In 1999, the Dhawans contracted for the construction of a new townhome in the King Farm community along the I-270 corridor in Montgomery County, which they had built to their requirements, including a finished basement level. They moved into the completed home in April 2000.   In August 2006, the Dhawans noticed a musty odor from behind a cabinet in the finished basement level of their home.   After removing the cabinet system they discovered that a section of wall had been severely damaged by water intrusion.   Subsequent investigations revealed water damage in other areas of the basement, and further demonstrated that the moisture intrusion had resulted in extensive microbial growth and mold contamination.   It was ultimately discovered that one of the exterior walls had been improperly constructed with the use of untreated wood framing below grade, and that interior grade drywall had been used as exterior sheathing. Additionally, it was learned that the patio slab outside of the basement entrance had been improperly installed below the level of the floor slab.

Evidence as to code violations and deviations from industry standards was presented on the Dhawans’ behalf through a structural engineer, who also provided a repair specification.   Evidence of microbial contamination was presented through an environmental engineer, who established a protocol for the mold remediation component of the repair.   A contractor provided pricing for both the structural repairs and environmental remediation.   After a four day jury trial before The Honorable Ronald B. Rubin in the Circuit Court for Montgomery County in Rockville, a six member jury found for the Dhawans on all three counts, and awarded compensatory damages of $104,429.59, and, under the CPA, $121,143.39 in legal fees, for a total jury award of $225,572.98. In addition to the legal fees, the award included compensation for (1) loss of use of a portion of the home; (2) the cost of temporary repairs already undertaken; (3) the cost of interim mold remediation; (4) the cost of a permanent repair; (5) the cost of a final mold remediation and validation; and (5) the costs of the structural and environmental engineering investigations. The last item was based on a finding that the Dhawans were entitled to recover, as consequential damages, their expert expenses relating to the engineering investigation, the identification of the defects, and development of repair specifications and remediation protocol.

 As to the CPA, the jury found that Churchill had knowledge of code violations, deviations from industry standards, and deviations from the project drawings prior to the sale of the home, and that the failure to disclose those facts constituted unfair and deceptive trade practices within the meaning of the Act.   The jury was also charged with finding when the CPA claim had accrued for limitations purposes.   The CPA claim was not part of the original claim, but was added by amendment after additional defects were discovered. In particular, while a contractor was determining how much exterior siding needed to be removed for purposes of establishing the cost of repair, it was revealed that the improper interior grade drywall was used as an exterior sheathing for the entire height of one wall of the house, and was not limited to only the basement level.   The Defendant was compelled to acknowledge that it would have been aware of those conditions during construction, but moved for summary judgment as to the CPA claim on the ground that the Plaintiffs should have investigated and discovered the additional defects after the original defects appeared. The jury found that the CPA had not accrued as to those conditions until they were discovered by the Dhawans’ contractor.

 The CPA provides that reasonable attorney’s fees may be awarded for a private cause of action under the Act.   The jury awarded all legal fees that had been billed for the case.  It further advised that it wished to award legal fees for services that had not yet been billed, including the time involved in the trial.   As a result, it was determined my firm could submit to the Court additional invoices, following the trial, for services rendered since the last invoice presented to the jury.   Judge Rubin considered these supplemental invoices, and at a hearing on December 16, 2010, entered an order awarding additional legal fees in the amount of $182,176.02, for a total legal fee award of $303,319.41, bringing the total judgment award to $407,749.00.

 The case was originally filed in 2007, but was the subject of an appeal after the Circuit Court granted the Defendant’s motion to stay the case in favor of arbitration under a warranty policy that had been issued in connection with the sale of the house, despite the fact that the warranty company had already determined that there was no coverage under the policy for the claimed defects.  I have written about lack of coverage under such warranty policies in previous posts.   The Court of Special Appeals ruled that the warranty policy offered no coverage for and was inapplicable to the defects alleged by the Dhawans, held that the parties were not required to arbitrate under the policy, and remanded the case to the Circuit Court.   The motion and appeal process consumed more than two years of the litigation process, resulting in considerable legal fees.

In response to various comments and questions some of you have been kind enough to share on this blog, I am going to be authoring a series of posts that address some of these issues, as they relate to condominium and new home warranties, homeowner association warranties, seller’s warranties, contract claims,  and common law causes of action.  These matters will be addressed from the standpoint of both associations and individual owners.  In the meantime, if there are any issues along these lines that are of particular interest, please feel free to send a comment.

It is important to first understand the condominium form of ownership.  The purchaser buys a unit that is owned in the same way that an individual home would be owned, but also receives an ownership interest, in common with all other owners, in the common elements of the complex.  Each owner’s property, therefore, includes all of the common elements in addition to their unit.  This means that maintenance and repair issues in the common elements effect the value, maintainability, and useful life of every owner’s property.

Moreover, all owners, by virtue of their membership in the council of unit owners, are responsible for the maintenance, repair, and replacement of all of the common element components.  And any unit owner, because of their ownership rights in the common elements, may compel the association to properly maintain the common elements and correct any defects.

This ownership and related responsibility applies no matter how many buildings might be involved, or how far removed any common element component might be from any given unit.  Indeed, the fact that large buildings or multiple buildings may be involved in a condominium project  means that common element maintenance and repair issues are often much more problematic and considerably more expensive than those that would ever be confronted by an individual homeowner.

Additionally, Maryland law requires that condominium owners, at the time of resale, disclose to prospective purchasers any knowledge of conditions in any part of the condominium that constitute violations of applicable building codes.  Accordingly, defective conditions in the common elements have a direct bearing on the marketability of an individual unit.

As a result of these factors, building problems in condominiums are a matter that can neither be taken lightly nor ignored, because they effect every owner’s interests and can potentially have enormous financial consequences.

