When Does the Statute of Limitations Begin to Accrue Against Developers for Damage or Injury Incurred from Unskilled and/or Defective Construction?
By Adam Leitman Bailey and John M. Desiderio
One of my most repeated lines goes as follows: all newly constructed buildings have problems; the good builders come back and fix them. I should add to my adage, that as long as they sue on time, good lawyers also get buildings fixed. When disputes arise, between sponsor-developers and residential boards and/or individual unit owners, concerning defective construction of newly constructed condominiums and cooperative buildings, the applicability of statutes of limitation to board and unit owners’ claims against the sponsors must be considered before litigation is commenced. Although the limitations periods prescribed in statutory provisions are fairly straightforward, the time from which to measure the accrual of the limitations period, in any given case, is not always easy to determine. It should be noted that both authors have made a career litigating and writing about litigating new constructed buildings. According to a search of the New York Law Journal’s archives, Adam Leitman Bailey and John Desiderio’s very first article for the New York Law Journal appeared on September 2, 2002 and was titled: Are Buyers of New Homes subject to Caveat Emptor.” With this article, we have come full circle in our pursuit in understanding multi-family construction law.
In Gaidon v. Guardian Life Insurance Company of America, 96 NY2d 201, 210 (2001), the Court of Appeals explained that “[i]n general, a cause of action accrues, triggering commencement of the limitations period, when all of the factual circumstances necessary to establish a right of action have occurred, so that plaintiff would be entitled to relief.” More specifically, the Court has held that “no matter how a claim is characterized in the complaint—
negligence, malpractice, breach of contract—an owner’s claim arising out of defective construction accrues on date of completion, since all liability has its genesis in the contractual relationship of the parties.” City School District of City of Newburgh v. Hugh Stubbins & Associates, 85 NY2d 535 (1995)(Kaye, C.J.). (Emphasis added).
However, “[c]ompletion is not a statutorily defined word, but must be judicially interpreted in light of the given situation and the responsibilities of the parties in carrying out their agreement.” Board of Education of Tri-Valley Central School District at Grahamsville v. Celotex Corporation, 88 AD2d 713, 714 (3d Dept. 1982), affirmed, 58 NY2d 684 (1982). Accordingly, how one measures the accrual date determines whether and how the applicable statute of limitations is or is not applied in a specific case, and measuring the applicable statute of limitations also “depends upon the type of relief requested.” Hamlet on Olde Oyster Bay Home Owners Association, Inc. v. The Holiday Organization, Inc., 12 Misc.3d 1182(A), 824 NYS2d 763 (Sup. Ct., Nassau Co., 2006).
Review of the case law shows that, depending upon whether the plaintiff’s action is brought against the sponsor-developer, the general contractor, and/or the architect or engineer for the project, there are several ways in which a single statute of limitations may be applied to each defendant category (even regarding the same construction defects at issue). The rules also differ depending upon whether the building construction issues relate to condo/co-op building construction contracts or to non-condo/co-op construction contracts.
The Basic Statutory Provisions
Pursuant to CPLR §213(2) an action “must be commenced withing six years . . . upon a contractual obligation or liability, express or implied, except as provided in . . . Article 36-B of the general business law (“GBL”). “ (Emphasis added)
Pursuant to CPLR §213(8), “the time within which an action [based upon fraud] must be commenced shall be the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it.”
Pursuant to CPLR 214, actions to recover damages for an injury to property [§214(4)] or for personal injury [§214(5)], or for malpractice, other than medical, dental, or podiatric malpractice, regardless of whether the underlying theory is based in contract or tort [§214(6)], “must be commenced within three years.” (Emphasis added).
Actions Against Contractors, Architects, and Engineers
Involving General Defective Building Construction
In City School District of City of Newburgh, supra, the Court of Appeals reaffirmed the “settled” rule “that an owner’s “cause of action for defective construction and design generally accrues upon completion of construction,” and that “[i]n cases against architects or contractors, the accrual date for Statute of Limitations purposes is completion of performance.” (Emphasis added). In Newburgh, in 1972 the property owner’s assignee (the Urban Development Corporation which was financing the construction) had entered into a contract for the construction of a library building with the general contractor. In October 1990, a water pipe in the library burst causing extensive damage to the books, bookshelves, office supplies, and furnishing within the building. Plaintiff City contended that the six-year statute of limitations for a contract claim did not apply against the defendant builder, architect, and engineers, because the City was a third party to the contract, and, therefore, its cause of action for negligence and damages to personal property, accrued “at the time of damage, not the time of completion.” In rejecting the City’s claim, the Court held, because the City’s relationship to the contract “was the
‘functional equivalent’ of privity,” the City’s liability “[i]n both instances,” arose “out of the contractual relationship,” where damage to real or personal property flowing from faulty design or construction can be anticipated, and steps taken to protect against the consequences of such damage.”
