When Time Runs Out: Protecting Your Building's Legal Claims Before It's Too Late

In this episode of Legal Talk, Jennifer Stewart, a partner at the law firm Smith Buss and Jacobs, explains to Habitat's Emily Myers how critical the importance of understanding statutes of limitations for co-op and condo board directors is. The discussion reveals how timing can make or break a board's ability to pursue legal claims or defend against them.

Stewart emphasizes that proactive planning and early legal consultation are essential for protecting a building's interests. Through real-world examples, she illustrates how different types of claims have varying time limits – from one-year warranty claims to six-year breach of contract windows. She shares particularly sobering stories of boards who waited too long to act, leading to costly and complicated legal battles that could have been avoided with earlier intervention.

Key takeaways for board directors:

* Different claims have different deadlines: Construction defects might involve multiple time limits – one year for warranties, three years for professional malpractice, and six years for breach of contract claims.

* Corporate action challenges (like disputed elections or new house rules) have a surprisingly short four-month statute of limitations for shareholders or unit owners to file suit.

* While there are creative legal strategies to extend deadlines (like tolling or fraud claims), these approaches are more expensive and complex than acting within the original time frame.

* A quick consultation with counsel when issues first arise – even before deciding to pursue legal action – helps boards understand their timeline for making decisions and preserving their rights.

Stewart's practical advice boils down to a simple principle: when in doubt about potential claims, have a brief conversation with counsel early on. This small step can save boards significant headaches and legal expenses down the road.

The business of running a building is demanding work that requires making endless decisions — some that can quickly lead your board into a quagmire of legal difficulties. Legal Talk interviews New York's leading co-op/condo attorneys to find solutions, and get some guidance, on these challenges. For more co-op and condo insights, sign up to receive Habitat's free newsletters or become a Habitat subscriber today!

Transcript

Emily Myers: Welcome to Legal Talk, a conversation about the governance issues facing New York's co-op and condo boards. I'm Emily Myers with Habitat, the magazine for New York City's co-op and condo board directors, and I'm joined by Jennifer Stewart, partner at the law firm, Smith Buss and Jacobs. There are legal time limits on how long after an event a lawsuit can be commenced.

And this is known as the statute of limitations. Jennifer, how does understanding these timelines impact decision making for co-op and condo board members? 

Jennifer Stewart: It's absolutely crucial for our boards to really understand how long their claims are viable, how long the other side's claims are viable. Because that tells you what your window for trying to work it out or negotiate a resolution and investigating these sorts of claims.

It tells you how long that window's open. It's important to keep track of that because I can't tell you how many times we have boards come to us where their window closed months or years earlier. They never realized. Now there are certainly steps attorneys can take to try and revive, try and reach back, try and bring creative claims, but the better course is for the board when it knows it has a claim to have a quick call with counsel: listen, how long do we have to try and work this out before it's too late? When do we have to be in court and when will we lose our rights? 

Emily Myers: So every lawsuit has a statute of limitations. Do they differ between various situations?

How do boards navigate this? 

Jennifer Stewart: So it's not so much that every lawsuit has a statute of limitations. Every claim has a statute of limitations. So boards have to consider this in two ways, right? The board might have claims. Let's say we had a construction contract that went sour, and it's not clear whether the contractor messed up, so we might have a six year breach of contract statute of limitations that we have to weigh.

It might be that the engineer or the architect made an error of professional judgment. That's a malpractice claim. That has a three year statute of limitations. You might have a warranty claim that has a one year statute of limitations all mixed up in the same contract dispute. Now, the board that argues with the professional and the contractor and tries to work it out and doesn't want to incur legal fees and doesn't want to necessarily take the next step, doesn't wanna escalate, doesn't wanna confront the people who might have made a mistake. If they work in good faith for three and a half years thinking that they're getting to resolution, they may find theirselves in year four having waived their warranty claims because that was the one year statute of limitations that is over.

They've waived any claim they might have against the professional because that was a three year statute of limitations. So they're back on their heels at the last minute. Hopefully they call the attorney before they've waived the breach of contract. The better course here is that quick call in the beginning: what are our options going to be here? It doesn't stop the board from trying to work it out. It doesn't mean that they have to rely on the attorneys to fight this fight with them. But it means they go in knowing, I have to get a warranty claim in within one year. Here's my drop dead date. I have to get my malpractice claim in within three years. It's the drop dead date. 

