Developers and operators must be proactive to remedy defects.
By Megan A. Picataggio, Ball Janik LLP
A high volume of construction and development can often result in the commercial real estate industry cutting corners, leading to an increase in construction defect claims and litigation. Multifamily construction projects, including seniors housing, are no exception.
In order to deliver a high volume of projects quickly and maximize profits, general contractors modify construction methods to meet demand. This often results in poorly constructed projects that contain a litany of construction defects. It is critical for developers, owners, and operators to be proactive in identifying and responding to construction defects. Construction defect issues can significantly affect revenue and raise tenant health and safety concerns.
Warning signs and investigation
- During Construction
From an owner/developer perspective, it is essential to mitigate the risk of construction defects during the construction phase. Developers must not blindly trust subcontractors, superintendents or design professionals in the construction of the project. Rather, the primary sources of risk should be identified early in a project — ideally before breaking ground. Parties must ensure that there is no cutting corners, including improper substitutions of materials or practices. Developers of seniors housing projects should be familiar with all codes, standards and best practices where they perform work.
Additionally, the skills of design professionals must be scrutinized and thoroughly vetted. Potential risks and liabilities should be evaluated and transferred where appropriate. This begins with the preparation of the contract documents and ends with thoughtful preservation of project records. Developers should properly document all communications (including all verbal agreements) and memorialize all in writing.
- After Construction
Signs of construction defects can manifest as early as project completion, though it may take time for visible damage to occur. By taking time to maintain and investigate their communities, operators can anticipate and prepare for resulting litigation, as most construction lawsuits relate to deficiencies in the design, construction work or manufactured materials.
Signs of construction defects can manifest in the form of water intrusion, such as roof, window or door leaks. Even a small leak may be a sign of a much larger issue. Leaks throughout the project may be a sign of systemic construction defects and could develop into significant and costly repairs. Defects can also manifest as cracking or staining of exterior walls. Simple maintenance efforts such as caulking or painting will only seal in the water that has entered the building and cover up larger issues — leading to more costly repairs.
The horror stories of defective construction in the seniors housing sector are widespread. One complex in Michigan was even condemned when inspectors found foundation cracks large enough to put a hand through, forcing operators to relocate all of the tenants to hotels: an extremely costly measure with significant profits lost.
Owners and operators should mitigate risk by hiring qualified professionals, such as engineers, to evaluate the conditions of the community. Risk assessment for construction defect issues should be a high priority and the property should be regularly assessed to ensure that construction defects are not causing damage. Owners and operators should document all conditions and preserve all communications (including photographs) with tenants that discuss the conditions of the project.
Legal action
Owners should consult with a specialized and qualified law firm if they suspect the existence of construction defects. A qualified construction defect firm can help you assess your case and provide guidance on your options. An experienced construction defect lawyer will be able to help you navigate legal hurdles, including timeliness issues, contractual limitations on claims, pre-suit notice requirements, and mediation and arbitration clauses.
Time is of the essence. Owners should be sure to discuss the applicable statutes of limitation and repose with a qualified attorney to ensure an action is brought in a timely manner. Timing is governed by the applicable statutes of limitations and repose. These vary significantly between jurisdictions and can be a complete bar to recovery if ignored. For example, in Florida, the window to file lawsuits for construction defects was recently shortened.
It is incumbent upon the owners and operators of seniors housing facilities to stay abreast of any jurisdictional changes that might affect them. This may require changes to owner/operator documents as well. Again, this process should be undertaken in consultation with an attorney knowledgeable of current laws.
Construction defects in seniors housing projects present a threat to owners and operators. The risk of lost profits and health and safety concerns must be adequately addressed. Through effective risk management during and after construction, owners and operators can effectively prepare for exposure to construction defects and any subsequent litigation.
Megan A. Picataggio Esq. is a partner at Ball Janik LLP and works in the firm’s construction defect practice.