Improving the Construction and Litigation Resolution Process: the 2005 Amendments to the Washington Condominium Act Are a Win-win for Homeowners and Developers
| Jurisdiction | Washington,United States |
| Citation | Vol. 29 No. 03 |
| Publication year | 2006 |
I. Introduction
On August 1, 2005, significant amendments to the Washington Condominium Act (WCA) became effective.(fn1) These amendments were intended to substantially reduce water infiltration in multiunit residential buildings and to simplify the condominium construction dispute resolution process. The heart of the amendments is the implementation of alternative dispute resolution (ADR) procedures, as well as fee-shifting provisions which require the non-prevailing party to pay the attorney fees and costs of the prevailing party.
A decade of lawsuits brought under the WCA by condominium owners associations against builders and developers, and in turn by builders against subcontractors, alleging defects in the ability of the building envelopes to resist water from entering into the structures ultimately led to appointment of a Legislative Study Committee on Water Penetration of Condominiums (Committee) in 2004.(fn2)
The Committee was charged with presenting recommendations to address and hopefully solve water intrusion problems that resulted in a proliferation of lawsuits.(fn3) The litigation led to a crisis in the construction industry, forcing many developers, builders and contractors out of business because of lack of affordable insurance.(fn4) Indeed, many insurers left the Washington construction market.(fn5)
To address this crisis and attempt to reverse this trend, the 2005 amendments provide a dual-track approach by (1) improving the quality of multiunit residential construction and (2) reducing litigation costs associated with complex, multi-party lawsuits involving condominiums by implementing innovative ADR processes.
Specifically, these amendments are designed to increase the confidence of homeowners, developers, and insurers by:
The significance of these amendments can be seen when compared to the previous statute.(fn7) Thus, Part II of this Article presents background information on Washington condominium law and earlier attempts to address those problems. Part III presents several of the key issues that faced the Committee, and discusses how the final 2005 amendments addressed those issues. Part IV discusses several practical problems and concerns that have arisen in the course of delivering nearly a dozen presentations about the amendments to various groups such as lawyers, insurers, architects, engineers and forensic experts over the eight months since the amendments became effective. Part V concludes that the amendments are a win-win for homeowners and developers.
II. Background on Washington Condominium Law and Quality of Construction Issues
The earliest statute governing condominiums in Washington State was the Horizontal Property Regimes Act.(fn8) This Act is still effective today for those condominiums that were declared before 1990.(fn9)
The model Uniform Condominium Act was issued in 1980 to further standardize condominium construction and governance law among the states.(fn10) Washington State adopted most provisions of the Uniform Condominium Act into the Washington Condominium Act of 1989, effective for all condominiums created after July 1, 1990.(fn11) The WCA addresses all aspects of condominium creation, construction, conversion, sale, financing, management, and termination of condominiums.(fn12) A principal purpose of the WCA is to provide protection to condominium purchasers through creation of statutory warranties of quality construction.(fn13) Generally speaking, the WCA is a consumer/homeowner friendly statute.
The WCA "implied" statutory warranties were initially adopted from the Uniform Condominium Act, though they have subsequently been altered from their initial version.(fn14) The WCA protects "consumers from construction defects through its express and implied statutory warranty provisions."(fn15) The implied statutory warranties provide that units will be in at least as good condition at the time of conveyance as at the time of contracting; that units and common elements will be suitable for use of real estate of that type (warranty of suitability); and that the project will be free from defective materials and constructed in accordance with sound engineering and construction standards, in a workmanlike manner, and in compliance with applicable laws (warranty of quality).(fn16) Although the implied statutory warranty of quality displaced the common law doctrine of implied warranty of habitability as to condominiums, it is actually broader than the warranty of suitability, in that it imposes liability for defects that might not be so serious as to render the condominium unsuitable for ordinary purposes of similar types of real estate.(fn17)
The statutory warranty of quality has been interpreted by Washington courts to virtually require strict compliance with all portions of applicable building codes.(fn18) The court's rationale for imposing this strict standard, as announced in
The WCA also provides an attorney fee provision that awards reasonable attorney's fees to the prevailing party in a lawsuit which alleges the condominium declarant (or other party subject to the WCA) failed to comply with the WCA, the condominium declaration, or the condominium association bylaws.(fn20) Typically, the attorney fee provision became a large incentive for homeowner association (HOA) contingent fee lawyers to pursue HOA litigation, and in many cases the contingent fee became a larger factor in settlement discussions.(fn21) Whether intentionally or not, from the builders' perspective a statute requiring perfection had been created, but without standards defining "perfection." Builders faced litigation in which HOA experts contended the project was not built in accordance with sound construction engineering standards, whatever those might be, and faced the risk of paying substantial contingent fees to the HOA lawyers.
In a two-step process beginning in 1990, the Washington State Legislature passed a land use law, the Growth Management Act, with the express purpose of encouraging growth and reaching desired densities in urban areas by making available affordable housing for all residents of the state and by promoting a variety of housing types.(fn22) In the mid-to-late 1990s, and continuing to the present time, several hundred thousand condominiums have been created, built, and sold in Washington. They range from multi-million dollar units in forty-story towers in downtown Seattle to twenty-unit wood-frame construction in the mid-hundred-thousand-dollar range. Consistent with the Growth Management Act, urban density goals were fostered and, with historically low mortgage interest rates, condominiums became for many an opportunity for home ownership.
Regardless of developer, location, type of construction, or price, these condominiums all had one thing in common: they had to comply with all requirements of the WCA, including the unnecessarily vague standards of the implied statutory warranty provisions. Not surprisingly, given a consumer-oriented statute, vague construction standards in the statutory warranty statutes, and an attorney-fee provision, there was a groundswell of litigation.
In the early 2000s, with construction defect litigation perhaps at an all-time high, the stage was set for a showdown between the building industry and the condominium owners and their allies. The result was essentially a three-year educational process for the Washington Legislature to become fully convinced of the need to address the crisis in the condominium industry.
In 2004, the Washington legislature amended the WCA to ensure availability of a broad range of affordable homeownership opportunities and to assist Washington's cities and counties in their efforts to achieve the Growth Management Act's urban density mandates.(fn23)
By the late 1990s, Washington's condominium industry had run into serious problems, with condominium...
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