Rembaum's Association Roundup
By Jeff Rembaum, Esq.

This column provides association boards, managers, and members useful information and tools necessary to exercise their reasonable business judgment to insure the smooth operation of their association. Always consult with an attorney before taking action as this column is NOT intended as specific legal advice.

This article originally appeared in the Palm Beach County Condo News in the November 4, 2009 edition and is re-printed with permission. It can be viewed at www.condonewsonline.com

If you live in a recently constructed condominium building you will absolutely want to read this article. It explains how, under the right circumstance, to invoke the contractor’s “surety bond” to pay for repairing your condominium’s construction defects. Several days ago, on October 30, 2009, the First District Court of Appeal issued its ground breaking opinion in The Marseilles Condominium Owners Association, Inc., v. Travelers Casualty and Surety Company of America, 34 Fla. L. Weekly D2241b (Fla. 1st DCA 2009).

The Marseilles case could be of valuable assistance to associations who are stuck with partial completion of their condominium buildings or repairing construction defects left behind by troubled developers, or both. Say your developer was a single purpose entity, who when the going got tough, not only got going, but dissolved its entity leaving the Association in a lurch. Piercing the corporate veil from the single purpose entity to the affiliate parent company is an up hill and extremely costly and risky approach. Now, under the right circumstances, there may be another remedy for your association: invoking the contractor’s surety bond as a successor to the developer. There is even a statutory prevailing party attorney fee provision.

By way of background, Wikipedia defines a surety bond as an instrument issued by an entity on behalf of a second party, guaranteeing that the second party will fulfill an obligation or series of obligations to a third party. In the event that the obligations are not met, the third party will recover its losses via the bond. In plain English and as applied to condominium construction, in exchange for a fee paid to the insurance company (the surety), the insurance company obligates itself to the developer to fund the completion and construction of the condominium and to repair defects in the event the contractor fails to do so.

In Marseilles, the Association filed a lawsuit against the Developer and the surety insurance company, Travelers. The complaint alleged that the condominium project suffered both incomplete and defective construction work and that the Association notified the Developer continuously throughout 2006 about construction defects in the condominium project which had not been remedied or repaired. The Association alleged a claim for breach of various warranties against the Developer and a claim under the performance bonds against Travelers.

The district court explained that the bonds, which guaranteed the performance of the general contractor expressly prohibited an action by any “entity other than the Owner or its heirs, executors, administrators or successors.” The named “Owner” under the bonds was the developer of the condominium project, a single purpose entity. The court held that, “under the unique facts and circumstances of this case and the language of the contractual documents involved, the Association is a “successor” to the Developer under the bonds and, therefore, may bring an action on the bonds to cure the alleged defective and incomplete work of the contractor.”

The court limited its decision in Marseilles to a unique set of facts. Therefore, to determine whether the holding of this case will be of benefit to your partially built condominium or your construction defect ridden condominium, a detailed analysis of the facts not limited to a review of the construction contracts and performance bond will absolutely be necessary. In Marseilles, the court noted that the surety bond included specific language upon which its decision was based, including:

1) The warranties are for the benefit of the Owner, and all unit owners and any owners' association. The Construction Contract is incorporated herein by reference [into the terms of the surety bond].

2) The Surety is obligated without duplication for…the responsibilities of the Contractor for correction of defective work and completion of the Construction Contract.

3) The contractor warrants “that the Work will be free from defects not inherent in the quality required or permitted, and that the Work will conform with the requirements of Contract Documents.”

Remember, that generally, and not applicable to any particular situation, to assert a Section 718.203 condominium warranty claim, if defects are patent (readily observable) the defects must have occurred within three years from the date of the building’s completion (usually evidenced by a certificate of occupancy) and the association’s lawsuit must be filed not greater than four years from turnover. If the defects are latent (hidden) and the association had no reason to know of the defects, then the defect itself must still have occurred within the first three years from the date of the building’s completion, and the association must file its lawsuit not later than four years from discovery of the defect. Lawsuits not filed within ten years from completion of the improvements will be time-barred. Finally, if the association files a lawsuit arguing that it is the successor to the condominium developer and as such is invoking the surety bond, the association will argue that the applicable statute of limitation to file its lawsuit against the surety is five years. No doubt, the surety will argue otherwise. Obviously, this is a very complicated subject matter.

Marseilles will surely have far ranging implications that could be of great benefit. How far its broad ranging implications will go is left to future court interpretation. If your board would like to discuss the significance that this case may have on your recently built condominium building or other important issues, please feel free to contact me to schedule a no fee consultation.

Mr. Rembaum is a partner with the law firm of Siegfried Rivera Lerner De La Torre & Sobel, P.A., in downtown West Palm Beach, Florida whose practice solely consists of representation of condominium, homeowner and commercial associations and exclusive country club communities. If there are topics you would like to see addressed in future articles, please email them to Jeff Rembaum at jrembaum@siegfriedlaw.com. He can be reached at 561-868-6771.

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