In The Palisades at Fort Lee Condominium Association, Inc. v. 100 Old Palisade, LLC, ___ N.J. ___ (2017), the plaintiff was the Condominium Association that brought suit based upon defects in the condominium building after the Association took over control from the Sponsor and after the Association obtained its own engineering report.  Summary judgment on statute of limitations grounds was obtained by the defendants in the trial court; the Appellate Division reversed.  The New Jersey Supreme Court held that a cause of action for construction defects, for statute of limitations purposes, accrues when any owner in the chain of title “first knows or reasonably should know of the actionable claim against an identifiable party.”  A plaintiff’s case must be commenced within six years after a claim “accrues.”  The general rule is that accrual begins upon substantial completion of the project.  However, under the “discovery rule” the statute begins to run from when a plaintiff “knows or reasonably should know of an actionable claim against an identifiable defendant.”  The Court has now made it clear that if an “earlier owner knew or should have known of a cause of action against an identifiable defendant, then the accrual clock starts then.”  “The statute of limitations clock is not reset every time property changes hands.”

Thus, the plaintiff Association in The Palisades took title subject to the rights of the prior two owners – the entity that operated the building as apartments and the second entity which converted the units to condominiums.  The second owner had obtained an engineering report during its ownership.  Based on the facts before it, the Court remanded the case for a so-called Lopez hearing, in order to determine when the Association’s claims accrued.  The Court made it clear that it is the plaintiff’s burden, for the purposes of the Lopez hearing, to prove that its claims accrued sometime later than substantial completion.

While the issue was not specifically before it, the Court also took the opportunity to address the ten year statute of repose.  This statute begins to run upon a project’s substantial completion; the ten years sets the outer limit for filing of a construction defect claim.  This outer limit remains unaffected by the decision in The Palisades.  “For example, if for purposes of the property-damage statute of limitations … a construction-defect action accrues eight years after a project’s substantial completion, a plaintiff will have only two years to file a claim before it is barred by the repose statute.”  Thereafter, a claim will still be barred by the statute of repose.

The holding in The Palisades has significant potential impact on construction defect property damage/tort claims as it can mean that there is a significantly shorter time period within which plaintiff Associations must file suit over claimed defects as the Associations will be charged with knowledge of an actionable claim that is possessed by a Sponsor.  On the flip side, this decision also imposes on Developers/Sponsors the need to be diligent about pursuing claims of which it becomes aware, particularly in slow-selling communities.  The holding also potentially impacts how Successor Sponsors approach transactions for existing or partially-complete communities.

Christopher J. Marino and Timothy J. DeHaut also contributed to this article.