Changes to the DC Condo Act’s Warranty Provisions Set to Take Effect

The DC Council recently made significant changes to the provisions of the DC Condominium Act (“Act”) relating to the warranty that each developer provides to condominium associations and unit owners.

Specifically, pursuant to the Act, each developer of a condominium warrants the common elements of the condominium for two years from the date of first sale in a given condominium (or phase of a condominium) and warrants each individual unit for two years from the date of that individual unit’s initial sale from the developer. Developers are also required to submit a bond or letter of credit, in the amount of 10% of construction costs, to the city as part of the development process, with the funds from that bond or letter of credit serving as a source of funds to address any structural defects within the condominium that are covered by the statutory warranties. Over the years, the administrative procedures for handling the bond process have been unclear and varied considerably without any discernible change in law, including requirements not found in the law and applied solely by administrative agents.

The DC Councilmembers heard from many of their constituents and the DC Legislative Action Committee of the Washington Metro Chapter of the Community Association Institute (“WMCCAI”), regarding the practical issues that associations and developers faced under the prior law and decided to amend the Act to address some of those concerns.

The full text of the legislation can be found HERE, but the most notable changes are as follows:

1. Definition. The definition of “structural defect” has been expanded to expressly include violations of the building code, but only if such violation results in demonstrable harm to the health or safety of residents or if units are conveyed prior to a certificate of occupancy or substantial completion of the condominium. Previously, the building code was only one factor in determining if a component was defective.
2. Resulting Damage. If there is any resulting damage caused by a structural defect, the developer may now be required to repair such resulting damage as part of its warranty obligations. Previously, declarants were only responsible for correcting the defect and were necessarily not liable for resulting damages.
3. Bond. The procedure for establishing cost estimates to determine the 10% bond has been clarified. Developers must n ow obtain certified documentation as to the estimated “hard costs” of the project. In addition, the Act will require developers to supplement their bond with additional funds if actual costs exceed the estimated costs by a certain amount. The Mayor has also been tasked with establishing a searchable online database containing information on condominium bonds. Previously, developers would often set the bond with little to no oversight as to whether or not the construction estimates were accurate.
4. Filing Claims. The deadline for submitting a claim on the bond held with the city has been clarified so that while the warranty period is for two years from the date of sale, the time to file claims will be 5 years from the date of sale. Notice and response provisions have been established for associations and developers to follow prior to making claims with the city. Previously, associations were advised by the City they must file warranty claims within the 2-year warranty period or risk having the claim denied, creating a rush to perform inspections and file claims prior to warranty expiration.
5. Roadblocks Banned. The Act now prohibits condominium instruments from putting restraints on an association’s ability to assert claims against a developer. Previously, developers could insert procedural hurdles or roadblocks in the condominium instruments aimed to discourage associations from asserting claims. Such provisions included requiring an association to obtain membership approval prior to asserting claims, fulfilling dispute resolution prerequisites before asserting bond claims, and/or engaging in mandatory alternative dispute resolution methods, such as mediation or arbitration.
6. Appeals. The Act will now include provisions for appeals of any warranty bond decision to DC’s Office of Administrative Hearings. Previously, if a claim was denied, an association’s only recourse was to file suit. Now, associations can continue the administrative process before resorting to the courts. Note, however, that developers may now also appeal a bond award in a similar manner.
7. Rules. The Mayor has been tasked with establishing rules to implement these new provisions, with such proposed rules to be issued by mid-May 2023.
8. Claims Fund. In addition, the Mayor has been tasked with establishing a fund to provide financial assistance to associations making claims on the warranty bond, including for inspections, cost estimates, and attorneys’ fees, with eligibility based on financial need as established by rule.

While the permanent version of this legislation is expected to go into effect on March 8, 2023, temporary legislation with the same provision is already effective as of January 10, 2023. This legislation is a significant step forward for condominium associations aiming to assert their warranty rights.