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Court Rules on Statute of Limitations in a Construction Defect Claim

The New Jersey Appellate Court has ruled that the Statute of Limitations in a construction defect claim should start at the formation of the owner´s board.

On May 1st 2002, the 538 apartments of The Palisades at Fort Lee Condominium in New Jersey were deemed substantially complete and, for the first two years after their construction, were rented out by the owners of the 40-story tower – Palisades A/V Acquisitions Co. LLC.

In June 2004, the tower was purchased by Crescent Heights of America, who proceeded to convert the apartments into condominiums and then sell them from January 2005 – retaining control of the “Condominium Association” until July 2006 when control was assumed by the condominium owners.

The new owner´s board engaged the Falcon Group to compile an engineering study. A report of the study was delivered in July 2007, identifying various construction defects. The condominium association subsequently filed a construction defect claim in March 2009 against Crescent Heights of America and four of the subcontractors involved in the original construction and subsequent conversion.

The four subcontractors contested the claim on the grounds that the state of New Jersey has a six-year Statute of Limitations in a construction defect claim and that, as substantial completion had been dated 1st May 2002, the Statute of Limitations had expired. In February 2014, the Superior Court of New Jersey in Bergen County agreed with the subcontractors and granted a summary judgement to dismiss the case.

The Palisades owner´s board appealed the decision. They argued that the Statute of Limitations in their construction defect claim should not start until the owners had control of the condominium association. The New Jersey Appellate Division agreed with their argument and ruled that the receipt of the engineering report was the first time that the owner-controlled board was “reasonably aware that it had actionable claims regarding the full range of construction defects”.

The Appellate Division commented that – prior to the owners taking control of the condominium association – Crescent Heights of America had no incentive to conduct an engineering report to identify any construction defects. It ruled that the Association´s complaint was not barred by the Statute of Limitations in a construction defect claim and that the case was improperly dismissed by the Superior Court. It remains to be seen whether the New Jersey Supreme Court will grant certification and evaluate the Appellate Court’s decision.