To properly protect themselves, condominium owners need to understand the construction of their buildings.  This is necessary even in the absence of specific problems, because condominiums are statutorily required to establish annual budgets for maintenance and replacement reserves.  Initial budgets established by the developer are often kept low in order to allow for lower annual fees that are attractive to purchasers.  The unit owners need to develop their own realistic figures for maintenance and reserves, and must become familiar with their buildings in order to understand the proper maintenance required and the anticipated useful life of the various components.

In doing so, condominium owners also need to become aware of any defective conditions not in compliance with codes, contract documents, and industry standards.  Such issues must be corrected if the condominium council is to meet its responsibilities to the owners, and, if inherent in original construction, may be conditions that the developer is responsible for correcting under warranty and common law obligations.  To preserve and pursue any such claims against the developer, the association must know what defects exist, what constitutes a proper method of repair, and the cost of such repair.

In order to gain the information necessary to intelligently maintain the project, as well as identify conditions for which the developer may be responsible, condominiums must engage appropriate consultants.  A transition study of the property should be undertaken at the time the owners assume responsibility for the complex from the developer.  Such studies establish valid figures for annual maintenance and reserves, and identify conditions that are defective or call for further investigation.

Where problems become apparent, whether by virtue of a transition study or unit owner experience, a forensic engineering investigation should be undertaken so that the true nature of the conditions can be properly identified and an appropriate repair specified.  The resulting engineering report also forms the basis for supporting any claim for damages that might be pursued against the developer.

And it is important to be mindful that time is of the essence with respect to preserving claims against the developer.  Warranties are of limited duration, and common law claims do not accrue upon actual knowledge, but, instead, commence when the property owner, in the exercise of reasonable diligence, should have been on notice of the need to investigate.

Condominium ownership offers many benefits, but being absolutely carefree is not one of them.  Only a diligent and informed unit owner can protect themselves from undue expense and unwanted aggravation.

Several states have established task forces to study mold and its effect on buildings and indoor air quality.  However, the intelligent dialogue required for the development of proper standards for mold exposure and remediation has, in large part, been drowned out by extreme voices.  On the one hand are those who summarily dismiss the issue as the fabricated product of a conspiracy between tort lawyers and a developing cottage industry of mold remediation consultants.  On the other are those readily prepared to broadly attribute a wide variety of medical conditions to the unhealthy environment of “sick buildings.” 

While it is true that mold is an ancient life form that has, throughout history, been the constant companion of humanity, its recent prominence as an indoor health issue is explained by two features of modern building techniques – the use of materials containing high concentrations of cellulose and other fibers upon which molds feed, and the employment of insulating materials and methods that restrict ventilation.  Given the inviting food source provided by present day building material, all that is required for vigorous mold growth and amplification is the presence of water and a building assembly that prevents the moisture from escaping or drying out.

One need not establish any causal connection between the presence of mold and health issues in order to recognize the need for proper mold removal.  Indeed, putting health matters entirely aside, molds deteriorate the building materials on which they feed, necessitating the repair of affected components.  Where structural elements are involved, this can become a matter of building stability as well as function.  Additionally because of the manner in which they digest materials, molds give off undesirable odors and diminish aesthetic appearance, thereby degrading the indoor environment and decreasing property values.

While the precise health consequences of indoor mold exposure remain the subject of study and debate, particularly as to the effect of its production of mycotoxins, it is undisputed that molds are recognized allergens and reproduce by means of airborne spores.  A portion of the population will have some allergic response to certain molds.  This may manifest itself as rhinitis, sinusitis or asthma, and highly sensitive individuals, and those with pre-existing respiratory problems, may develop more serious symptoms.  Additionally, persons with severely compromised immune systems may be a risk for fungal infections form some pathogenic molds.

Buildings do not have mold problems unless they have water problems.  Accordingly, building exterior envelopes and plumbing and mechanical systems need to be designed, constructed and maintained in a manner that protects vulnerable components form moisture.  Moreover, once water intrusion results in mold growth, the water source must be eliminated and methodologies need to be in place for mold removal.

In the absence of statutory regulation, various industry guidelines that have been used to govern the scope of mold remediation projects, including the Environmental Protection Agency’s Guideline on Mold Remediation in Schools and Commercial Buildings.  In general, it is recognized that hard and non-porous surfaces can usually be cleaned, while absorbent or porous materials, such as wallboard, carpet, and ceilings may require replacement.

Historically, insurance claims for mold were permitted under property damage insurance policies where the infestation arose from the intrusion of rain water as a result of storms, or the discharge of water, steam, or condensation from plumbing or mechanical systems.  However, as mold related claims have increased, insurers throughout the country have sought to exclude mold from property damage coverage.  In mid-2003, the Maryland Insurance Commissioner reversed a ruling by his predecessor, and made mold exclusions permissible.  Where mold exclusions are applicable, coverage is only available through the purchase of separate policies or endorsements.

The deterioration of building components, the diminishment of indoor environmental quality and aesthetics, and the potential for allergic reactions and other health consequences provide reason enough to adopt policies that promote the elimination of sources of indoor mold and provide a protocol for the removal of mold growth.

Rather than allow extremists to define the debate, the more reasoned approach is to adopt standards that ensure watertight buildings, identify unacceptable levels of mold contamination, and establish reasonable remediation criteria that allow its removal while minimizing the spread of the airborne spores.  To do otherwise merely perpetuates the current uncertainties and hyperbole, while the costs to property owners continue to accumulate.

Until such standards are in place, property owners need to be mindful of the potential for harm to their investment from water intrusion and mold.  It should be part of any due diligence checklist.  Where problems occur, competent professionals should be engaged to properly identify the source of the moisture and develop specifications for an effective repair, as well as to determine the need for and appropriate scope of any mold remediation program.