Recent amendments to MCIOA have added additional layers of complexity to managing an association’s common elements and, in particular, to bringing construction defect claims arising out of the original construction. Associations new and old should take note of the new requirements and how it will affect them.
- Amendment’s Effect on Construction Defect Claims for Associations Created before August 1, 2017
For associations created before August 1, 2017, the only amendment to be concerned about is the requirement to create a preventative maintenance plan. Minn. Stat. § 515B.3-107(b). By January 1, 2019, these associations must create and follow a maintenance plan, maintenance schedule, and maintenance budget for the common elements in the association, subject to later amendment by the board. The association must provide a copy or offer electronic access to the preventative maintenance plan, schedule, budget, and any amendments thereto. Id.
Notably, the maintenance plan only applies to the common elements; however, subdivision (a) was also amended to expressly include liability for damage resulting from a lack of maintenance or failure to perform necessary repairs: “[D]amage resulting from an association’s or unit owner’s lack of maintenance or failure to perform necessary repairs or replacement, is the responsibility of the unit owner or association responsible for causing the damage…” Minn. Stat. § 515B.3-107(a).
- Amendment’s Effect on Construction Defect Claims for Associations Created on or after August 1, 2017
For associations created on or after August 1, 2017, the declarant must create the maintenance plan, schedule, and budget, and ensure that it is fully funded by the initial budget provided by the declarant. Minn. Stat. § 515B.3-107(b). The maintenance plan “must be based on the best available information listing all building elements to which the plan will apply and the generally accepted standards of maintenance on which the plan is based.” Minn. Stat. § 515B.4-1021(a)(4).
The preventative maintenance plan requirements of section 515B.3-107(b) could have a significant impact on future claims for breach of implied warranties under MCIOA, which was amended to create a shelter for liability where an association does not implement or follow a maintenance plan and suffers damages as a result, unless the damage is caused by a failure to comply with section 515B.3-107(b) while the declarant controlled the board.
Also with the amendments, “construction defect claim” is now a defined term under MCIOA. Minn. Stat. § 515B.1-103(11)(a). It includes all claims for defective construction, under any theory, arising out of the original construction of a common interest community. This is important because even if an association is not pursuing a claim under the MCIOA warranties, it arguably must still comply with the pre-litigation requirements under MCIOA. Notably, this definition does not include claims arising out of defects related to “subsequent maintenance, repairs, alterations, or modifications to, or the addition of, improvements that are part of the common interest community, and that are contracted for by the association or a unit owner.” Id.
If an association’s claim(s) constitutes a “construction defect claim,” the association is now required to participate in mediation before commencing a lawsuit. Minn. Stat. § 515B.4-116(c). This requirement does not apply if the association participates in the home warranty dispute resolution process under Minn. Stat. § 327A.051.
Similar to the written notice under Minn. Stat. § 327A.02, subd. 4(b), a written demand for mediation made pursuant to Minn. Stat. § 515B.4-116(c) automatically tolls the statute of limitations and statute of repose for all other actions until the latest of: 1) five days after mediation is completed; or 2) 180 days.
Finally, associations are now required to mail or deliver written notice of any anticipated construction defect litigation to all unit owners before commencing the lawsuit. Minn. Stat. § 515B.3-102(d)(1). “The notice shall specify the nature of the construction defect claims to be alleged, the relief sought, and the manner in which the association proposes to fund the cost of pursuing the construction defect claims.”
The association is also required to obtain approval from a majority of the members (excluding the declarant and affiliates, and any mortgagees who obtained ownership through a foreclosure sale) in the association. Minn. Stat. § 515B.3-102(d)(2). The association may obtain this vote through an actual meeting, or by a vote of the members taken by electronic means or mailed ballots. Importantly, if the association holds a meeting:
- It must also allow voting by electronic means or mailed ballots, and
- The votes taken by electronic means or mailed ballots must be used in combination with the vote taken at the meeting, and
- The votes are considered for purposes of determining whether a quorum was present.
Proxies can only be used if (1) the unit owner executes the proxy after receiving the written notice under subsection (d)(1), and (2) the proxy expressly references the notice.
The amendments to MCIOA are important and, in some instances, may require significant changes to how associations have typically conducted their affairs. A short check-in meeting with the association’s legal counsel will help ensure that the association is aware of the amendments and has practices in place to comply with them.