreme Court, in Palisades at Fort Lee Condominium Association, Inc. v. 100 Old Palisade, LLC, et al., held that the statute of limitations for construction defect claims brought by a condominium association begins to run upon “substantial completion” of the structure. While the Supreme Court recognized that the discovery rule can delay accrual until the owner knew or should have known of the existence of a claim, it held that a condominium association did not get a fresh clock post-transition. Rather, suit had to be brought within six (6) years of any owner’s discovery of a defect, meaning the statute of limitations could begin to run and even expire before the association transitioned to the unit owners.   

The Palisades decision made clear that “[t]he statute-of-limitations clock is not reset every time property changes hands” and that “[a] condominium association does not enjoy a preferred status exempting it from this long-standing rule.” Developers, accordingly, could rely on Palisades to challenge a new owner, including a condominium or homeowners association, attempting to revive a stale defect claim. 

Now, the Legislature has amended the statute of limitations to afford associations the “preferred status” the Supreme Court rejected in Palisades. Earlier this year, section (c) was added to N.J.S.A. 2A:14–1, which provides that property damage claims by a condominium association, cooperative corporation, or other planned real estate development are tolled “until an election is held and the owners comprise a majority of the board.” The Legislature reasoned that the amendment was necessary as “transition from developer control can occur years after the project’s substantial completion, leaving little or no time within the six-year window for the owner-controlled board to decide to file a claim against a developer, even when legitimate defects exist.” The amendment, according to the Legislature, “provide[s] the owner-controlled board more time to file a construction defect claim by requiring the statute of limitations to begin running upon transition of developer control.” 

Significantly, the amendment expressly only applies to claims (1) brought by an association (2) against “a developer or any person acting through, on behalf of or at the behest of the developer.” Seemingly, this means that a developer’s contractual and tort claims, arising out of the association’s defect claims, against its contractors and design professionals and any claims against subcontractors, except for contribution and indemnification claims, may accrue as set forth in Palisades and expire prior to suit by the association against the developer, and possibly prior to the date of transition.   

Accordingly, for developers, contractors, and professionals involved in the construction of planned real estate developments, the amendment must be considered not only in assessing when their exposure to the association expires but also the viability of third-party claims relating to the association’s defect claims. 

If you have any questions about the effect of this law or other construction defect matters in New Jersey, please contact William Cheney at [email protected].com