The capacity of condominium associations to sue and be sued

The provision reads as follows: "The board may also assert claims that the unit owners have against the developer if the claim relates to defects in the common areas or delayed completion of these."
 

A condominium association had filed a lawsuit against a company - a developer - for defects and deficiencies in the association's common areas. Additionally, the association sought to hold the CEO/chairman of the development company personally liable for the deficiencies in the common areas, as the company could not pay. The basis for such personal liability against the company's management follows from Section 17-1 of the Companies Act. The conditions for such liability are that the CEO or chairman has caused damage intentionally or negligently in their capacity as CEO or chairman.
 

The Supreme Court had to determine whether the term "developer" also included individuals in the company's management, where there was no contractual relationship with the association or the individual unit owners.
 

The Supreme Court stated that the word "developer" in isolation pointed to the fact that it only included the entity responsible for the development, but that the wording had to be seen in conjunction with the phrase "relates to defects in the common areas." In the Supreme Court's view, the wording was broad enough to also include derivative defect claims, such as claims for damages against the company's management due to the defect. The Supreme Court also noted that the legislator had not problematized who the term "developer" included, and that there was no basis for a narrow interpretation. Furthermore, the Supreme Court emphasized the purpose of the provision, which was to provide a practical and convenient procedural arrangement for lawsuits related to defects in the common areas, and that this also applied to claims for damages against the management of the development company.
 

The Supreme Court concluded that in cases related to defects in the common areas, a condominium association has the capacity to sue and be sued and the board has the right of action for damages directed at individuals in the company's management. This means that the association can assert such defect claims against the company's management on behalf of all unit owners. Therefore, it is not necessary for individual unit owners to file such lawsuits on their own.
 

If you are on the board and have questions about this, feel free to call us for a non-binding conversation.