Earlier this year, the New Jersey Legislature passed a bill that amends the current statute of limitations for construction defect claims in common interest communities. Senate Bill No. 396 took effect immediately upon the Governor's signature on January 18, 2022.

History of Construction Defect Statute of Limitations in New Jersey

Historically in New Jersey, the statute of limitations for construction defect claims in common interest communities typically accrued upon substantial completion. Substantial completion is the date construction is sufficiently complete as to allow use or occupancy of the building/project, and has been found by the courts to be the date the architect certifies that the building is substantially complete to the owner or when the certificate of occupancy is issued. See Palisades at Fort Lee Condo. Ass’n, Inc. v. 100 Old Palisades, LLC, 230 N.J. 427, 486 (2017). As set forth by the New Jersey Supreme Court, the discovery rule may apply to toll the statute of limitations, and “[a] cause of action . . . accrues when someone in the chain of ownership first knows or reasonably should know of an actionable claim against an identifiable party.” Id. at 487. Thus, “if the original owner was unaware of an actionable claim, despite the exercise of reasonable diligence, then the accrual clock begins when a subsequent owner knew or reasonably should have known of the existence of the claim.”

Impacts of New Law

Effective January 18, 2022, under revised statute, codified at N.J.S.A. 2A:14-1(c),

The period of time for the filing of a claim by a condominium association, cooperative corporation, or other planned real estate development association against a developer or any person acting through, on behalf of or at the behest of the developer under subsection a. of this section, shall be tolled until an election is held and the owners comprise a majority of the board pursuant to paragraph (3) of subsection a. of section 5 of P.L.1993, c. 30 (C.45:22A-47), or subsection d. of section 2 of P.L.1979, c. 157 (C.46:8B-12.1). Any cause of action involving a condominium, cooperative, or other planned real estate development under the provisions of subsection a. of this section that has not been subject to a final judgment dismissing the claim as of the effective date of P.L.2021, c. 379 shall be subject to the terms of this subsection.

As set forth in the Legislative history, this revision to the statute of limitation accounts for the fact that the transition of the board from developer control to owner control can sometime occur years after the date of substantial competition. Commonly referred to as the “transition,” under N.J.S.A. 45:22A-47(a)(3), the developer’s control over the board terminates sixty (60) days after the conveyance of seventy-five (75) percent of the lots, parcels, units, or interests, and the owners/eligible tenants must elect the executive board. As set forth under N.J.S.A. 46:8B-12.1(d), the developer must relinquish control of the association to the unit owners no more than sixty (60) days after the unit owners elect the majority of the governing board.

This new addition to N.J.S.A. 2A:14-1 provides greater clarity to the date of accrual in construction cases involving common interest type communities. While it is anticipated that this newly revised law will reduce motion practice involving the statute of limitations, same does not impact the statute of repose. The statute of repose provides that, no cause of action for construction defects in the design, planning, surveying, supervision, or construction, may be maintained more than ten (10) years after the performance or furnishing of services and construction. Thus, although the six-year statute of limitations for common interest communities will not begin to run until the transition occurs, there remains the assurance for involved contractors and professionals that no suit can be maintained after ten years from the date of completion of their respective work.

Key Takeaways

  • This law goes into effect immediately and applies to construction defect cases currently involved in litigation as well as future cases. It does not impact any cases already decided.
  • This law applies to cases brought by common interest communities only, including condominium and homeowners’ associations.
  • The statute of limitations will no longer accrue at substantial completion of the property, but will begin to run at the time of “transition” when the majority of the association board is comprised of unit owners as opposed to developer representatives.
  • The purpose of this legislation is to afford common interest communities additional time to discovery defects and accounts for the time in which the control of a community transitions from the developer to unit owners/association members.
  • The Statute of Repose requiring that all construction defect claims be brought within ten years of substantial completion remains in effect.

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