In recent years, real estate developers have significantly limited the construction of new condominium and townhome projects in Minnesota. One reason cited was the perception that homeowner controlled boards of directors of such developments could easily commence costly construction defect claims – of marginal benefit to unit owners as a group – based upon the wishes of only the board or a minority of unit owners. To address the problem, the 2017 legislature amended certain provisions of the Minnesota Common Interest Community Act (Minn. Stats. Sec. 515B.1-101 et.seq.)
The amendments effective August 1, 2017 define “construction defect claims” as including defects in the original design or construction of a common interest community, but excluding claims relating to the subsequent maintenance, repairs, alterations and modifications of the physical elements of the development (Minn. Stat. Sec. 515B.1-103 (11a)), and set forth certain restrictions before an association board can institute construction defect claims against a developer, architect, contractor, construction manager, engineer, declarant, or private inspector. Before such claims may be commenced, the association board must:
Mail or deliver a written notice of the anticipated commencement of such claim to each unit owner which specifies the nature of the alleged construction defect claims, the relief sought, and the manner in which the association proposes to fund the cost of pursuing such claims;
Obtain the approval of unit owners to which a majority of the total votes in the association are allocated, exclusive of votes allocated to units owned by the declarant, affiliate of the declarant, or a foreclosure-mortgagee. (Minn. Stat. Sec. 515B.3-102(d); and
Submit the claim to mediation before a mutually agreeable neutral third party mediator, unless the parties have completed the home warranty dispute resolution process under Section 327A.051 (Minn. Stat. Sec. 515B.4-116(c)).
Further, association boards must prepare and approve a written preventative maintenance plan, maintenance schedule, and maintenance budget for common elements, and must then follow the approved plan. The maintenance plan and schedule must be provided to all unit owners. Boards of common interest communities created before August 1, 2017 have until January 1, 2019 to comply with these requirements. Boards of common interest communities created on or after August 1, 2017 must include an initial maintenance plan, maintenance schedule, and a fully-funded maintenance budget as part of the disclosure statement required under Minn. Stat. Sec. 515B.4-1021. (Minn. Stat. Secs. 515B.3-107 and 515B.4-1021).
Importantly, a development party will not be liable for loss or damage under the implied warrant obligations of Section 515B.113 caused by the failure of the association or unit owner to comply with the preventative maintenance plan, maintenance schedule and maintenance budget, unless such loss or damage is due to the failure to comply with those requirements during the period of declarant control of the board.
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