The
North Carolina Supreme Court does not often render decisions that directly affect HOAs,
but on December 19, 2014, the Court issued an opinion in Christie v.
Hartley Construction that may impact your HOA, and will certainly impact many consumers and construction contractors.
In 2004, the Christies, the plaintiffs in the case, were building their dream home and the
builder suggested they purchase a stucco-like material called “SuperFlex” for the exterior. If properly
maintained, the SuperFlex was promised to last decades, even in heavy sun,
rain, salty air, and freezing conditions. The SuperFlex manufacturer even provided a lengthy written 20-year warranty for
its product.
In spite of the
promised durability of SuperFlex, a mere seven years later the SuperFlex
began to flex, and then to crack and blister, causing moisture to penetrate the home. But no worries, the very specific 20-year warranty would protect
the Christies, right? They sued in 2011 to enforce the warranty.
Not so, said the
trial court. You see, North Carolina has
a longstanding “statute of repose” for improvements to real
estate (which includes most types of construction work on real estate). A statute of repose is like an outside statute of limitations. Whereas when a statute of limitations begins to run can depend on when the problem is discovered, a statute of repose says that a lawsuit cannot in any circumstances be filed later than a particular time period. In this case, the statute of repose for construction defects is and always has been six years. (The ambitious or bored among you can can read it here - look at subsection (a)(5)(a).) This six-year statute of repose is intended to prevent builders and
contractors from facing the possibility of an open-ended period of potential
lawsuits.
No matter what, the trial
court said, the statute of repose prevents a homeowner from suing to recover
damages for improvements installed more than six years ago. The 20-year warranty was worthless after six
years. On appeal, the North Carolina Court of Appeals agreed. According to the court, this was obviously an improvement to real property and the statute of repose is clearly six years, so the
homeowners had to abide by the statute of repose and the warranty was unenforceable, even though the written warranty was very clearly for 20 years. This had been the rule for many years and was not a difficult call for the court.
But the N.C. Supreme
Court thankfully reversed the lower courts. The
Supreme Court held that a very important general rule of law is that parties can freely contract,
and if the SuperFlex manufacturer wanted to provide a warranty beyond the
statute of repose’s 6-year period, then it was free to do so.
If a seller of
improvements to real estate has such confidence in its product that it provides a lengthy written warranty, there is no reason for it later to be able to shield itself behind
the statute of repose. In unusually
harsh language, the Court stated that allowing a seller to disavow its warranty would result in “a
sham, useful only to beguile the unsuspecting”.
Accordingly, the 20-year warranty stands and a number of years of legal precedent were overruled, and rightly so in our view.
Although this
decision may not impact too many HOAs or condominiums since most construction lives up to its promises, there could be situations where it
comes into play. We do sometimes see
situations where an HOA purchases an improvement to its real estate, (e.g. to
improve its clubhouse), only to find out down the road that the construction fails. Imagine how miffed the board and the members
are when they find out that the ironclad warranty they purchased along with the
construction is as worthless as the shoddy construction. Now these HOAs may have a remedy where before
they had none.
Please give me a call or drop
me an email if our
HOA law team can assist your HOA or management company with the compliance
process, or if we can be of assistance in any other way. We appreciate your
reading our HOA law blog and encourage you to share it with others who may be
interested. Thank you!
