If the COVID-19 pandemic was not already difficult enough on the D.C. real estate development community, recent proposed legislation by the D.C. Council might make developing condominiums in the city more challenging.
On September 17, 2020, the D.C. Council’s Committee on Housing and Neighborhood Revitalization held a public hearing on two bills that will impact the processing and adjudication of structural warranty claims for the District’s condominium buildings: The Condominium Warranty Claims Clarification Amendment Act of 2020 (Bill 23-0623) (Claims Clarification Act) and the Condominium Warranty Amendment Act of 2020 (Bill 23-0601) (Warranty Amendment Act).
The Claims Clarification Act, which was generally supported by members of the development community, proposes a formal process to resolve condominium warranty claims. Specifically, when a homeowner and declarant are unable to negotiate a resolution to a structural warranty claim, such claim may be submitted to and adjudicated by the D.C. Department of Housing and Community Development (DHCD). Once DHCD issues an order on the merits of the claim, the homeowner or the declarant may appeal DHCD’s decision to the Office of Administrative Hearings within 30 days. While most public testimony was in support of the proposed legislation, some individuals noted it may inadvertently encourage premature submission of warranty claims to DHCD that could be resolved by the parties. Additionally, the legislation does not establish a timeframe by which DHCD must make a decision on the claim, which allows the process to drag on and places a cloud over the declarant’s project.
The Warranty Amendment Act, which received strong opposition from the development community, proposes more substantial changes that would increase a declarant’s liability for structural defects in a condominium building. First, the Warranty Amendment Act, which transfers claim jurisdiction to the D.C. Department of Consumer and Regulatory Affairs, would significantly expand the definition of a “structural defect” to include, among other things, any defect that fails to comply with the building code. As several individuals pointed out during the Council hearing, such a requirement is not only onerous but redundant because condominium buildings are already subject to permitting review and inspections for compliance with the building code.
Second, in the event a warranty claim is submitted, the declarant’s bond or letter of credit may not be reduced until the full amount of the claim has been established, and then only in an amount that leaves sufficient funds available to satisfy the full amount of the claim. In this respect, several witnesses noted the Warranty Amendment Act incentivizes homeowners to pursue claims knowing they can tie up the declarant’s collateral for a substantial period of time. In doing so, the proposal would encourage unsupported structural warranty claims to proceed down a lengthy administrative adjudication process while simultaneously discouraging informal negotiations between the homeowner and developer. This process would have serious repercussions for the financial viability of condominium projects throughout the city.
Third, in the event a homeowner or unit owners’ association wins a claim, the declarant is liable for the reasonable attorneys’ fees of the homeowner or association. Notably, the legislation does not propose the inverse – the declarant is not entitled to seek attorneys’ fees from a homeowner or association even if the declarant successfully defends the claim. Recognizing that this provision is intended to reimburse homeowners and associations that may not otherwise have funds available to pursue a claim, it could encourage claimants to continue pursuing baseless claims that may not be supported by technical evidence.
Given the significance of the proposed changes, we encourage our clients to submit written statements to the Council’s Committee on Housing and Neighborhood Revitalization. The committee’s record on the Claims Clarification Act and Warranty Amendment Act remains open until 5:00 p.m. on Thursday, October 1. Written statements can be submitted by email to email@example.com or in person at the John A. Wilson Building (350 Pennsylvania Avenue, N.W., Suite G6, Washington, D.C. 20004).