The Court of Special Appeals of Maryland recently issued an opinion that will likely have a major impact on councils of condominium unit owners, developers and contractors. In Greenstein v. Council of Unit Owners of Avalon Court Six Condominium, Inc., No. 485, Sept. Term 2009 (September 29, 2011), the Court of Special Appeals ruled that the council of unit owners owed a duty to the individual condominium owners to sue the developer for construction defects discovered in the condominium’s common elements.
In Greenstein, the Council and its management company had commissioned an investigation, the results of which suggested that numerous units were experiencing window leaks. Although the Council was on notice of the leaks in 2002, it waited until 2006 to file suit against the developer, Questar Homes Avalon Court Six, LLC (“Questar”). The developer was able to avoid liability in the underlying suit, when the Circuit Court for Baltimore County, Maryland ruled that the suit against Questar was filed beyond the three year statute of limitations.
Because the Council was unable to recover from the developer, the Council issued a special assessment and increased the monthly condominium fees in order to pay for the costs of the repairs, which exceeded $1 million. Subsequently, a group of unit owners filed suit in the Circuit Court for Baltimore County, Maryland against the Council, in which the owners alleged that the Council was negligent for failure to timely file suit against the developer and sought to recover damages they incurred through the special assessment and increased condominium fees being collected to pay for the repairs to the windows. The lower court granted the Council’s motion for summary judgment and concluded that Maryland law did not impose a duty on the Council to file suit against the developer for defective construction. The Court of Special Appeals reversed the lower court’s decision.
In Greenstein, the Court of Special Appeals relied on the condominium bylaws, which provided that the Council’s board of directors had the “exclusive right to initiate any form of legal proceedings . . . related to use, operation or maintenance of the Common Elements” and that the board had the authority, under the bylaws, to demand that developer perform its obligations. Consequently, the Court of Special Appeals concluded that “the duty to ‘maintain, repair and replace’ the Common Elements, together with the exclusive right to initiate litigation regarding the Common Elements, creates a concomitant obligation on the part of the Council to pursue recovery from Questar on behalf of” the unit owners.
At the time that this is being written, it is unclear whether the Greenstein decision will be reviewed by the Court of Appeals of Maryland. If this ruling is either upheld or not reviewed by the Court of Appeals, the holding in Greenstein will likely have far-reaching implications on councils of condominium unit owners as well as developers and construction contractors. Because a duty to sue was imposed upon the Council by the Court in Greenstein, condominium councils and their boards of directors will likely be more vigilant in pursuing litigation, or risk potential liability for their failure to do so. As a result, contractors and developers may likely face more lawsuits for negligent construction that may be filed as a preemptive step by condominium councils that are concerned with their only liability for failure to prosecute defective construction claims.