Construction Defect Claims: A New Statute of Limitations Analysis
By: Jacqueline A. Muttick, Esq.
On September 14, 2017, the New Jersey Supreme Court in The Palisades at Fort Lee Condominium Association, Inc. v. 100 Old Palisade, LLC, articulated when the accrual date of the six year statute of limitations for construction defect claims accrues. The Court held that a construction defect claim accrues when the building’s owner, or a subsequent owner, knows or should have known though reasonable diligence about the existence of an actionable claim. Under the statute of limitations, the owner then has six years in which to bring a claim. For the purposes of the statute of limitations, a subsequent owner of the property stands in the shoes of a prior owner with regard to notice, so the statute of limitations begins to run upon notice to any prior owner.
This litigation was instituted by Plaintiff The Palisades at Fort Lee Condominium Association (“Condominium Association”), who asserted construction defects at The Palisades. Palisades A/V Acquisitions Co., LLC (“A/V Acquisitions”), owned and developed The Palisades, hiring a general contractor who subsequently retained various subcontractors for the project. The architect certified the project as “substantially complete” on May 1, 2002. A/V Acquisitions then rented units for the following two years before selling the property to 100 Old Palisade, LLC (“Old Palisade”), which converted the rentals to condominiums. Old Palisade’s expert noted some defects at the property but no structural concerns, and a report reflecting the same was attached to the public offering statement and master deed. Old Palisade relinquished control to the Condominium Association in July 2006. The Condominium Association then hired its own expert who found additional construction defects and issued a report in June 2007. The Plaintiff subsequently filed suit against the general contractor and other entities in March 2009 and continued to add defendants to the lawsuit through the next year.
Since substantial completion of the building occurred in May 2002, and the trial court determined that the six-year statute of limitations began running at that time, it followed that suit should have been filed by May 2008. Since the Condominium Association did not institute proceedings until after May 2008, the trial court dismissed those claims. Upon appeal, the Appellate Division reversed utilizing the “discovery rule”, finding that the construction defect claims did not accrue until the Condominium Association had full unit-owner control of the building and became aware of the claims through its expert. The New Jersey Supreme Court has now held that neither the standard utilized by the trial court nor the one employed by the Appellate Division were correct.
The statute of limitations for tort-based property claims under N.J.S.A. 2A:14-1 requires instituting claims within six years of the date of accrual. Accrual of a claim begins when a reasonable person with ordinary diligence would be alerted that there was an injury due to another’s fault. Id. (slip op. at 19) (quoting Caravaggio v. D’Agostini, 166 N.J. 237, 246 (2001)). Accrual does not begin to run against an unknown third party until the plaintiff has evidence of that third party’s involvement, which may result in different accrual times against different defendants. Id. (slip op. at 23-24) (quoting Caravaggio, 166 N.J. at 248-250). Also applicable in determining accrual is the discovery rule, which holds that the time limit to bring a claim under an applicable statute of limitations does not begin to accrue until the plaintiff knew or should have known with reasonable diligence that an actionable claim existed against a defendant. Utilizing the statute of limitations and the discovery rule, the Court here determined that “[a] construction-defect lawsuit must be filed within six years from the time that the building’s original or subsequent owners first knew or, through the exercise of reasonable diligence, should have known of the basis for a cause of action.” Id. (slip op. at 6-7) (emphasis in original).
Furthermore, “[a] subsequent owner stands in no better position than a prior owner in calculating the limitations period. If a prior owner knew or reasonably should have known of a basis for a construction-defect action, the limitations period began at that point.” Id. (slip op. at 7). Since a subsequent owner to a property takes title subject to the original owner’s rights, if the original owner knew or should have known of a construction defect claim then the subsequent owner will stand in the original owner’s shoes with regard to the statute of limitations. Id. (slip op. at 28). In other words, “[a] cause of action, for purposes of N.J.S.A. 2A:14-1, accrues when someone in the chain of ownership first knows or reasonably should know of an actionable claim against an identifiable party.” Id. (slip op. at 29) (citing O’Keeffe v. Snyder, 83 N.J. 478, 502 (1980)).
