Managing property that his been recently remodeled or that is new construction can be a distinct pleasure; newer space looks better, it attracts and keep tenants, and it may have fewer maintenance issues. However, new construction and remodeled space may contain construction defects; time-bombs waiting to cause property damage to the building and to the tenant's equipment and/or products. Construction defects may also sour the relationship between the owner, the property manager and the tenant. This article explores some steps the property manager can take to minimize property damage and maintain relationships in the event a construct defect is discovered.
Prevent Further Damage
Even if a property manager had nothing to do with the construction, once a defect is discovered, either because of the water pouring through the defective skylight, or the rotted stairwell joists visible from the broom closet, the property manager should make sure the defect causes no more damage. Property managers do not want to face claims that they failed to mitigate the damages; i.e., that they failed to prevent additional property damage to the building after discovering the defect. To avoid such a claim, the property manager must take all reasonable steps to prevent further damage resulting from the defect. All actions taken by the property manager before the owner, tenant and contractor are contacted should be thoroughly documented.
Document the Defect
After making sure the construction defect will not cause any more damage, the property manager should document the defect. Note the date and time the defect was discovered, who discovered it, and what brought it to his or her attention. Photographs and/or video should be taken of the defect in as near to the same condition as it was found. This documentary evidence may be key to resolving any claims or litigation arising from the defective condition.
If correcting the defect will require significant repairs that are likely to be the subject of an insurance claim, it may be appropriate for a party, (i.e., the owner, the tenant, the construction contractor, or their insurers) to hire an independent construction expert to supervise the investigation. A construction expert's investigation should include photo-documentation of the defective condition, including all destructive testing, i.e., tearing out walls, ceilings, floors, etc., that must be done to learn the extent of the problem. A written report of this process would likely explain the limitations of the inspection, potential consequences of the defective construction, and if appropriate, repair recommendations and opinions on who was at fault for the defect. CAUTION: Whether a report on the results of the investigation should be written will depend, in large measure, on whether the defect is likely to spawn litigation. Generally speaking, the more significant the defect and required repairs, the more likely an attorney will be involved. If litigation is anticipated, an attorney should become involved early in the process, and should be consulted before an expert writes a report.
Notify All Parties
Next, the property manager should ensure all parties are notified. Getting the owner, tenant, and contractor involved early will likely stimulate the involvement of an insurer. Engaging all parties shortly after the defect is discovered increases the possibility that the parties (and their insurers) will share the cost of investigating the defective construction, collaborating on repairs and identifying all the responsible parties. This, in turn, may help avoid costly litigation.
Prompt action after discovery of construction defects may help limit damage and facilitate the quick resolution of any disputes that arise from the defective construction.
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