Condominium construction in Minnesota has dramatically slowed since its peak from 2003 through 2006. Most developers have elected to build apartments instead of condominiums. This imbalance has been partly driven by the higher frequency of claims by condominium associations against developers and contractors. Developers and contractors have been unwilling to take on the added litigation risk associated with condominium construction.
The Minnesota legislature has attempted to address at least some of the developers’ and contractors’ concerns by amending Minnesota’s Common Interest Ownership Act, Minnesota Statutes Chapter 515B (see 2017 Session Laws Chapter 18, House File No. 1538). Faegre Baker Daniels worked to pass this legislation at the Capitol in Saint Paul this legislative session. The primary modifications are:
- Maintenance Plan Requirements. Associations are now required to prepare, approve and comply with a written preventative maintenance plan. The maintenance plan must include a maintenance schedule and maintenance budget for common elements.
- Written Notice. Associations must provide written notice to unit owners prior to commencing litigation. The notice must describe the defects at issue, the relief sought, and the way in which the litigation will be funded.
- Majority Vote Required. Associations may not bring suit for construction defects unless a majority of the unit owners (at least 51 percent) authorize the commencement of litigation.
- Mediation Prior to Suit. Prior to commencing litigation, the association must submit the matter to mediation before a mutually agreeable, neutral third party. If the parties cannot agree on a mediator, they may petition the district court to appoint a mediator.
The law also refines the definition of construction defect and makes clear that construction defects do not include defects caused by subsequent maintenance and repairs to the property. The law further notes that the failure of the association to perform adequate maintenance and repairs is not the responsibility of the original contractor or developer.
The law goes into effect August 1, 2017. For associations formed prior to August 1, 2017, they must prepare and adopt a preventative maintenance plan by no later than January 1, 2019. For associations formed on or after August 1, 2017, an initial preventative maintenance plan must be prepared and included with the disclosure statement in connection with the sale of the initial units. The maintenance plans may be amended and updated by the association from time to time.
It is too early to determine if these changes will materially impact the frequency of litigation that arises from condominium construction. It is possible that requiring preventative maintenance plans will help avoid some construction defects. It is also possible that requiring approval from a majority of the unit owners will deter some associations from bringing suit. Nevertheless, the changes do not alter the 10-year statute of limitations for major construction defects or the statutory home warranties that developers and contractors must provide to associations and unit owners. Developers and construction industry professionals must still carefully evaluate and mitigate their risks in connection with the design and construction of common interest communities.
For a comprehensive discussion of risks unique to condominium projects, see Section 7:29.50 of Bruner & O'Connor on Construction Law.