Turning Back the Clock: The New Timeline for Warranty Claims in Multi-Family Construction
The Minnesota Supreme Court recently issued a decision that altered the rules on when the clock starts on a condo association's right to bring a claim under Minnesota's new home statutory warranties. Those warranties will now begin to run on the date the first unit in a building is sold, rather than being considered on a unit-by-unit basis.
In Village Lofts at St. Anthony Falls Association v. Housing Partners III-Lofts, LLC, the Minnesota Supreme Court considered whether statutory warranty claims by a condo association were barred by Minnesota's 10-year statute of repose on construction defect claims or by the end of the 10-year warranty against "major construction defects" allowed by Minn. Stat. §327A.02. The case concerned two multi-unit condominium buildings built in Minneapolis where units were first sold in 2002 and 2004, respectively. In 2014, a defect in the HVAC system was discovered in the older building, and in 2015 a similar defect was discovered in its newer counterpart. The condo association for the combined buildings sued the developer, contractor and various trades, alleging violations of Minnesota's 10-year statutory warranty against "major construction defects" in new home construction.
After prior rulings at the district court and court of appeals, the Minnesota Supreme Court considered two questions: whether the condo complex was one combined project or two separate buildings for warranty purposes, and whether each building's warranty period should be considered on a unit-by-unit basis (as the court of appeals had determined) or whether one date should apply for the entirety of each building. The court found that the complex was made of two separate buildings, but made a much more important ruling on the warranty issue.
The court held that for multi-family housing developments, the warranty period under § 327A (for the one-, two- and 10-year warranties under that statute) begins to run when the first condominium unit owner occupies or takes title to his unit. Because the first warranty deed for a unit in each building was issued before 2005, the association's breach of warranty claims were time-barred because they were not raised until 2015.
The implications of this decision are important. For developers and contractors, the liability window for warranty claims now begins on a single date that may be considerably earlier than purchasers may expect. Even if some units in a development are sold several years after the initial "warranty date", all of the units in a building will be subject to the same 10-year (or one- and two-year) warranty period from the date of first sale. The court notably mentioned that this was not an improper result for associations and individual unit owners, as they are separately protected by warranties included in Minnesota's Common Interest Ownership Act, which are separately calculated from the warranties under Minn. Stat. § 327A.
The key point to remember is that 10-year warranty will now begin to run for all condo owners in a given building on the first date that a unit is sold or an owner takes possession (if units are sold prior to building completion). If you are involved in multi-family construction, it would be wise to calendar this date to help keep track of the timeline for when warranty claims can be brought, and when a statutory defense against such warranties can be raised.