Modular Homes Test Energy Efficiency Standards
August 06, 2014 —
Beverley BevenFlorez-CDJ STAFFThe Systems Building Research Alliance (SBRA) will be putting three different energy standards to the test, according to Big Builder. Clayton Homes has been selected to build three modular homes, which will be used in a 15-month energy performance test conducted by Southern Energy Homes (SEHomes).
Each home will comply with a different standard: “one complies with the U.S. Department of Housing and Urban Development’s (HUD) thermal standards, one is an Energy Star-qualified home and one meets the DOE requirements for the Challenge Home Program, also known as a DOE Zero Energy Ready Home.”
Testing is expected to be completed July 2015.
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No Bad Faith In Filing Interpleader
August 19, 2015 —
Tred R. Eyerly – Insurance Law HawaiiThe Eighth Circuit determined that filing an interpleader action in the face of multiple claims against the policy holder did not constitute bad faith. Purscell v. Tico Ins. Co., 2015 U.S. App. LEXIS 10438 (8th Cir. June 22, 2015).
Ben Purscell's vehicle collided with another vehicle, in which Tim and Amy Carr were riding. The Carrs were injured, and Purscell's passenger, Amy Priesendorf, was killed. Before the accident, Priesendorf had stretched her leg over and put her foot on the accelerator, on top of Purscell's foot. As the other car approached, Purscell swerved to avoid an accident, but the two vehicles collided.
Purscell had a policy with Infinity Assurance Insurance Company. The policy limited liability to $25,000 per person and $50,000 per accident for bodily injury. Infinity put the full $50,000 per accident limits on reserve, with $25,000 designated to Priesendorf's fatality and $25,000 designated to the Carrs.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
Wildfire Is Efficient Proximate Cause of Moisture Reaching Expansive Soils Under Residence
November 05, 2014 —
Tred R. Eyerly - Insurance Law HawaiiThe court considered whether a wildfire (covered risk) or moisture in the soils (excluded risk) was the cause of damage to the insureds' home. Encompass Ins. Co. v. Berger, 2014 U.S. Dist. LEXIS 142870 (C.D. Cal. Oct. 7, 2014).
In May 2009, the Jesusita Fire caused damage to the insureds' home and surrounding area. The west wall of the house was burned, causing damage to a bedroom. A shed, hot tub, wooden decks and some vegetation, including eucalyptus trees, were damaged.
The insureds submitted a claim to Encompass. Eventually, Encompass spent $400,000 repairing the property.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
Women Make Their Mark on Construction Leadership
April 22, 2019 —
Annalisa Enrile & Oliver Ritchie - Construction ExecutiveIn the era of the Lean In movement and the Women’s March, women are finding their voices and using them. In politics, in the classroom and even on the playing field, women’s participation and leadership are breaking records. However, this is not the case in the board room—especialy in the C-suite. The Russell 3000 Index, a market index that benchmarks the U.S. Stock Market, found that only 9 percent of top executive positions were filled by women. The construction industry reflects this low participation of female executives. Women in construction only number 9 percent across the board of the industry.
Seven percent of all construction executives are women and only 3 percent of the Fortune 500 construction companies have a female construction manager. Most are in sales and office roles (about 45 percent). Russell 3000 also found that women who are in the C-suite usually fill more HR- or administrative-related positions with very few in COO or CEO positions. Women in leadership need to have real decision making power to progress further. On the upside, women in construction tend to have less of a pay gap than other industries—about 5 percent compared to 20 percent.
Though she be but little, She is Fierce
Despite their small numbers, women executives in construction are paving the way for others to access leadership. In 1984, 11 women created Women Construction Owners and Executives, an organization for support and professional development. Their purpose is to promote women into leadership, assist women in executive positions and encourage more women to join the industry. The National Association of Women in Construction and Women in Construction Operations are also resources and networks with thousands of members.
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Annalisa Enrile & Oliver Ritchie, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.
