Partner Shannon Splaine and associate Dillon Coil recently obtained partial summary judgment of an HOA's Chapter 40 claims.  The case involved construction defect claims brought by an HOA on behalf of the owners of 378 units constructed in 2004. The project was originally bid and constructed as an apartment complex.  Like many other projects in that era, though, the project was purchased before completion, converted, and sold as condominiums.

Nevada's Chapter 40 framework permits homeowners to recover damages for construction deficiencies.  In Westpark Owners’ Assn. v. District Court, however, the Nevada Supreme Court determined that the rights and remedies afforded under Chapter 40 exclusively apply to claims relating to “new” residences that have been unoccupied as a dwelling from the completion of construction until the point of sale.

In light of the authority of Westpark, LGC obtained rent rolls attached to the agreement for the sale of the project to the converter, which indicated that at least 114 of the units were leased at the time the project was sold.  LGC also obtained financing documents showing the developer assigned all leases and rents as part of the sale of the project.  A percipient witness also testified at deposition that several units were rented prior to sale. Based on this information, LGC argued the Chapter 40 claims were not applicable because the units were rented prior to sale, and thus not “new” pursuant to Westpark.

In its opposition, the plaintiff argued that a witness testified that the units were only leased during construction to bring in revenue to complete the project.  Thus, there was a material questions of fact as to whether the project was intended to be a condo complex.

Ultimately, the Court agreed with LGC and granted partial summary judgment in favor of LGC's client.  The ruling is significant because the application of Chapter 40 can dramatically increase the value of a typical construction defect case.

As seen in this case, the precedent in Westpark can be a significant defense to developer and contractors in construction defect cases.  However, Nevada, like California, has a 10-year statute of repose for construction defects.  As a result, as seen in LGC's case, by the time construction defect claims are brought, the defending parties are often out of business and documents and witnesses are either limited or unavailable.  Counsel in condo conversion cases should recognize a potential Westpark defense early and explore all options to obtain records, including third-party sources.

Congratulations to Shannon and Dillon on their victory.