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Statute of Limitations in Construction Defect Case Accrues When Original or Subsequent Owners Knew of Basis or Should Have Known of Basis For Claim

By on September 22, 2017 in Court Rulings with 0 Comments

In a recent New Jersey Supreme Court case, The Palisades at Fort Lee Condominium Association, Inc. v. 100 Old Palisade, LLC, 2017 N.J. LEXIS 845 (2017), the Court was asked to rule on when the statute of limitations accrued in a construction defect property damage case. The plaintiff Association filed suit against the general contractor and three subcontractors alleging that the building complex was defectively constructed. However, the defendants argued that the lawsuits were barred by the six year statute of limitations in N.J.S.A. 2A:14-1.

The project was deemed substantially complete as of May 1, 2002. The prior owners first rented apartments in the building and then converted the apartments into condominium units. The prior owners did not relinquish control to the plaintiff Association until July 2006. After the Association took control, they retained an engineering and architectural services firm, the Falcon Group, to inspect the common elements for any construction defects. Thereafter, the Falcon Group issued a report on June 13, 2007, detailing all construction defects found. Based upon this report, the Association filed several suits, the first one being filed on March 12, 2009.

The Supreme Court ruled that both the trial court and the Appellate Division applied the wrong statute of limitations. The trial court ruled that the limitations period began to run in May 2002 when the building was substantially complete. The trial court found that the suit was barred because the building’s owners knew or should have known of the defects before May 2008, yet filed suit after that date.

The Appellate Division, however, reversed and found that the plaintiff’s claims did not accrue until June 2007, when the plaintiff Association took control of the building and became “reasonably aware” of the construction defect claims after it obtained an expert report outlining such defects. Because suit was filed within 6 years of that date, the Appellate Division found that suit was timely filed.

The Supreme Court ruled that neither the trial court, nor the Appellate Division applied the correct legal standard for determining when a construction defect action accrued. The Court held that, while the six year statute of limitations would typically run from the date of substantial completion, it is subject to the discovery rule. Based upon the discovery rule, the limitations “clock” does not start until “the plaintiff is able to discover, through the exercise of reasonable diligence, the facts that form the basis for actionable claim against the identifiable defendant.”

The Court further clarified that the lawsuit must be filed within six years “from the time that the building’s original or subsequent owners first knew or, through the exercise of reasonable diligence, should have known of the basis for a cause of action.” A subsequent owner would stand in no better position than a prior owner in calculating the statute of limitations. The Court ruled that if “a prior owner knew or reasonably should have known of a basis for a construction defect action, the limitations period began at that point.”

Because the record was not fully developed below as to what information the original owners possessed as to any construction defects before control was relinquished to the Association, as well as what knowledge of any defects which the Association knew, or should have known, through the exercise of reasonable diligence, the Court reversed the Appellate Division judgment and remanded the matter back to the trial court to conduct a hearing to answer these questions.

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About the Author

About the Author:

Ms. Ramos is an Executive Committee Member and Co-Chair of the Litigation Department at Capehart Scatchard, P.A. located in Mount Laurel, New Jersey. She is an experienced litigator with over 25 years experience handling diverse matters. Practice areas include tort defense, business litigation, estate litigation, tort claims and civil rights defense, construction litigation, insurance coverage, employment litigation, shareholder disputes, and general litigation.

For the years 2020 and 2021, Ms. Ramos was selected for inclusion in The Best Lawyers in America© in the practice area of Litigation - Insurance. The attorneys on this list are selected based upon the consensus opinion of leading lawyers about the professional abilities of their colleagues within the same geographical area and legal practice area. A complete description of The Best Lawyers in America© methodology can be viewed via their website at: https://www.bestlawyers.com/methodology.

In 2021, Capehart Scatchard and Ms. Ramos received the “Best Law Firm” ranking in the area of Litigation – Insurance (Metro, Tier 3) published by U.S. News & World Report and Best Lawyers®. Law firms included on the list are recognized for professional excellence with consistently impressive ratings from clients and peers. To be eligible for a ranking, a firm must have at least one attorney who has been included in the current edition of Best Lawyers in America, which recognizes the top five percent of practicing lawyers in the United States. Betsy Ramos (Litigation – Insurance) was recognized for this prestigious award in the 2021 edition. For a description of the “Best Law Firm” selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

“Best Law Firms” is published by Best Lawyers in partnership with U.S. News & World Report. For a description of the selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

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