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Additional Insured Not Entitled to Reimbursement of Defense Costs Paid by Other Insurers
October 21, 2015 —
Tred R. Eyerly – Insurance Law HawaiiCon Edison ("Con Ed") was unsuccessful in arguing for defense costs that had already been paid by other insurers. Consol. Edison Co. of N.Y. v. Lexington Ins. Co., 2015 U.S. Dist. LEXIS 121573 (S.D. N.Y. Sept. 9, 2015).
Team, Inc. was under contract with Con Ed to provide repairs to the steam system running below the streets of New York City. The contract required Team to indemnify Con Ed for all claims resulting from personal injury or property damage connected to Team's work. Team also obtained a CGL policy naming Con Ed as an additional insured. The policy was to provide primary coverage. Any insured was responsible for the first $250,000 of costs for investigation and/or defense.
On July 1, 2007, a steam distribution main, on which Team had finished working, ruptured, creating a huge crater and sending steam and debris, including asbestos insulation, into the surrounding area. The rupture caused substantial damage to nearby buildings, vehicles and underground infrastructure. It also caused personal injury, including two individuals in a tow truck that fell into the crater and a woman who suffered a fatal heart attack while running from the explosion.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
Colorado Statutes of Limitations and Repose, A First Step in Construction Defect Litigation
December 20, 2012 —
CDJ STAFFGrund Dagner, a law firm operating in Denver and Boulder, Colorado notes on their blog that when defending a construction defect claim, one of their first steps is to determine if the claims are affected by the statutes of limitations or repose, and that they “have had much success raising these defenses with the court before trial.”
Colorado has a two-year statute of limitations, starting from when the homeowner discovers the defect. Further, Colorado’s statute of repose precludes lawsuits beginning “more than six years after the substantial completion of the improvement to the real property.”
Grund Dagner notes that they “recently obtained dismissal of claims related to eight of 22 buildings in a condominium project, where the homeowners in those building observed the defects more than two years before the HOA initiated its claims against our client.”
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Were Condos a Bad Idea?
June 13, 2022 —
Tyler P. Berding - Berding & Weil LLPIntroduction
Condominiums are a nice idea, but their execution has been less than perfect. Long before the fatal Berkeley, California balcony failure in 2015 or the 2021 Champlain Towers South collapse that killed 98 people in Surfside, Florida, we suspected that all was not right with the basic condo concept. Years ago, there were already signs this "cooperative" housing model was anything but. Whether due to owner apathy, internal disputes, or failure to fund future repairs, sustaining these projects for the long-term has been difficult, leaving their future in doubt. Can this be fixed, or is the concept inherently flawed?
Every enterprise has an organizational "model" to run the business. For-profit corporations obtain revenue from the sale of products or services. The revenue of non-profit condominium corporations are the assessments paid by the owners of the individual units. While these assessments are “mandatory” in the sense they must be paid, they are also “voluntary” since the amount is left to the board of directors to determine. Condos are cheaper to buy, but the sales price may not reflect the real cost of ownership. They are "cooperative" because costs and space are shared, but internal disputes and funding shortfalls operate to shorten the life of these buildings in ways few owners understand.
Internal Disputes
Why is condominium life frequently not “cooperative?” Disputes. Disputes between condominium owners and their associations; among board members; and between individual owners and their neighbors. There are arguments over the right to put a flag on the balcony. There are arguments over swimming pool hours. The right to paint their front door some color other than everyone else's. The right to be free of noise, smoke, or view-blocking plants. And sometimes, the claimed right not to pay assessments needed to maintain the project—all notwithstanding the governing documents to the contrary. The right to use one's property as the owner sees fit is a concept imported from the single-family home experience but not replicated in condominiums where common ownership requires rules to avoid chaos.
