In a recent New Jersey Supreme Court case, The Palisades at Fort Lee Condominium Association, Inc. v. 100 Old Palisade, LLC, 2017 N.J. LEXIS 845 (2017), the Court was asked to rule on when the statute of limitations accrued in a construction defect property damage case. The plaintiff Association filed suit against the general contractor and three subcontractors alleging that the building complex was defectively constructed. However, the defendants argued that the lawsuits were barred by the six year statute of limitations in N.J.S.A. 2A:14-1.
The project was deemed substantially complete as of May 1, 2002. The prior owners first rented apartments in the building and then converted the apartments into condominium units. The prior owners did not relinquish control to the plaintiff Association until July 2006. After the Association took control, they retained an engineering and architectural services firm, the Falcon Group, to inspect the common elements for any construction defects. Thereafter, the Falcon Group issued a report on June 13, 2007, detailing all construction defects found. Based upon this report, the Association filed several suits, the first one being filed on March 12, 2009.
The Supreme Court ruled that both the trial court and the Appellate Division applied the wrong statute of limitations. The trial court ruled that the limitations period began to run in May 2002 when the building was substantially complete. The trial court found that the suit was barred because the building’s owners knew or should have known of the defects before May 2008, yet filed suit after that date.
The Appellate Division, however, reversed and found that the plaintiff’s claims did not accrue until June 2007, when the plaintiff Association took control of the building and became “reasonably aware” of the construction defect claims after it obtained an expert report outlining such defects. Because suit was filed within 6 years of that date, the Appellate Division found that suit was timely filed.
The Supreme Court ruled that neither the trial court, nor the Appellate Division applied the correct legal standard for determining when a construction defect action accrued. The Court held that, while the six year statute of limitations would typically run from the date of substantial completion, it is subject to the discovery rule. Based upon the discovery rule, the limitations “clock” does not start until “the plaintiff is able to discover, through the exercise of reasonable diligence, the facts that form the basis for actionable claim against the identifiable defendant.”
The Court further clarified that the lawsuit must be filed within six years “from the time that the building’s original or subsequent owners first knew or, through the exercise of reasonable diligence, should have known of the basis for a cause of action.” A subsequent owner would stand in no better position than a prior owner in calculating the statute of limitations. The Court ruled that if “a prior owner knew or reasonably should have known of a basis for a construction defect action, the limitations period began at that point.”
Because the record was not fully developed below as to what information the original owners possessed as to any construction defects before control was relinquished to the Association, as well as what knowledge of any defects which the Association knew, or should have known, through the exercise of reasonable diligence, the Court reversed the Appellate Division judgment and remanded the matter back to the trial court to conduct a hearing to answer these questions.
