New Jersey Appellate Court Holds Condo Association’s Cause of Action Accrued After Unit Owners Took Control of Board, Not Upon Substantial Completion of Construction

In the Palisades at Fort Lee Condo. Ass’n v. 100 Old Palisade, Llc, et. al., No. A-4292-13T3, 2016 N.J. Super. Unpub. LEXIS 193, a New Jersey appellate court held that the six-year statute of limitations did not bar a condominium association’s construction defect suit brought more than six years after construction was complete. The court explained that the Palisades at Fort Lee Condominium Association’s cause of action did not accrue until the Association took over control of the condominium board and received the results of an engineering report it commissioned.

Palisades A/V Acquisitions Co., LLC, (AV) contracted with AJD Construction Co, Inc., (AJD) to perform construction work on the subject property in 1998. AJD subcontracted with Forsa Construction LLC (Forsa), Benfatto Construction Co. (Benfatto), and Luxury Floors, Inc., (Luxury). Construction was substantially complete in May 2002. AV then operated the property as rental apartments before selling it to 100 Old Palisade, LLC, (Old Palisade), which converted it to condominium ownership in 2005.

Unit owners gained control of the Association’s board in July 2006 and commissioned an engineering report, which it received in June 2007. In March 2009, the Association sued AJD and Luxury, among others, basing its construction defects allegations on the 2007 engineering report. The Association sued Benfatto in December 2009 and Forsa in April 2011.

After discovery, AJD, Forsa, Benfatto, and Luxury moved for summary judgment based on New Jersey’s six-year statute of limitations, N.J.S.A. 2A:14-1. The trial court granted the motion, explaining that in construction cases, the cause of action accrues at the time of substantial completion of a party’s work, in this case May 1, 2002. The trial court acknowledged the discovery rule but found that the Association took control and learned the results of its engineering report within the limitations period, allowing it enough time to bring suit.

The appellate court reversed. The court reasoned that the Association did not have the ability to bring a lawsuit until the unit owners took control from Old Palisade in 2006. Furthermore, the court held that the Association did not have the facts it needed to bring a claim until it received the 2007 engineering report. Accordingly, the court held that the Association’s cause of action accrued when it received the report in June 2007.

Defendants argued that the Association should not benefit from the discovery rule because it could have brought its claims within six years of substantial completion of construction. The appellate court rejected this argument based on the language of the statute, which provides that claims shall be commenced within six years after the cause of action accrued. Accordingly, the Association had six years from the date of the 2007 report, not from substantial completion, to bring its claims.

Lastly, the court called “unfounded” the trial judge’s concern that the construction defendants could not foresee the formation of a condominium and would be “forever liable” for alleged construction defects. The court cited New Jersey’s ten-year statute of repose, N.J.S.A. 2A:14-1.1(a), which would have cut off the possibility of the defendants’ liability in May 2012, ten years after substantial completion.