But a condominium association's most important concern should not be the color of someone's front door or when they can swim but sustaining the building and keeping owners safe. Maybe we care someone has painted their front door bright green, but should that concern have priority over finding rot that may cause a balcony to collapse with someone on it? Resolving conflicts and enforcing the governing documents have a reasonable success rate. Still, the effort required to do that often distracts the board from more critical issues—damage that can sink the ship. Directors can waste a lot of time re-arranging the deck chairs on the Titanic when, if they look closely, the iceberg is coming.
Maintenance Lacks Priority
Why can't we enforce the rules and do what’s necessary to sustain the building and keep occupants safe? Unfortunately, juggling both behavioral and sustainability issues has proven difficult for many volunteer boards of directors. Rule disputes are always in their face, crowding their agenda, while the damage that could lead to structural failure often remains unknown. Also, enforcing—or resisting—rules can involve a clash of egos that keep those matters front and center. Or, and I suspect this is a primary culprit, the cost of adequate inspections, maintenance, and repair is so high that boards cannot overcome owner resistance to that expense.
While boards and management must sustain the project and protect people, raising the funds to do that is another matter. Directors must leap hurdles to increase regular assessments. Imposing large, unexpected, special assessments for major repairs can be political suicide. Unfortunately, few owners realize how deadly serious proper maintenance is until there is a Berkeley or a Surfside, and everyone is stunned by the loss of life and property. While those are extreme cases of faulty construction, inadequate maintenance, natural causes, or all the above, they will not be the last. We know that because experts have seen precursors to those same conditions in other projects.
Our concern for sustainability arises from examining newer projects during construction defect litigation when forensic experts open walls to inspect waterproofing and structural components. It also comes from helping our clients with the re-construction of older buildings and dealing with many years or decades of neglect for which little or no reserves have been allocated.
The economic impact of repairing long-term damage is huge. Rot lying hidden within walls slowly damages the structural framing. Moisture seeping into balcony supports weakens them sometimes to the point of collapse. The cost to repair this damage is frequently out of reach of most condominium associations. In newer projects, when experts find problems early, claims are possible. The Berkeley balcony failure occurred in an eight-year-old building[1], and there was recourse available from the builder. But with older projects, it is often difficult to hold anyone responsible other than the owners themselves.
Is The Condo Model Flawed?
Suppose this is true—and our experience representing condominium projects for over forty years tells us it is—then we are not dealing only with the inexperience of some volunteer directors but rather with a flawed organization model. Board members want to succeed but are constrained by an income stream that depends almost entirely on the will of the individual owners—essentially voluntary funding.
Under most state laws, funding for condominium operations and maintenance is not mandatory[2], and relies instead on the willingness of the directors to assess owners for whatever is needed, and on the willingness of owners to accept the board’s decisions. When a board of directors can set assessments at whatever level is politically comfortable, without adequate consideration, or even knowledge, of long-term maintenance needs, systemic underfunding can result[3]. What the members want are the lowest assessments possible, and directors often accede to those demands. When these factors conspire to underfund maintenance, they will drastically shorten the service life of a building. They also make it potentially unsafe.
Commercial buildings incentivize their owners for good maintenance with increased rents and market value. That incentive is not relevant to a condominium owner because the accumulating deficit is rarely understood at the time of sale and not reflected in the unit’s sales price. With a single-family home, deferred maintenance is more easily identified and is reflected in the purchase price. But condo home inspections are usually confined to the interior of a unit, and do not assess the overall condition of the entire building or project or review any deficit in the funding needed to attend to deficiencies. Thus, market value is not affected by reality.
In most states that require that reserves be maintained for future maintenance and repairs, the statutes require nothing other than cursory surface inspections. Damage beneath the skin of a building is not investigated, and no reserves are recommended for what is not known. California recently enacted legislation that will require condominium associations inspect specific elevated structures for safety, including intrusive testing where indicated. But no other state requires this level of inspection, and few even require a reserve study to determine how much money to save for the obvious problems, never mind those no one knows about[4].
