Making HOA Decisions to Repair or to Delay Repairs to Pursue Construction Defect Claims
When an association has a duty to maintain and repair components that are defective, the question often arises when there are alleged construction defects relating to the components in question as to whether or not the association has a duty to promptly initiate the necessary repairs or whether it may defer making repairs while it pursues claims for the construction defects in an appropriate forum. In answering this question, courts have considered: (i) the specific language contained in the association’s governing documents that pertains to the association’s repair and maintenance obligations; and (ii) the facts cited in support of the association board’s decision to undertake, or to forgo undertaking necessary repairs.
Reported case decisions have turned on a finding as to whether or not the association’s board of directors acted reasonably in reaching its decision to either make the repairs or defer making to repairs in order to pursue remedies against the responsible parties. The cases have generally upheld the board’s decision under the “business judgment rule” after taking into account such factors as: (i) whether the association conducted an appropriate inspection of the component(s) in question; (ii) whether or not the association’s board of directors developed a plan to evaluate and address the problems while pursuing claims against the responsible parties; (iii) whether or not the language contained in the association’s governing documents concerning the responsibility for repairs and maintenance is interpreted as “mandatory” or “discretionary;” (iv) whether or not the responsibility for repairs and maintenance is limited to routine repairs and maintenance or whether it extends to structural components; (v) whether or not there is a need to initiate immediate action to address an emergency and/or eliminate a hazardous condition in order to mitigate further damages; (vi) whether or not the association has sufficient reserves on hand to cover the necessary repairs and/or replacements of the defective components; and (vii) the number (percentage) of units that are affected by the condition(s) in question.
The board resolutions should contain evidence that the board considered the relevant facts, reached a reasoned decision, and adopted a reasonable plan of action. When an association’s board has exercised its reasonable business judgment after considering factors such as those outlined above, it is likely that its decisions will not be second-guessed by a court. Such decision making by the association’s board of directors should be well documented in minutes of board meetings that reflect a consideration of the relevant facts, the adoption of a reasonable plan of action, and a reasoned decision on the part of the board which is embodied in appropriate resolution’s adopted by the directors.
It should also be noted that, when there are other parties that may be responsible for the repair of the alleged defective components, action that is taken by an association to undertake repairs or replacements on its own absent an emergency situation, could give rise to various defenses by the responsible parties which they might not otherwise have in subsequent actions to recover damages for those defective components. There may also be contractual or statutory obligations on the association to provide notice to the responsible parties and an opportunity to correct defective components prior to initiating a lawsuit or an arbitration proceeding.
If an association’s maintenance and repair responsibilities are not clearly defined in the governing documents and the association’s board is uncertain on how to proceed, the association’s board should consider filing a declaratory relief action seeking a court determination of the board’s maintenance responsibility, or putting the issue to the vote of the association’s members by seeking a clarifying amendment to the association’s governing documents that clearly specifies the extent of the association’s obligations regarding defective components. In either event, when faced with uncertainty in its decision making concerning construction defect issues, an association’s board of directors should consult with experienced legal counsel regarding the appropriate course of action to take. Not seeking the advice of legal counsel on a matter where there is uncertainty on how to act is not in keeping with good business judgment.