CAI-NJ June 2021

TRANSITION... from page 47.

ciation is less than the developer’s insurance deductible, then it may have an incentive to offer a satisfactory deal to the association early on and without the need for litigation. 4. Hire Attorneys with Experience in Dealing with Developers Smaller communities are sometimes tempted to save money by not hiring association counsel to help navigate the tran- sition process. Doing so might tempt unscrupulous sponsor/ developers to take advantage of the fact the association is proceeding unrepresented. Sponsor/developers sometimes will assure new boards that it will work with them and address any issues that arise concerning building defects. Often, boards are led into a false sense of security and see no need to hire counsel. However, an attorney that regularly represents community associations and has experience with transition negotiations will know if the sponsor/developer is acting in its own self-interest and should be doing more for the association at transition. An effective attorney will also help quarterback the transition engineering and accounting team to make sure those professionals are working as efficiently and cost-effec- tively as possible. While attorneys play a crucial role in the transition pro- cess, smaller associations can take important steps to help keep legal fees in check. For instance, boards should inter- view multiple law firms and compare proposed scopes of services with proposed legal fees. However, boards should be careful to not simply choose the attorney with the lowest hourly rate, as an attorney might offer a uniquely low rate but ultimately bill more hours than necessary because of a lack of expertise or efficiency. It would certainly be more cost-effective to hire an experienced community association attorney at $400 per hour who can do a given task in two hours than a novice, general practitioner at $250 an hour who might twice as many hours to do the same task. Boards should ask prospective attorneys for references from past association clients who were similar in size and reach out to those board members to discuss their experience with the attorney or firm in question. In the event a quick settlement is not possible and litiga- tion becomes necessary, boards should consider hiring attorneys that focus on construction-defect litigation, rather than general practitioners who might have to spend a lot of time learning new areas of law in order to be able to CONT I NU E S ON PAGE 56

permits, filed and approved construction plans, outstanding performance bonds, deficiency reports, or punch list items from the municipal engineer or building inspectors, etc. A careful review of these documents might yield evidence that the sponsor/developer has not complied with all municipal requirements and bringing these issues to the attention of the right officials might help in getting the municipality on the asso- ciation’s side, especially if the sponsor/developer is going to be building future projects in the municipality. 3. Sponsor/Developers are More Likely to Settle with Smaller Communities If a transition engineer or accountant identifies deficien- cies attributable to the sponsor/developer, an easy, pre-lit- igation settlement is more likely with a smaller community than a larger one. When transition studies uncover major construction issues in a larger community, the scope of repair is often complex and expensive. For instance, if a transition engineer finds that the entire stucco system on a community with 12, four-story buildings is defectively installed and must be replaced, the cost to do so could easily cost multiple millions of dollars. Even the largest sponsor/developer will be reluctant to voluntarily incur 7-figure repair costs. As a result, sponsor/developers fac- ing demands by associations to make monumental repairs often will resist so that, if the association ultimately sues, it can turn the matter over to its liability insurance company for a defense and possible indemnification towards a set- tlement or judgment in favor of the association (rather than funding it exclusively with the developer’s own money) However, in smaller communities, even if the construction defects are serious, the cost to repair them will likely be

relatively modest. If there are stucco defects, the cost to repair might only be in the 5- or 6-figure range; an amount much more palatable to a developer. Also, many insurance policies for larg- er sponsor/developers have a self-in- sured retention or deducible amount of as much as $200,000. If the cost to settle with a small condominium asso-

“...smaller associations can take important steps to help keep legal fees in check.”

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