Appeals Court Eases the Restriction on Condominium Associations to Bring Construction Defect Claims Against Contractors and Developers

In a significant opinion, the Massachusetts Appeals Court has made it easier for condominium associations to recover for common area construction defects. In Wyman v. Ayer Properties, LLC, the Appeals Court held that the economic loss doctrine did not preclude a condo association’s negligent construction claim.

In 2002, Ayer Properties LLC (“Ayer”) purchased a vacant mill building located on Market Street in Lowell. Ayer began conversion of the building to residential and commercial condominium units in 2003 and continued the work for a period of almost three years. Ayer as the developer was the original declarant and sole trustee of the condominium trust. In August, 2004, as construction continued, Ayer ceded control as the sole trustee to trustees comprised of unit purchasers. Ayer retained ownership of the five commercial units on the first floor of the building.

Shortly after the transfer of control, the trustees became concerned about construction of the building by Ayer. The trustees hired a professional engineer to investigate and to prepare a report. The engineer noted three categories of common area damage: (1) twenty-two window frames were suffering excessive weather damage and leakage extending beyond the common area and into the window bodies, sashes, and panes inside privately owned individual units that required repair or replacement; (2) the exterior brick masonry facade was deteriorating; and (3) the roof was absorbing water and permitting leakage and consequent damage to insulation under the roof and to four residential units.

The trustees filed a civil action against Ayer in December, 2005. The case went to trial before a judge in Superior Court. At the conclusion of the trial, the judge ruled (1) that Massachusetts did not recognize the claim of a fiduciary duty owed by a condominium developer to the eventual unit owners’ trust association; (2) that an implied warranty of habitability did not apply to the conversion and renovation of an existing structure; and (3) that the trustees had failed to show that any G. L. c. 93A misconduct had caused the property damage at issue. With these findings, the judge effectively reduced the case to the trustees’ claim of negligence and Ayer’s defense of the economic loss rule.

The judge awarded the trustees $140,000 in damages but eliminated over $80,000 of repair costs reasoning that the defense of the economic loss doctrine barred recovery. The trustees appealed.

The economic loss doctrine bars recovery of purely economic loss in a tort or strict liability action in the absence of personal injury or property damage. This is a harsh rule to apply to a condominium setting given the divide between private and common property ownership. Applying this rule in a condominium setting meant that a condominium association could not recoup damages for repairs to construction defects in the common area property (e.g. a roof) if the physical damage (e.g. from leaking water) was actually suffered in the privately owned individual unit.

On appeal, the Appeals Court recognized the harshness of the economic loss doctrine as applied to a condominium setting and the Court held:

A condominium unit owners’ association may recover damages in tort from a responsible builder-vendor for negligent design or construction of common area property in circumstances in which damages are reasonably determinable, in which the association would otherwise lack a remedy, and in which the association acts within the time allowed by the applicable statute of limitations or statute of repose.

In reaching this conclusion, the Appeals Court reversed the dismissal of the trustees’ claim and ordered the entry judgment in favor of trustees in the amount of $64,000 plus five years of interest.

Now, it is easier for condominium associations to recover all damages against contractors and developers for construction defects.

Contact Attorney Mucci, an experienced real estate dispute attorney, if you are condominium owner, trustee or condo association with questions about a construction defect claim.