Avoiding Construction Defects in High-Production Markets

Population growth, urbanization, and a robust real estate market have driven a significant surge in new construction projects throughout the Southeast. While this boom has brought economic benefits and ample new housing opportunities for residents across the region, it has also produced a simultaneous increase in construction defects and property damages thanks to stronger weather patterns combined with, in some cases, less-attentive builders and the use of cheap materials. For the multi-housing industry, these issues present substantial risks that must be addressed proactively to avoid costly litigation and ensure resident safety and satisfaction.

Understanding construction defects

Construction defects can range from minor cosmetic issues to significant structural failures. Common defects include water intrusion, foundational cracks, faulty electrical systems, and poor workmanship. Any of these—and certainly all of them together—can lead to severe property damage, decreased property values, increased maintenance costs, and loss of residents. In the Southeast, the risks are exacerbated thanks to the region’s humid climate and susceptibility to hurricanes and tropical storms, which can reveal or even worsen hidden defects.

Legal landscape of construction defects

Construction defects can lead to complex, lengthy, and expensive litigation. Claims by the property owner typically involve multiple parties, including developers, contractors, subcontractors, architects, and engineers. In Florida, for instance, the Chapter 558 notice and opportunity to repair pre-suit process is designed to encourage settlement and repair of construction defects without proceeding to litigation. Understanding and navigating these legal frameworks, especially those concerning Chapter 558, is crucial for the multi-housing industry in the Southeast.

Here are some best practices for addressing construction defects:

1. Due diligence in contractor selection: The foundation of a defect-free project lies in the selection of reputable contractors and subcontractors. Conduct thorough background checks on each, verify their credentials, and review their past projects to ensure you are working with qualified professionals.
2. Clear and detailed contracts: Drafting comprehensive contracts that clearly outline the scope of work, the materials to be used, and the quality standards to be followed will prevent later disputes. Work with a qualified attorney to draft a contract that includes clauses addressing dispute resolution, warranties, and indemnifications.  These details save time and money should defects arise.
3. Regular inspections and quality control: Implement a rigorous inspection process throughout construction. Engage third-party inspectors to conduct independent assessments, ensuring any issues are identified and addressed promptly.
4. Document everything: Maintain detailed records of all construction activities, communications, and inspections. Documentation is invaluable in defending or prosecuting defect claims and establishing whether due diligence was exercised throughout the project.
5. Engage legal counsel early: As mentioned, it is crucial to hire qualified legal counsel to help draft contracts, review documentation, and provide guidance on compliance with local laws and regulations. Legal requirements vary dramatically by region and state.

There also some proactive measures that property owners can take:

1. Preventive maintenance programs: Establish regular maintenance schedules to identify and address potential issues before they become serious problems. Routine inspections can uncover hidden construction defects early, minimizing damage and repair costs.
2. Weather-resilient construction practices: Given the Southeast’s vulnerability to severe weather, adopting resilient construction practices is crucial. Use materials and techniques that are designed to withstand high winds, heavy rainfall, and flooding. This includes reinforced concrete, brick, and steel.
3. Educate residents and staff: Promptly inform residents and property management staff regarding any signs of construction defects and encourage them to report these issues immediately. Prompt reporting—and a swift response—can prevent minor problems from escalating.
4. Insurance coverage: Ensure that your property has adequate insurance coverage for construction defects and related damages. Review policies regularly and update them as necessary to reflect changes in property values and risk exposure.

Case study: Florida’s approach

Florida’s approach to managing construction defects offers valuable insights for the entire Southeast. The state mandates a pre-suit notice and repair process under Chapter 558, requiring property owners to notify contractors of alleged defects. Chapter 558 also provides an opportunity for repair before filing a lawsuit. This process aims to reduce litigation and encourage resolution through repairs and settlements. By adopting similar pre-suit procedures, other states in the Southeast can potentially mitigate the impact of construction defect claims on the multi-housing industry.

The surge in new construction across the Southeast presents opportunities and challenges for the multi-housing industry. Proactive measures—from contractor selection and quality control to hiring legal counsel and engaging in preventive maintenance—are essential to mitigate the risks associated with construction defects and property damage. By staying ahead of potential issues and adopting best practices, professionals in the multi-housing industry can protect their investments, enhance resident satisfaction, and ensure longevity of their properties. In an environment where turbulent weather can expose hidden defects, these strategies are not just advisable—they are imperative.

Stephen Hauptman is special counsel at Ball Janik LLP, focusing on construction defect law. He may be reached at [email protected].