A similar outcome resulted in Town of West Seneca v. Kidney Architects, P.C., 287 AD3d 1509 (4th Dept. 2020). (Held: Despite the lack of privity between plaintiff and defendant, plaintiff was ‘not a stranger to the contract,” and “its professional malpractice cause of action accrued upon completion of performance by defendant [architect] [and] [t]therefore, the complaint [was] time barred. [see CPLR 214(6)]”).
However, “in an action for damages to a building resulting from the loss of lateral support, the cause of action accrue[d] when damages [were] sustained.” Mark v. Eshkar, 194 AD2d 356, 357 (1st Dept. 1993). The First Department explained: “[I]n actions for negligent construction, the statute begins to run when the structure collapses, or when the damage from the negligent construction becomes apparent.” See also Ellington Owners Corp. v. 200 Broadhurst Developers LLC, 190 AD3d 770 (1st Dept. 2021)( holding that plaintiffs’ claims as pleaded were not time-barred because, for reasons similar to those stated in Eshkar, supra, they were subject to a three-year statute of limitations measured from the time when the damages were sustained).
GBL Article 36-B and Condo/Co-op Boards
and Unit Owners v. Sponsors, Architects, Engineers
GBL Article 36-B created a Housing Merchant Implied Warranty Law, which consists of GBL §§777, 777-a, and 777-b. GBL§777-a(1) (Housing merchant implied warranty) provides that “a housing merchant warranty is implied in the contract or agreement for the sale of a new home,” which is defined to mean “any single family house or for-sale unit in a multi-unit
residential structure of five stories or less in which title to the individual units is transferred to owners under a condominium or cooperative regime.” GBL§777 (Emphasis added).
GBL 777-a(1)(a)(b)(c) expressly prescribe one, two, and six-year warranty periods, respectively for: (1) construction in a skillful manner, (2) installation of plumbing, electrical, heating, cooling, and ventilation systems in a skillful manner, and (3) construction free from material defects to the home’s load bearing portions causing it to become “unsafe, unsanitary or otherwise unliveable.”
GBL 777-a (4)(a) prescribes that “[w]ritten notice of a warranty claim for breach of a housing merchant implied warranty must be received by the builder prior to the commencement of any action under [GBL 777-a (4)(b)] and no later than thirty days after the expiration of the applicable warranty period, as described in [GBL§777-a(1)]. In addition, “the owner and occupant of the home shall afford the builder reasonable opportunity to inspect, test and repair the portion of the home to which the warranty relates.” (Emphasis added)
GBL 777-a (4)(b) prescribes that [a]n action for damages or other relief caused by the breach of a housing merchant implied warranty may be commenced prior to the expiration of one year after the applicable warranty period, as described in [GBL§777-a(1)], or within four years after the warranty date [defined by GBL §777(8) as the date of the passing of title to the first owner for occupancy by such owner of such owner’s family as a residence], or the date of first occupancy of the home as a residence, whichever first occurs.”]. (Emphasis added)
GBL 777-b (Exclusion or modification of warranties) expressly provides, that, [e]xcept in the case of a housing merchant implied warranty, the builder or seller “may exclude
or modify all warranties by any clear and conspicuous terms contained in the written contract or agreement of sale which call the buyer’s attention to the exclusion or modification of warranties and make the exclusion plain [GBL 777-b(1)]; and/or exclude or modify warranties with respect to particular defects [GBL 777-b(2)], or alternatively, to exclude or modify the housing merchant implied warranty if the builder offers a limited warranty that meets or exceeds relevant specific standards of the applicable building code, or locally accepted building practices [GBL 777-b(4)(e)].
Accordingly, developer/sponsors of high rise condominium and cooperative building regimes uniformly include the following representations in their offering plans and in the purchase agreement contracts, in which the plans are invariably incorporated:
that the sponsor “will correct, repair, or replace any and all defects relating to construction of the building, common elements or the units or in the installation or operation of any appliances, fixtures, or equipment therein, or will cause the same to be corrected, repaired or replaced,” but only if: (1) such defects are due to substantially improper workmanship or construction practices, or the use of materials that are substantially and materially at variance with the plans and specifications for he same; and (2) sponsor is notified by the condominium/cooperative board or the affected unit owner, as the case may be, of the same in accordance with [the time lines specified in the plan] for (a) not visually ascertainable “latent” defects [usually within one-year of the closing of title], or (b) “patent” defects that are ascertainable through inspection in the construction of a unit [usually within six-months of the closing of title to the unit]. (Emphasis added)
The Case Law Relating to Condo/Co-op “Completion” of Construction
As noted above, builder “liability has its genesis in the contractual relationship of the parties.” City School District of City of Newburgh, supra. Accordingly, cases against sponsor defendants and/or against architects or engineers, or sub-contractors, are subject to the limitations periods that apply to the contractual relationships of the particular plaintiffs and
defendants involved in the particular lawsuit. Cases brought against sponsors have not established one specific method for measuring the “completion” date of construction.
