The California Court of Appeals, Second Appellate District recently published Landale-Cameron Court, Inc. v. Ahonen, 155 Cal.App.4th 1401 (2007), which held that where a condominium homeowner's association ("HOA") and a developer enter into an agreement to toll the three-year statute of limitations for negligent construction claims, the agreement will be binding on the developer's contractors and subcontractors who built the project, even if they did not sign the tolling agreement.
The statute governing tolling agreements and when an HOA may file a complaint alleging construction defects was substantially amended in 2001. Under the amended law, before a lawsuit is commenced, the HOA has to serve the builder, developer or general contractor a "Notice of Commencement of Legal Proceedings." This notice automatically tolls (stops) all statutes of limitations for a period not to exceed 180 days "against all potentially responsible parties, regardless of whether they are named in the notice, including claims for indemnity applicable to the claim." During this 180 day period, the party receiving the notice from the HOA may contact those who designed or built the improvements at issue, in order schedule an opportunity to survey and make repairs at the property. Only if the repairs cannot be effectuated or a cash settlement cannot be reached as to the defects may the HOA then file suit. If repairs are on-going and the participating parties agree, however, the parties may enter into a tolling agreement to extend the period for repairs for an additional 180 days. The key to the amended statute is that all parties have a voice in choosing to toll the statute of limitations the additional 180 days.
In Landale-Cameron Court, a construction-defect action case arose from the discovery of leaks in the roof and other areas of an eight-unit condominium complex in Toluca Lake, following the particularly heavy El Niño rainy season of 1997. After surveying the complex and making some temporary repairs, the HOA and the builder-developers, Arnold and Helen Kaufman ("Kaufman"), entered into a tolling agreement, while additional efforts were being made to resolve and repair the defective conditions at the complex. The HOA and Kaufman eventually entered into a subsequent agreement to extend the tolling provision. Neither party consulted with the other contractors and subcontractors involved in building the condominiums, before executing the tolling agreement.
When litigation commenced and this matter reached the Appellate level, the Court had to rely upon the former code section because the HOA and the builder entered into the tolling agreement and initiated the lawsuit before the amendment took effect. Under the former code section, the HOA's notice to the developer automatically tolled all statutory and contractual limitations against all parties. The former statute, however, also provided that the HOA and the builder could toll all statutory and contractual limitations on actions, including claims for indemnity applicable to the claim, for a period of 150 days or longer as agreed to in writing by the association and the builder." As such, given what the Court called "clear and unambiguous statutory language," the California Court of Appeals held that the negligence cause of action was tolled by a signed agreement between the HOA and Kaufman, and enforceable against Riteway (a subcontractor) despite not being a signatory to the tolling agreement.
The Landale Cameron Court ruling is limited to common interest developments (i.e. condominiums and townhomes, but not condominium conversions) sold on or before January 1, 2003. In combination with the statute's amendments, which took effect on July 1, 2002, the court's ruling will only apply to a situation in which an HOA has already entered into a tolling agreement with a developer, builder or general contractor on or before June 30, 2002.
All construction participants should review their project files involving condominium complexes that may be impacted by this case. Focus on any correspondence by the developer that may serve as notice of the existence of a tolling agreement. Consult your attorney to determine if a tolling agreement is in effect in connection with threatened HOA claims, in order to ensure that your rights have been preserved. Finally, take note that this case provides another example of why it is important to maintain complete job files as long as possible. In the event that litigation arises, in which a tolling agreement lengthened the period for filing the complaint, any additional protections or obligations established in advance will be crucial.
For more information on the Landale-Cameron Court ruling and other developments in Construction Law, please feel free to contact the attorneys at Gordon & Rees LLP.
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