Community Association Law

Law changes affecting Condominium Associations

Underlined portions are new or revised.

Hot Points Condominium Construction Defect Claims

1. Not limited to residential condominiums. Applies to all types, such as residential, non-residential, recreational, and mixed-use condominiums.

2. Only applies to a condominium subject to the Texas Uniform Condominium Act ("TUCA''), i.e., condominiums created on or after 1/1/94 or prior to 1/1/94 IF the unit owners voted to amend the declaration to be governed by TUCA, exclusively.

3. Only applies to a claim related to the design or construction of a condominium unit or common element. Does not apply to other types of claims.

4. Not limited to the original design and construction of the unit or common element. May also apply to subsequent improvements.

5. Only applies to claims brought by a condominium association. Does not apply to claims brought by an individual unit owner.

6. Requires that the unit owners receive information about the claim and participate in the decision whether to pursue the claim. Under Section 82.102(a)(4), the condominium association, acting through a majority of its board, has the right to bring a claim affecting more than 1 unit and the common elements. Prior to HB 1455, a majority of the condominium association board had the right to bring the claim without the participation of unit owners.

7. Requires that, before pursuing a claim, the condominium association obtain an independent inspection of the condominium units or common elements subject to the claim (the "Common Area Report''). Prior to HB 1455, there was no requirement for a report on the condition of the units or common elements prior to initiating a construction defect claim. Chapter 27 of the Texas Property Code, the "Residential Construction Liability Act", requires the claimant to provide an inspection report to the contractor only if the claimant had obtained a report prior to asserting the claim.

8. Establishes a 90-day "cooling off period" during which the parties subject to the claim (the builders and contractors) have the right to inspect and correct any condition identified in the Common Area Report. The Residential Construction Liability Act only establishes a right to inspect and make an offer to repair the condition.

9. Expressly provides that a condominium declaration may include binding arbitration and a process for resolving defect claims.

10. Provides that any amendment that removes or modifies an arbitration requirement or dispute resolution process in the condominium declaration does not apply retroactively to a claim that arose prior to the amendment.

Sec. 82.119. PROCEDURES FOR FILING SUIT OR INITIATING ARBITRATION PROCEEDINGS FOR DEFECT OR DESIGN CLAIMS FOR CERTAIN ASSOCIATIONS.

New Section to TUCA

Requires the condo board to be deliberative about initiating a lawsuit for construction or design defects of units or common elements. It seeks to eliminate construction defect fishing expeditions (sue first, find defect later) by requiring an engineering report and an opportunity for the builder and design professionals to cure before the HOA sues. Also, a majority of unit owners must agree with the board's decision to sue. The new law reinforces mandatory arbitration provisions, if any, in the declaration. To allow time for the required procedures, the law grants a one-year toll of the statute of limitations under certain circumstances.

Although aimed at the original construction of buildings less than 10 years old, the bill also covers claims of construction or design defects in improvements for which the HOA contracted. This new law doesn't affect claims by individual owners, and it doesn't pertain to other types of litigation by the HOA.

EFFECTIVE FOR A LAWSUIT OR ARBITRATION PROCEEDING FOR A CLAIM PERTAINING TO THE CONSTRUCTION OR DESIGN OF A UNIT OR THE COMMON ELEMENTS INITIATED BY A CONDOMINIUM ASSOCIATION ON OR AFTER 9/1/15.

(a) This section does not apply to an association with less than eight units.

(b) In addition to any preconditions to filing suit or initiating an arbitration proceeding included in the declaration, an association, before filing suit or initiating an arbitration proceeding to resolve a claim pertaining to the construction or design of a unit or the common elements, must:

(1) obtain an inspection and a written independent third-party report from a licensed professional engineer that:
(A)identifies the specific units or common elements subject to the claim;
(B) describes the present physical condition of the units or common elements subject to the claim; and
(C) describes any modifications, maintenance, or repairs to the units or common elements performed by the unit owners or the association; and
(2) obtain approval from unit owners holding more than 50 percent of the total votes allocated under the declaration, voting in person or by proxy as provided by Section 82.110, at a regular, annual, or special meeting called in accordance with the declaration or bylaws, as applicable.
(c) The association must provide written notice of the inspection to be conducted by the engineer to each party subject to a claim not later than the 10th day before the date the inspection occurs. The notice must:
(1) identify the party engaged to prepare the report required by Subsection (b)(1);

(2) identify the specific units or common elements to be inspected; and

(3) include the date and time the inspection will occur
(d) Each party subject to a claim may attend the inspection conducted by the engineer, either personally or through an agent.

(e) Before providing notice of the meeting under Subsection (f), an association must:

(1) on completion of the independent third-party report, provide the report to each unit owner and each party subject to a claim; and

(2) allow each party subject to a claim at least 90 days after the date of completion of the report to inspect and correct any condition identified in the report.
(f) Not later than the 30th day before the date the meeting described by Subsection (b)(2) is held, the association must provide each unit owner with written notice of the date, time, and location of the meeting. The notice must also include:
(1) a description of the nature of the claim, the relief sought, the anticipated duration of prosecuting the claim, and the likelihood of success;

(2) a copy of the report required by Subsection (b)(l);

(3) a copy of the contract or proposed contract between the association and the attorney selected by the board to assert or provide assistance with the claim;

(4) a description of the attorney's fees, consultant fees, expert witness fees, and court costs, whether incurred by the association directly or for which the association may be liable as a result of prosecuting the claim;

(5) a summary of the steps previously taken by the association to resolve the claim; (6) a statement that initiating a lawsuit or arbitration proceeding to resolve a claim may affect the market value, marketability, or refinancing of a unit while the claim is prosecuted; and

(7) a description of the manner in which the association proposes to fund the cost of prosecuting the claim.
(g) The notice required by Subsection (f) must be prepared and signed by a person who is not:

(1) the attorney who represents or will represent the association in the claim;

(2) a member of the law firm of the attorney who represents the association in the claim; or

(3) employed by or otherwise affiliated with the law firm of the attorney who will represent the association in the claim.
(h) The period of limitations for filing a suit or initiating an arbitration proceeding for a claim described by Subsection (b) is tolled until the first anniversary of the date the procedures are initiated by the association under that subsection if the procedures are initiated during the final year of the applicable period of limitation.r an election or vote not taken at a meeting, the POA shall give notice of the election or vote to all owners entitled to vote on any matter under consideration. The notice shall be given not later than the 20th day before the latest date on which a ballot may be submitted to be counted.

Sec. 82.120. BINDING ARBITRATION FOR CERTAIN CLAIMS.

(a) A declaration may provide that a claim pertaining to the construction or design of a unit or the common elements must be resolved by binding arbitration and may provide for a process by which the claim is resolved.

(b) An amendment to the declaration that modifies or removes the arbitration requirement or the process associated with resolution of a claim may not apply retroactively to a claim regarding the construction or design of units or common elements based on an alleged act or omission that occurs before the date of the amendment.

























Amends 82.157(a) CONDOMINIUM - RESALE CERTIFICATE.

Adds to contents of condominium resale certificate: disclosure of transfer-related fees and "statements of operating budget and balance sheet".