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Definition of “success” is relative for condo claims

real-estate-contractCondominium work is coming back strong after being scarce for several years. Many millennials and other first time buyers can and want to invest in condo units in urban areas. And renting is less attractive to a maturing class of residential owners as they downsize from single-family homes. Condo projects can be tempting work for the design and construction industry, but they are high-risk. Design professionals who work on condo projects must be prepared for claims, many of which can be expensive and time-consuming.

Condo claims account for almost a quarter of all money paid on behalf of architects in the Schinnerer program (23.2% from 2006 – 2015), and although the amount is less for engineers (8% for the same time period), it is still a significant amount.

Where do condo claims come from?

Who is filing claims against prime design professionals on condo projects? And how high are the indemnity payments on those claims in the Schinnerer program? Glad you asked.

guidelines-condo-claims-chart

Do you have an example of a condo claim?

Again, glad you asked. Yes we do.

Below is an example of a condo claim that we would deem “successful,” even though it resulted in a settlement on behalf of the architect of $666,667. This claim is also representative of the increase in claims involving ADA and FHA issues.

This claim involved a 336-unit project in a 24-story building. Although there were no complaints from any residents, a local legal aid group filed a complaint with Housing and Urban Development (HUD) alleging Americans with Disabilities Act (ADA) and Fair Housing Act (FHA) violations. The legal standing of this group to bring the claim was the subject of much debate that would have added additional time and expense to the resolution of the claim.

The allegations involved the requirement that the threshold of doors leading to balconies not exceed 1 inch. It was the architect’s position that the HUD Accessibility Guidelines provide an exception to this requirement when the balconies are made of an impervious surface. The exception allows for protection from water intrusion. Unfortunately, this position may have been difficult to defend because HUD’s Design Manual included an illustration that contradicted the architect’s design.

Although there were viable arguments in defense of the architect’s position, there was enough uncertainty to motivate the parties to work toward a compromise resolution. Under case law, every party is liable when they participate in the design or construction of a feature that violates FHA accessibility requirements. Thus, the developer, contractor, and architect all had exposure to claims that could have eventually involved 11 different projects with a potential exposure of $22 million. It was also estimated that litigating this dispute could have taken up to two years at the trial level, with the potential for appeals.

The ultimate settlement included a “balcony ramp” and an agreement to restrict future litigation of this issue. The $2 million settlement, shared equally between the developer, contractor, and architect, allowed the architect to maintain its business relationship with a valued client.

For more about claims from condo and other residential projects, please see our residential claims study.