This situation leads to unfair consequences for those owners who find themselves unlucky enough to own a unit when the damage and deficits are finally realized. Damage discovered, say, in year 35 didn’t just happen in year 35. That deterioration likely began earlier in the building's life and lay hidden for decades. It is costly to repair when it finally becomes obvious or dangerous. No prior owner, those who owned and sold their units years ago, will pay any part of the cost of the eventual rehabilitation of that building due to past lack of adequate inspections and years of artificially low assessments. Instead, the present owners will be handed the entire tab for the shortfall from several decades of deferred maintenance or hidden damage—the last people standing when the music stops.
Can this trend be reversed? As condominium buildings age and deterioration continues, the funding deficit increases dramatically. But to reverse that trend and reduce the deficit, someone must know it exists and be willing to address it. That requires more robust inspections early in the building's life and potentially higher assessments to stay even with any decay.
Conclusion
It would not be wrong to blame this on the failure of the basic condominium model. Volunteers rarely have sufficient training or expertise to oversee complex infrastructure maintenance, especially without mandatory funding to pay for it. The model also does not insist that board members have a talent for resolving conflicts. While condominium boards can leverage fines or legal action to enforce the rules, that lacks finesse and can create greater antagonism—a distraction from the more critical job of raising funds to inspect and maintain the building.
Unit owner-managed, voluntarily funded, multi-million-dollar condominium projects were probably a bad idea from the beginning. But sadly, it is way too late to reverse course on the millions of such projects built in the past sixty years. Many are already reaching the end of their service lives, with no plan to deal with that. Robust inspection standards on new and existing projects and enforceable minimum funding for maintenance and repairs should be considered by state legislatures. But whatever the approach, the present system is not staying even with the deterioration of many buildings, and that is just not safe anymore.
- The collapse of the balcony in Berkeley occurred on an apartment building. But the construction of that building is similar or identical to the construction of most multi-story wood-frame condominiums.
- Boards of directors are empowered by statute or contract to assess members for operation and maintenance costs. However, there are few statutes that set minimum funding or otherwise require boards to exercise that authority.
- Even in states that require reserve studies, the physical inspections are inadequate to uncover some of the costliest damage. California’s reserve study statute—Civil Code Section 5550—only requires inspection of those components that are visible and accessible, leaving damage within walls and other structural components undiscovered and funding for the eventual repairs, unaddressed.
- In May 2022, in response to the Champlain Towers South collapse, Florida enacted mandatory structural inspections for buildings 30 years and older, repeating every 10 years thereafter. The law also includes mandatory reserve funding for structural components.
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Tyler P. Berding, Berding & Weil LLPMr. Berding may be contacted at
tberding@berdingweil.com
What is a Subordination Agreement?
May 06, 2019 —
Bremer Whyte Brown & O'Meara LLPPut simply, a subordination agreement is a legal agreement which establishes one debt as ranking behind another debt in the priority for collecting repayment from a debtor. It is an arrangement that alters the lien position. Without a subordination clause, loans take chronological priority which means that a deed of trust recorded first will be considered senior to all deeds of trusts recorded after. As such, the oldest loan becomes the primary loan, with first call on any proceeds from a sale of a property. However, a subordination agreement acknowledges that one party’s claim or interest is inferior to that of another party in the event that the borrowing entity liquidates its assets. Further, shareholders are subordinate to all creditors.
The junior debt is referred to as a “subordinated debt”, and the debt which has a higher claim to any assets is the senior debt. Often, the borrower does not have enough funds to pay all debts, and lower priority debts may receive little or no repayment. For example, if a business has $400,000 in senior debt, $100,000 in subordinated debt, and a total asset value of $420,000, upon liquidation of the company, only the senior debtholder will be paid in full. The remaining $20,000 will be distributed among the subordinated debtholders. Subordinated debts are, therefore, riskier and lenders will require a higher interest rate as compensation.
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