If You Build It, They Will Sue: A Report on Condominium Project Risks

Architects are increasingly exposed to potential future claims and lawsuits brought by homeowners and the homeowners’ associations years after a condominium project has been completed.  This can occur even when the project developer has overruled the architect’s design decisions or has a limited role in the construction phase of the project.

The AIA Trust report entitled If You Build It, They Will Sue: A Report on Condominium Projects, aims to clarify architects’ potential liability to client and third parties on condominium projects. It also aims to provide guidance to address the concerns raised by lawsuits in which architects have been sued by third parties.  By understanding potential risks and assessing them upfront, the architect will be better able to address them.

Many courts recognize that even in the absence of a contractual relationship, architects may owe a duty to a non-client such as a homeowners’ association (HOA), based on how close is the connection between the architects’ conduct and the association’s injury; how defined the group of people is that the architects’ conduct was intended to affect; and the absence of a third party professional to provide an independent assessment to protect homeowners from design defects and resulting injury.   

The meaning of this and other court cases is that for an architect, client evaluation and selection could not be more important for a condominium project since the client will quickly transfer ownership to a HOA and individual unit owners. A lack of proper maintenance of common areas, drainage, roofs, etc. are behind the most common condominium lawsuits so the architect and developer should craft maintenance obligations and requirements binding upon the HOA and unit owners. These provisions will help to mitigate damages and serve as affirmative defenses if the HOA or unit owners do not abide by them.

Examples of important contract provisions that address critical risks are provided. Indemnity is noted as the most important contract provision, an agreement to assume a specific liability in the event of a loss. The client may saddle the design professional with an onerous indemnity provision.  It is also important to avoid an express duty to defend but tie any indemnity obligation to a determination of negligence. A mutual waiver of consequential damages, for missed market opportunities and other factors, is an appropriate way to address them. A limitation of liability provision, of the design professional from the client developer is essential and can be tied to the amount of available insurance, the architect’s total fee, or another negotiated amount. Protecting yourself from third-party claims requires professional liability insurance and trends indicate that owners are requesting higher limits for insurance coverage.

Condominium projects remain high risk. There is no absolute protection for a design professional to avoid the very real possibility of HOA or individual unit owner claims and lawsuits. The paper provides a guide for the architect to field the best defense–which remains a good set of plans and specifications, well thought-out contract and appropriate insurance, competent general contractors and subcontractors, and proper third-party observation and inspection.