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The Nuances and Subtleties of the Three-Year Common Element Warranty

            A would be condominium buyer has inquired about having heard that it is possible to buy a condominium unit without having the benefit of the three-year common element warranty, because it has already expired at the time of purchase.  What that purchaser heard is absolutely correct.  Maryland’s three-year statutory warranty on certain components of the common elements can, indeed, expire before all units in the community are sold, leaving subsequent purchasers without the protection and assurance afforded by the statutory warranty specific to the common elements.  This is of particular relevance in slow selling communities, especially as a result of the economic downturn, and in large communities that are built in phases over a long period of time.

            The common element warranty under Md. Real Prop. Code §11-131(d) provides that “the developer is responsible for correcting any defect in materials or workmanship” in certain specified common element components, and warrants “that the specified common elements are within acceptable industry standards in effect when the building was constructed.”  The applicable components identified in the statute are “the roof, foundation, external and supporting walls, mechanical, electrical, and plumbing systems, and other structural elements.”

            The warranty runs for three years.  However, it “commences with the first transfer of title to a unit owner.”  Accordingly, if the first unit owner purchaser in the complex took title three years before a subsequent purchaser, the warranty would have expired before the subsequent purchase, and would no longer be of any effect.

            The only circumstances which cause the three-year warranty to commence at a date later than the date the first purchaser took title is where any portion of the common elements has not been completed at the time of the first closing.  In that event, the three-year warranty commences “with the completion of that element, or with its availability for use by all owners, whichever occurs later.”  This is particularly applicable in mult-building projects that are built in phases.  As each new building is completed, a new three-year warranty commences on the specified common elements that are part of the new building.  Nevertheless, the original three-year warranty that arose when the first purchaser in the community took title is still the warranty that is applicable to the earlier completed portions of the complex.

            As a result of this, it is entirely possible to purchase in a condominium community and receive the benefit of the three-year common element warranty on only some of the buildings.  Moreover, a warranty that commences upon completion of a later building, rather than at the time the first title passed to a unit, can still expire before subsequent purchasers join the community.  Depending on the size of the community and the phases of construction, a subsequent purchaser could buy into a community in which the three-year common element warranty has expired as to some, most, or all of the buildings.

            That does not mean, however, that later purchasers are entirely without warranty protection for common element defects.  The Maryland statute expressly provides that the three-year common element warranty “is in addition to the implied warranties set forth in §10-203 of” the Real Estate Code.  The §10-203 warranties are applicable to every sale of a new home in Maryland, including condominiums, unless they have been contractually excluded or modified in accordance with the statute’s requirements.  These are broad general warranties that provide that the new home, when delivered, is (1) free from faulty materials; (2) constructed according to sound engineering standards; (3) constructed in a workmanlike manner; and (4) fit for habitation.  The Maryland Court of Appeals has expressly held that, in the case of newly purchased condominium unit, the §10-203 warranties apply to both the unit and the common elements, because each owner acquires an undivided ownership in the common elements as well as ownership of their individual unit.  Starfish Condominium Association v. Yorkridge Service Corp., 295 Md. 693, 458 A.2d 805 (1983).

            Unlike the three-year common element warranty that is enforceable only by the council of unit owners, the §10-203 warranties are personal to each unit owner, and commence when each unit owner takes title, without regard to when an original purchaser took title, or when a common element component was completed.  Additionally, they are not limited to the specified common elements identified in §11-131, but, instead, apply to all of the common elements without limitation.  However, the §10-203 warranties run for only one year, except as to structural defects, in which case there is a two-year warranty.

            An action by the council of unit owners to enforce the three-year warranty must be brought within one year of the expiration of the warranty.  Significantly, such a claim cannot be made unless notice of the defect was given to the developer while the warranty was applicable and before it expired.  An action by a unit owner, or by the council acting on behalf of two or more unit owners, under the §10-203 warranties must be brought “within two years after the defect was discovered or should have been discovered or within two years after the expiration of the warranty, whichever occurs first.”  There is no requirement that notice first be given to the developer during the warranty period.

            Purchasers of new condominiums should be certain that they understand the status of the three-year common element warranty at the time of their purchase.  They need to know when title passed to the first unit owner in the community.  They also need to determine if the common elements were built in phases or if any portions were completed and available for use at varying times.  Otherwise, they could find that the warranty they believe they had no longer exists.