This accrual analysis applies even in situations involving condominium associations. In this matter, the first owner, A/V Acquisitions, was the developer and the Condominium Association was a subsequent buyer. As such, if a prior owner knew or should have known of a construction defect claim, then the statute of limitations began to accrue before the Condominium Association took ownership of the property. Since there is a question as to when the statute of limitations began to accrue, the Court remanded the litigation to the trial court for a Lopez hearing on this issue. Id. (slip op. at 7) (citing Lopez v. Swyer, 62 N.J. 267 (1973)).
The Supreme Court also stressed that the 10-year statute of repose in construction defect cases remains in effect. The statute of repose, N.J.S.A. 2A:14-1.1(a), requires all construction defect claims against construction professionals be brought within ten years of the date of substantial completion. Id. (slip op. at 32-33). The six-year statute of limitations, in conjunction with the discovery rule, determines when a claim must be brought and the statute of repose sets an outside limit of ten years for those claims. Therefore, as noted by the Court, if a claim accrued eight years after substantial completion, the plaintiff in such a matter would have two years to bring a claim before having that claim barred by the statute of repose. Id. (slip op. at 33).
The takeaway from this ruling is that construction defect claims do not accrue upon substantial completion but instead accrue when the building’s owner (or predecessor owner) knows or should have known though reasonable diligence about the existence of an actionable claim. The owner then has six years in which to bring a claim. This accrual date does not re-start when a new owner takes possession of the property but is instead imputed to each subsequent owner. The accrual date also may vary as to different defendants, depending on when the owner was or should have been aware of the claim. The ten-year statute of repose remains in effect and bars claims filed ten years after substantial completion, however the Court did not directly address in this opinion what claims the statute of repose specifically bars.
By: Jacqueline A. Muttick, Esq.
Associate, New Jersey
Date: September 19, 2017
On September 14, 2017, the New Jersey Supreme Court in The Palisades at Fort Lee Condominium Association, Inc. v. 100 Old Palisade, LLC, articulated when the accrual date of the six year statute of limitations for construction defect claims accrues. The Court held that a construction defect claim accrues when the building’s owner, or a subsequent owner, knows or should have known though reasonable diligence about the existence of an actionable claim. Under the statute of limitations, the owner then has six years in which to bring a claim. For the purposes of the statute of limitations, a subsequent owner of the property stands in the shoes of a prior owner with regard to notice, so the statute of limitations begins to run upon notice to any prior owner.
This litigation was instituted by Plaintiff The Palisades at Fort Lee Condominium Association (“Condominium Association”), who asserted construction defects at The Palisades. Palisades A/V Acquisitions Co., LLC (“A/V Acquisitions”), owned and developed The Palisades, hiring a general contractor who subsequently retained various subcontractors for the project. The architect certified the project as “substantially complete” on May 1, 2002. A/V Acquisitions then rented units for the following two years before selling the property to 100 Old Palisade, LLC (“Old Palisade”), which converted the rentals to condominiums. Old Palisade’s expert noted some defects at the property but no structural concerns, and a report reflecting the same was attached to the public offering statement and master deed. Old Palisade relinquished control to the Condominium Association in July 2006. The Condominium Association then hired its own expert who found additional construction defects and issued a report in June 2007. The Plaintiff subsequently filed suit against the general contractor and other entities in March 2009 and continued to add defendants to the lawsuit through the next year.
Since substantial completion of the building occurred in May 2002, and the trial court determined that the six-year statute of limitations began running at that time, it followed that suit should have been filed by May 2008. Since the Condominium Association did not institute proceedings until after May 2008, the trial court dismissed those claims. Upon appeal, the Appellate Division reversed utilizing the “discovery rule”, finding that the construction defect claims did not accrue until the Condominium Association had full unit-owner control of the building and became aware of the claims through its expert. The New Jersey Supreme Court has now held that neither the standard utilized by the trial court nor the one employed by the Appellate Division were correct.