23-23 Condominium v. 210th Place Realty, LLC
In Board of Managers of 23-23 Condominium v. 210th Place Realty, LLC, 185 AD3d 890 (2d Dept. 2020), the plaintiff Board commenced an action, in June 2016 on behalf of the condominium unit owners, alleging breach of contract and fraud, against the condominium’s corporate sponsor and sponsor’s corporate members, to recover damages for allegedly defective construction of the condominium. The defendants contended that the action was time barred. The Second Department held that “the corporate defendants demonstrated their prima facie entitlement to judgment as a matter of law dismissing the first through third and fifth through seventh causes of action insofar as asserted against them.
The Court held that “the corporate defendants [had] established that the causes of action against them accrued on October 5, 2007, the date the certificate of occupancy was issued,” and that [the] action was not commenced until June 2016, more than eight years later, at which time the applicable statute of limitations had expired.” (Emphasis added). In so holding, the Court presumably reasoned that the date on which the condominium units were certified for residential occupancy was the date on which the sponsor became liable for any defective construction – not on the date when the sponsor’s contractors had “completed” the labor of constructing the building.
In 23-23 Condominium, although the Court’s reasoning was a plausible application of the CPLR §213(2) six-year limitations period to the factual circumstances involved in the construction
and sale of condominiums, the Court did not discuss the GBL §777(8) definition of the “warranty date,” as the” date of the passing of title to the first owner for occupancy by such owner or such owner’s family as a residence, or the date of first occupancy of the home as a residence, whichever first occurs,” nor the mandate of GBL §777-a(1), that “[a]n action for damages or other relief caused by the breach of a housing merchant implied warranty may be commenced prior to the expiration of one year after the applicable warranty period, or within four years after the warranty date.” (Emphasis added)
The Court also noted that the plaintiff’s allegations of fraud, which [were] incidental to the breach of contract action, [could] not extend the six-year statute of limitation applicable to a cause of action alleging breach of contract.”
Marke Gardens Condominium v. 240/242 Franklin Avenue LLC
In Board of Managers of Marke Gardens Condominium v. 240/242 Franklin Avenue LLC, 20 Miax,3d 1138(A)(Sup. Ct., Kings Co., 2008), affirmed on other grounds not related to the limitations issue, 71 AD3d 935 (2d Dept. 2010), plaintiff board, on behalf of itself and on behalf of the condominium unit owners, commenced the action to recover damages arising from various defects and omissions associated with the construction and conversion of two buildings into a condominium regime. Construction of the condominium began sometime in 2003, and the first closing occurred on August 16, 2004. The Court noted that the contract “Rider expressly [provided] for a six-year statute of limitations with respect to “latent major structural defects” that result from defective workmanship by Seller or Seller’s agent, employee or subcontractor; defective materials furnished or defective design, provided by an architect, engineer, surveyor, or other design professional retained exclusively by the Seller.”
Noting that the action was filed on August 8, 2007, the Court held that the limitations period, applicable to both (i) the construction causes of action alleged against the sponsor entity, and (ii) to the fraud causes of action alleged against defendant Marke individually, in his capacity as sole member of the sponsor entity, began running on August 16, 2004, “when the first closing of the sale of any units in the premises occurred.” (Emphasis added).
In Marke, like the decision in 23-23 Condominium, supra, the Court presumably reasoned that the sponsor did not became liable for defective construction on the date when the sponsor’s contractors had “completed” the labor of constructing the building. But, unlike 23-23 Condominium, the Court, also without discussing either GBL §777(8) or GBL §777-a(1), nevertheless chose to measure “completion” from the date of the first closing (“the date of the passing of title to the first owner for occupancy” GBL §777(8)) of the first unit cleared for residential occupancy.(Emphasis added)
Arnold v. New City Condominium Corp
Arnold v. New City Condominium Corp, 78 AD2d 882 (2d Dept. 1980), was a case decided before the enactment of GBL Article 36, but the decision interestingly dealt with the limitation issues presented in that case by two conflicting warranties given in the sponsor’s offering plan. Condominium purchasers had commenced suit against the sponsor for damages incurred from defects in the drainage system which caused flooding of basements in individual units, notice of which was given to sponsor by written notice to the sponsor on October 11, 1974. The plaintiffs commenced suit after the condominiums were again flooded on June 30, 1976. In their complaint, the asserted causes of action for negligence and breach of warranty.
