Condo Media - November 2014 - 14

by David Rogers, Esq.

C A I

R e g i o n a l

N e w s

MASSACHUSETTS

Defective Construction and Design
Association Can Recover From Developer

T

he Supreme Judicial Court has
issued a landmark decision that
has effectively carved out an
exception to the "economic
loss rule" for condominium associations seeking to recover for defective
construction and design. In Wyman
v. Ayer Properties, LLC, the Supreme
Judicial Court reversed the Superior
Court's dismissal of a condominium
association's claims associated with
negligently constructed masonry -
finding the association could recover
more than $500,000 from the developer of a Lowell condominium.
The Supreme Judicial Court recognized that the economic loss rule had
placed an unintended and substantial
burden upon condominium associations and "conclude[d] that the economic loss rule is not applicable to the
damage caused to the common areas of
a condominium building as a result of
the builder's negligence."
The economic loss rule holds that in
a "tort" action (distinguished from a
breach of contract claim), plaintiffs can
recover damages only for actual property damage or personal injury - they
may not recover damages for purely
economic loss.
In the condominium context, this
had meant that an association that
discovered it had a defective roof could
not directly sue the developer for the
cost of repairing the roof itself - unless that defective roof caused personal
injury or damage to other property.
In other words, if the condominium
association could not demonstrate that
the defective roof was causing water
infiltration into the individual units or
common areas of the condominium,
for example, the association could not

14

Condo Media * JULY 2014 2014
November

recover against the developer for negligence under the economic loss rule.
The legal theory behind this rule is
that the party contracting to have the
roof installed had an opportunity to
negotiate an express warranty guaranteeing its performance. If the purchaser of the roof had failed to negotiate
such a warranty, the economic loss

Properties, LLC in 2002 and converted to condominium status, after
the developer performed a renovation
of the building over nearly three years.
After control of the condominium was
transferred from the developer to the
unit-owner-elected board, the association engaged an engineering consultant to investigate the building. The

The Supreme Judicial Court's decision will make
it easier for condominium associations to obtain a
remedy for all of its construction defect claims.
rule served to prevent the purchaser
from receiving a "second bite at the
apple" by recovering against the roof
installer with a tort claim.
The economic loss rule posed a
significant problem for community associations, as in certain circumstances,
the rule provided developers with a
potential shield of protection against
construction defect claims. Community
associations, which do not have the
ability to negotiate express warranties
covering the original construction of
the common areas, are generally unable
to advance contract-based claims to
recover for construction deficiencies.
As such, the economic loss rule, which
serves to prevent recovery in tort unless
certain criteria were satisfied, effectively rendered community associations
without recourse against a developer for
certain claims of negligent construction.
The Wyman case involved the Market Gallery Condominium, located in
Lowell. The four-story brick building,
which was originally constructed in the
19th century, was purchased by Ayer

investigation performed by the association's consultant revealed deficiencies
associated with the windows, the roof,
and masonry of the building.
After an 11-day trial, the Superior
Court awarded damages to the association for the negligent design and
construction of the window frames and
the negligent construction of the roof.
The court determined the economic
loss rule did not serve as a defense to
the association's claims concerning the
windows and the roof because these
deficiencies caused additional harm
within the individual condominium
units (i.e., water infiltration). The court
did not allow the association to recover
for the negligently constructed masonry, however, because it determined that
the deficient masonry did not extend
to any harm beyond the masonry itself.
The Supreme Judicial Court, in reversing the Superior Court's dismissal
of the association's masonry-related
claims, reasoned that "[t]he nature of
condominium unit ownership supports our conclusion that claims such
Condo Media - November 2014

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