Delays in selling units could have dire legal consequences on a condominium's sponsor

Sponsors of condominiums often have difficulties selling units quickly of new condominiums in times of economic malaise, such as the present. In addition to the financial hit caused by not being able to sell units, the longer a sponsor retains ownership of units, its potential exposure for design and/or construction defects in the building rises significantly. In fact, depending on the length of time in which it takes the sponsor to sell the last unit, its ability to hold its design professionals and/or contractors responsible for design and/or construction defects could be compromised or entirely vanquished. The reason for this is that the statute of limitations for a sponsor's claims against its design professionals expires three years from the last date on which the design professional performed work on behalf of the sponsor. The statute of limitations against a contractor generally expires six years from the last date on which the contractor performed any work for the sponsor. A unit owner's claim against the sponsor for breach of contract of the offering plan generally runs for six years from the date of purchase of the unit. Thus, if a sponsor cannot sell a unit for a long period of time after construction of the condominium is completed, it could face a situation where unit owners have viable causes of action against it for breaches of the offering plan (i.e. defective conditions in their units), but the sponsor cannot seek to recoup any of the damages from its design professionals or contractors because the statute of limitations has expired. Importantly, a sponsor, generally, cannot seek contribution from its design professionals or contractors because contribution is not available in cases involving purely economic loss (i.e. breaches of contract claims). Without a direct cause of action against the parties primarily responsible for defects in the design or construction of the condominium, or the right to seek contribution, a sponsor's only recourse would be to seek implied indemnification claim against the responsible party. However, the sponsor seeking indemnification must have delegated exclusive responsibility for the duties giving rise to the loss to the party from whom indemnification is sought, and must not have committed actual wrongdoing itself. Courts, however, often find that the sponsor did not fully delegate the duty to the design professional and, therefore, indemnification is not an available remedy. For example, a court has held that a sponsor involved in the finalization of the design of a condominium could not maintain an indemnification claim against its architect in connection with an action commenced by unit owners and the condominium's board of managers seeking damages due to design defects. In order to protect themselves against exposure that it cannot pass through to its design professionals, sponsors should be proactive and seek to limit occurrences which could lead to exposure. For example, sponsors should consider requiring their design professionals as part of its initial design services to conduct periodic inspections of all unsold units and common areas until the last unit is sold. Although this may lead to increased costs initially, such an agreement would trigger the "continuous representation" doctrine and extend the statute of limitations of a potential claims by the sponsor against the design professional until the date on which the last unit is sold. Sponsors also may want to include "sunset clauses" in their offering plans, which reduce the time periods in which both individual unit owners (for unit problems) and the condominium's board of managers (for problems in the common areas) can commence a claim against the sponsor. Andrew Richards, Esq., is partner at Kaufman Dolowich Voluck & Gonzo LLP, Woodbury, N.Y.