The offering plan notice requirements for breach of warranty “insulat[ed] the sponsor from all liability unless defendant received written notice of the defect within one year.” The
Court noted, however, that there was “confusion as the date of commencement of the one-year period,” because “the prospectus, which was incorporated into the contract or sale, mentions two one-year periods,” and “[i]n the disclaimer against consequential damages for seepage, defendant said it would correct a seepage condition in an individual unit if notified within one year of the date of closing.” But, “[i]n another portion of the prospectus, defendant said it would correct any defects in the common elements if notified within one year of completion of the common element or of the filing of the Declaration of the Condominium, August 30, 1973, whichever was later.”
The Court noted that plaintiffs’ cause of action for breach of warranty probably involve[ed] seepage in individual units as well as defects in common elements,” and that “the defect in the common elements apparently caused the seepage in the individual units.” Confronted with three potential dates of completion – the date of closing, the date of completion of the common element, and the date of filing of the Declaration – the Court concluded that “[s]ince the exculpatory clauses must be strictly construed, the latest of the three dates should be applied,” and “[s]o construed the one-year period, running from the date of closing at the earliest [was] reasonable.”
Other Limitations Issues
Contract v. Tort:
In Hamlet on Olde Oyster Bay Home Owners Association, Inc. v. Holiday Organization, Inc., 65 /ad3d 1264 (2d Dept. 2009), a homeowners association sued the sponsor entities on causes of action, alleging fraudulent inducement and negligent misrepresentation, arising from alleged defective construction in the owners’ heating, air conditioning, and plumbing systems,
and regarding similar problems allegedly occurring in the development’s common-area buildings. The Second Department held “because the gravamen of the complaint did not sound in fraud, the three-year statue of limitations period applie[d] to the causes of action alleging breach of fiduciary duty,” and “[a]ccordingly plaintiffs [were] barred from recovering damages for any alleged breach which occurred more than three years prior to commencement of [the] action.”
Fraud in connection with material defects:
In a prior article, Bailey and Desiderio, New Home Construction Issues:26 Years After “Fumarelli,” New York Law Journal (6/11/24), the authors noted “[a]s actions alleging fraud in connection with material construction defects are generally brought within either (a) the warranty periods specified in Article 36-B or (b) within the six-year period prescribed by CPRL 213(8), there is a paucity of cases involving developers relying upon a statute of limitations defense against a plaintiff’s complaint.”
We also noted that “an intentionally concealed material construction defects (such as installation of ventilation systems in the kitchen space and bathroom areas, which upon inspection proved to consist of dummy sheet-metal ducts which simply terminated in the wall of ceiling space without any connection to a central exhaust duct or fan”) is likely to be discovered well before the running of the statute of limitations period. However, for such cases as may exist, the two-year discovery period should apply, but, to date, no such reported case has been found.” This remains true at the writing of this article.
Developer v. Architect:
In Matter of Kohn Pederon Fox Associates, P.C., 189 ad3D 357 (1ST Dept. 1993), the Court held that an owner’s “cause of action against an architect accrues when his or her
professional relationship with the owner ends, this usually occurring upon the issuance of the final payment certificate pursuant to the contract.” In this case, “because the architect was contractually obligated to issue final certificates to the owner before the project was deemed finally completed, the professional relationship ended upon the architect’s fulfillment of its contractual obligation and not upon the physical completion of the buildings,” and “it [was] clear that such occurred . . . within the applicable six-year period of limitation from the November 26, 1991 demand for arbitration.”.
CONCLUSION
As noted at the head of this article, the time from which to measure the accrual of the limitations period, in any given case, is not always easy to determine. This is true whether the contract calls construction of a single building or a multi-story condominium.
However, as the cases above show, for condo/co-op construction projects subject to warranty and limitations periods mandated by Article 36-B, or to limited warranties conforming to Article 36-B standards, courts have concluded that the “completion date,” which starts the running of the limitations period applicable to a purchase transaction, is definitely not the date on which the sponsor’s contractors have “completed” the labor of constructing the building. The “completion date” may be either the date of the first closing, “the date of the passing of title to the first owner for occupancy” of the first unit cleared for residential occupancy, or it may possibly (in an appropriate case) be the date the sponsor receives the building’s certificate of occupancy, confirming that the building’s condominium units are certified for residential occupancy.
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*Adam Leitman Bailey, Esq., is the founding partner of Adam Leitman Bailey, P.C., and the recipient of the New York State Bar association 2026 Outstanding Contributions to Real Estate Publications Award, awarded jointly to Mr. Bailey and posthumously to the late Michael J. Berry, and John M. Desiderio, Esq, is the Chair of the firm’s Real Estate Litigation Group. Max Richardson, an extern of the firm and Second Year law student attending the Maurice A. Deane School of Law at Hofstra University, assisted in the preparation of this article.