The statute of limitations for tort-based property claims under N.J.S.A. 2A:14-1 requires instituting claims within six years of the date of accrual. Accrual of a claim begins when a reasonable person with ordinary diligence would be alerted that there was an injury due to another’s fault. Id. (slip op. at 19) (quoting Caravaggio v. D’Agostini, 166 N.J. 237, 246 (2001)). Accrual does not begin to run against an unknown third party until the plaintiff has evidence of that third party’s involvement, which may result in different accrual times against different defendants. Id. (slip op. at 23-24) (quoting Caravaggio, 166 N.J. at 248-250). Also applicable in determining accrual is the discovery rule, which holds that the time limit to bring a claim under an applicable statute of limitations does not begin to accrue until the plaintiff knew or should have known with reasonable diligence that an actionable claim existed against a defendant. Utilizing the statute of limitations and the discovery rule, the Court here determined that “[a] construction-defect lawsuit must be filed within six years from the time that the building’s original or subsequent owners first knew or, through the exercise of reasonable diligence, should have known of the basis for a cause of action.” Id. (slip op. at 6-7) (emphasis in original).
Furthermore, “[a] subsequent owner stands in no better position than a prior owner in calculating the limitations period. If a prior owner knew or reasonably should have known of a basis for a construction-defect action, the limitations period began at that point.” Id. (slip op. at 7). Since a subsequent owner to a property takes title subject to the original owner’s rights, if the original owner knew or should have known of a construction defect claim then the subsequent owner will stand in the original owner’s shoes with regard to the statute of limitations. Id. (slip op. at 28). In other words, “[a] cause of action, for purposes of N.J.S.A. 2A:14-1, accrues when someone in the chain of ownership first knows or reasonably should know of an actionable claim against an identifiable party.” Id. (slip op. at 29) (citing O’Keeffe v. Snyder, 83 N.J. 478, 502 (1980)).
This accrual analysis applies even in situations involving condominium associations. In this matter, the first owner, A/V Acquisitions, was the developer and the Condominium Association was a subsequent buyer. As such, if a prior owner knew or should have known of a construction defect claim, then the statute of limitations began to accrue before the Condominium Association took ownership of the property. Since there is a question as to when the statute of limitations began to accrue, the Court remanded the litigation to the trial court for a Lopez hearing on this issue. Id. (slip op. at 7) (citing Lopez v. Swyer, 62 N.J. 267 (1973)).
The Supreme Court also stressed that the 10-year statute of repose in construction defect cases remains in effect. The statute of repose, N.J.S.A. 2A:14-1.1(a), requires all construction defect claims against construction professionals be brought within ten years of the date of substantial completion. Id. (slip op. at 32-33). The six-year statute of limitations, in conjunction with the discovery rule, determines when a claim must be brought and the statute of repose sets an outside limit of ten years for those claims. Therefore, as noted by the Court, if a claim accrued eight years after substantial completion, the plaintiff in such a matter would have two years to bring a claim before having that claim barred by the statute of repose. Id. (slip op. at 33).
There remains the unresolved issue raised by defendants regarding the claims barred by the statute of repose. The defendants noted that the statute of repose appears to bar claims involving “defective and unsafe” conditions arising from construction. Defendants were concerned that the statute of repose could be interpreted as barring those conditions that are both defective and unsafe, potentially leaving viable claims that only regard defects alone. A reading of the statute in this manner could result in a situation in which a claimant is able to bring a construction defect claim outside of the ten-year statute of repose. Utilizing the example provided by the Court, the instance could arise if a claim accrues eight years after substantial completion but does not impact safety and is therefore timely filed fourteen years after substantial completion. The Court declined to opine on this issue and noted that the wording of the statue could be addressed by the Legislature.
The takeaway from this ruling is that construction defect claims do not accrue upon substantial completion but instead accrue when the building’s owner (or predecessor owner) knows or should have known though reasonable diligence about the existence of an actionable claim. The owner then has six years in which to bring a claim. This accrual date does not re-start when a new owner takes possession of the property but is instead imputed to each subsequent owner. The accrual date also may vary as to different defendants, depending on when the owner was or should have been aware of the claim. The ten-year statute of repose remains in effect and bars claims filed ten years after substantial completion, however the Court did not directly address in this opinion what claims the statute of repose specifically bars.