In Maryland there is an implied warranty on the construction of the common areas within a homeowners association (‘HOA”) community. The warranty is codified at Section 11B-110 of the Maryland Homeowners Association Act (“MD HOA Act”), and provides that “there shall be an implied warranty to the homeowners association” that the improvements to the common areas are:
- Free from faulty materials;
- Constructed in accordance with sound engineering standards; and
- Constructed in a workmanlike manner
Maryland HOA Act §11B-110(a)(1).
In Maryland an HOA is an organizational entity created by a developer (known as a “Declarant”) to manage the HOA common areas located within a planned community of single family houses, townhouses and/or condominiums (known as “lots”). Common areas improvements typically include roads, sidewalks, storm water management ponds, clubhouse, swimming pool, etc. At some point during the development of the community, the Declarant will grant legal title over the common areas to the HOA. Thus, the HOA ultimately becomes the owner of the common areas and the lot owners, who are members of the HOA, have a right to use and enjoy the common areas in accordance with the HOA Declaration and Bylaws. Initially, the Declarant controls the HOA until it transfers control over the HOA to the lot owners as required by Maryland law. See Article, Declarant Transition for Maryland Homeowners Associations.
The HOA common area warranty is implied by statute so that no written words are required to create the warranty. It exists as a matter of law. The warranty may be enforced by either the HOA or an individual lot owner. MD HOA Act § 11B-110(a)((4). The warranty can be asserted against the seller of the individual lots (the “Vendor”) or the Declarant who grants title to the common areas to the HOA, depending on who constructed the common area improvements and when they were conveyed. MD HOA Act §11B-110(a)(2).
As part of the statutory warranty process, notice of common areas construction defects must be given within the warranty period to either the Vendor or the Declarant, depending on which is responsible for the warranty under the statute. MD HOA Act § 11B-110(b). The warranty period extends for two (2) years. MD HOA Act § 11B-110(a)(3)(iii). Thereafter, there is a one (1) year statute of limitations that commences with the expiration of the two year warranty period. MD HOA Act § 11B-110(b). Thus, if the Vendor or Declarant, as the case may be, fail to properly correct construction defects after being given notice within the warranty period, a lawsuit to enforce the warranty must be brought by the HOA or an individual lot owner within one year of the expiration of the two year warranty period. MD HOA Act § 11B-110(b). However, if parties are willing to negotiate, there is a possible alternative to filing suit in order to preserve HOA legal claims. The HOA to may be able to obtain a tolling agreement from the declarant and other responsible parties under which the parties agree to a “time out” that will stop the statute of limitations from running on HOA’s warranty and other legal claims while they engage in efforts to resolve their construction dispute without litigation or arbitration. See Article, Using Tolling Agreements to Preserve Association Warranty Claims during Construction Defect Negotiations with Developers.
In order to determine the deadline for giving warranty notice and the date when the one year statute of limitations on warranty claim commences, one must first determine when the warranty period expires. As a general rule, the warranty period expires on the latest of the following three alternatives:
(i) two years from the first transfer of title to a lot;
(ii) As to common area improvements that are not completed at the time of the first transfer of title to a lot, two years from the completion of the improvement in question and/or its availability for use by lot owners, whichever occurs later; or
(iii) Two years from the date on which lot owners, other than the declarant and its affiliates, take majority control over the HOA board of directors.
MD HOA Act § 11B-110(a)(3). Note that the statute is designed so that the HOA warranty period can never expire sooner than two years after the Declarant turns over control of the association to non-declarant affiliated lot owners.
It is important to know that the HOA implied warranty on the common areas is only one of many possible legal claims available to an HOA when faced with construction defects in the common areas. Once the first lot owner-controlled board of directors is elected and takes control over the HOA from the Declarant, it should seek a free consultation from an attorney with expertise in HOA construction law. Such an attorney can advise the association when applicable warranties and other legal claims expire and how to preserve HOA legal claims while negotiating proper repairs with the Declarant.
NOTE ABOUT AUTHOR:
Nicholas D Cowie is a partner in the law firm of Cowie & Mott, P.A. and is licensed to practice law in Maryland and Washington DC (District of Columbia). Mr. Cowie drafted the legislation that amended Maryland’s HOA implied warranty on the common areas by lengthening the warranty period from one to two years and extending the time when the warranty period commences so that it can never be shorter than two years after the Declarant turns over control of the HOA to the lot owners. See Article, HOA Warranty Reform in Maryland. Cowie & Mott, P.A. is a law firm known for representing homeowners associations and also for resolving common area construction defect disputes with builders and developers.
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