A proposed bill in DC intended to protect new condo owners from defects may have unintended consequences, according to local developers.
The Condominium Warranty Amendment Act of 2020 would amend the Condominium Act of 1976 to require condo developers (the "declarant") to put aside 10% of the estimated cost of construction and/or conversion of each new unit in order to cover any potential structural defect claims.
As clarified in the bill, "structural defects" include any non-maintenance-related fault inside individual units or common areas that "reduces the stability or safety", doesn't "comply with building code requirements", or doesn't serve its intended use without need of replacement or repair. The costs of construction or conversion include labor and materials and must be sworn to by the contractor prior to construction, then updated to reflect actual costs before a certificate of occupancy is issued.
DC's Department of Consumer and Regulatory Affairs (DCRA) would retain these records and unit owners or the condo association would make claims to DCRA. The "declarant" would then have 30 days to respond. If there is no response, the claim is presumed valid, and if the defect is disputed, DCRA would have the claim inspected by a third party; both sides have the option to appeal.
If a claim is verified, the securitized funds would go to the unit owner or the condo association. If no claim is made within the two years after the condo association is transferred at least 51% to unit owners, the "declarant" can request the security be reduced. Also, if there is still a unit that remains unsold in the building five years after the first unit is delivered to a buyer, that unit can be treated as a resale without the required warranty and security funds.
Some DC condo developers have already banded together to speak out against the proposed bill, stating that its passage would make condo development in the city cost-prohibitive.
A letter to the DC Council, dated September 10th, begins:
"A new amendment to the D.C. Condominium Act has been proposed which, if adopted in whole or in part, would have a chilling effect on condominium development in the District of Columbia. At a minimum, this proposed amendment would lead to an increase in the cost to construct and finance condominiums (and may in fact make condominium development difficult to finance at all), and would lead to an increase in the cost to purchase condominium units."
The bill was originally introduced in January, as was a competing bill which has a narrower definition of structural defects and directs claims to the Department of Housing and Community Development; the Committee on Housing and Neighborhood Revitalization will hold a public hearing on both bills on Thursday.
Thumbnail photo by Ted Eytan.
This article originally published at https://dc.urbanturf.com/articles/blog/dc-developers-raise-concerns-about-proposed-condo-bill/17288.
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