Warranty Against Structural Defects in D.C.

February 13, 2012 — Leave a comment

Issue

Whether, pursuant to D.C. Code Section 42-1903.16, the declarant has a duty to warrant against structural defects in a condominium which arose and were claimed by the unit owners two months after the posted letter of credit had been returned to the declarant by the Condominium and Cooperative Conversion and Sales Branch?

Applicable Rules

D.C. Code Section 42-1903.16(b) states that the “declarant shall warrant against structural defects in each of the units for 2 years from the date each unit is first conveyed to a bona fide purchaser, and all of the common elements for 2 years.”

D.C. Code Section 42-1903.16(e)(1) states that “Prior to the declarant’s first conveyance of a residential unit to a purchaser, the declarant shall post a bond or letter of credit with the Mayor in the amount of 10% of the estimated construction or conversion costs. The bond, letter of credit, or other security shall be reduced at the declarant’s request in pro rata segments (based on the residential unit’s percentage interest in the residential portion of the condominium) 2 years after the conveyance of each unit; provided, however, that in no event shall the security be reduced below 50% of the original amount of the security until one year after transfer of control of the residential executive board of the condominium association to purchasing residential unit owners other than the declarant. For purposes of this subsection, “transfer of control” shall have occurred when 51% or more of the residential executive board is composed of residential unit owners other than the declarant, or successor declarant, or the declarant’s selections or nominees.”

Brief Statement of the Facts

As required by D.C. Code Section 42-1903.16, the declarant posted a letter of credit with the Mayor, which bore an issuing date of March 3, 2004 and an expiration date of March 3, 2006. The declarant sold the first condominium unit on May 28, 2004 and by June 24, 2004 he had sold the last unit. The Letter of Credit was returned to the declarant by the Condominium and Cooperative Conversion and Sales Branch on March 6, 2006. The claims regarding structural defects arose on or around May 3, 2006.

According to our investigation, the declarant did not request that the letter of credit be returned to him. The Condominium and Cooperative Conversion and Sales Branch returned the letter of credit based on expiration date set forth on the letter by the issuing bank and made no requests of any kind.

Analysis

The sale of the last unit was on June 24, 2004.  Based on D.C. Code Section 42-1903.16(b), the required warranty is to exist until two years after the sale of the last unit, i.e., June 24, 2006.  However, the letter of credit was returned to the declarant on March 6, 2006.

In his letter of March 6, 2006 to the declarant,  Mr. Bradford does not inquire as to the date when the last condominium unit was sold to determine whether the letter of credit should have be returned to the declarant, nor does he request that an alternate letter of credit be obtained by declarant in the event there was a gap between the expiration date on the letter of credit and the date the required warranty was to end – at the conclusion of the two year statutory period following the last sale of a unit.

Conclusion

It is possible that the Condominium and Cooperative Conversion and Sales Branch returned the letter of credit because it was misguided by the expiration date of March 3, 2006 listed on the letter by the issuing bank.  Nevertheless, it is our opinion that based on Section 42-1093.16(e)(1), the Condominium and Cooperative Conversion and Sales Branch should, at a minimum, have inquired as to the date the last unit may have been sold, or direct the declarant to post a new letter of credit in the event there was any gap between the expiration date on the letter of credit and the two year statutory period.

Due to the oversight of the Condominium and Cooperative Conversion and Sales Branch, the declarant reasonably relied on the government’s authority and did not post a second letter of credit. Had the Condominium and Cooperative Conversion and Sales Branch informed the declarant of the need to post a new letter of credit, the declarant would have furnished one immediately.

Accordingly, it is our Client’s position that he should not be responsible for any structural defects which arose two months after the letter of credit was returned to him.  On the other hand, the declarant is amenable to meeting with the Director of the Condominium and Cooperative Conversion and Sales Branch in order to thoroughly discuss the owners’ claims of structural defects.

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