Not to say we can't recover. Not to say there aren't creative theories and clawing back, but better to do it the easy way, better to plan when we see the conflict arise. It's helpful to do that initial analysis so the board knows where this is going, even if it never gets to litigation.

You want to be prepared for the worst, so you plan around it. 

Emily Myers: So how do boards ensure they're aware of the statute of limitations for various legal matters that they might face? Is it simply a sort of calendar? Or presumably it's involving their attorney. 

Jennifer Stewart: So the statutes of limitation for various claims are a matter of public record.

They're in a statute, it's called the Civil Practice Law and Rules. I keep it on my desk. Some are very basic: breach of contract, six years. Sometimes your contract can shorten it. So if there's a paragraph in your contract that says, we're shortening the statute of limitations, that's generally gonna be effective.

Malpractice, we talked about negligence claims, generally are three years. There are other shorter statutes of limitations for various intentional torts. You also have a very short four month statute of limitations for challenges to corporate actions. Which is important for boards because I've been talking about where the board is on the offense, where I have claims I don't want to wait.

But sometimes a board is on the defense, right? Sometimes in a co-op, a shareholder might want to challenge a particular assessment, might wanna challenge a new house rule, might wanna challenge an election. Those are the very short CPLR 213 four months statute of limitations, which is little known.

But if a board, if we have an election and there's a lot of outcry from shareholders or unit owners that, we don't think it was fair, we don't think it was counted properly, there's some sort of issue that people are talking about, but no one's filed suit. The board should be aware that it has four months in which individuals can properly challenge that election. And in month five, they have almost no exposure. Of course, anyone can always sue for anything, but a statute of limitations defense is a very straightforward one most of the time. Either you blew the time limit or you didn't. 

When thinking about statutes of limitations, it's important to understand there's three sort of issues.

You have what's called the accrual date. That's the date you have the claim. That's the date you start counting your six years if we're talking about a contract. And you have the date it's over. Then there's this thing called tolling, which is in certain cases, the courts or the legislature or the governor, depending on the circumstances, has said, we can hit a pause button and these days don't count.

Emily Myers: Is this what you touched on when you mentioned creative ways in which there may be an extension to these limitations? Were you referring to tolling? 

Jennifer Stewart: So tolling is one issue that is sometimes black and white and sometimes not so black and white. But it is one of the creative ways to try and extend a statute of limitation.

There are some very basic tolls. For example, during the Covid pandemic, the governor entered an executive order that gave a tolling period associated with the court closures during that period. So effectively, parties got an extra nine months on a claim where the statute of limitations was running during that time.

But another example of tolling is that in certain circumstances, the statute can be tolled during periods of incapacity; if someone were gravely ill and unable to act on their rights. There are certain factual circumstances. But the more frequent way that attorneys try and work around elapsed statute of limitations is by doing an investigation and determining all possible claims that could arise out of a scenario, and working with those claims and their particular details of accrual to see if there is a way to reach back to a claim that might arguably be time barred. 

One example of that often happens with new construction condominiums, where a board takes over from the sponsor takes some time to get up to speed on building conditions, what's going on, whether these are real problems or not, is this a one-off leak or is this a systemic issue? Do we have a problem with the roof and facade? A bigger issue?

And is this really a construction defect or is the building just showing a little bit of age? Often these new boards don't reach out to counsel within the initial shortest applicable statute of limitations. For example, with a new condo, you get housing warranties, but the shortest of those is only one year. It's unusual that a new board would reach out within that period. 

But there are other claims with longer statutes. For example, a claim for fraud. It's a two-part statute of limitations. The fraud statute of limitations is six years. However, it can also be two years from discovery, where the fraud was somehow concealed.

For example, in a new construction condo where problems are hidden. Or where the sponsor has taken steps to actively conceal. So where we have those circumstances, if we were to assert a claim as breach of contract --you promised this and delivered that-- it's a straight six year statute of limitations.

But if we are in year seven and there are facts to support an argument that there was active concealment of some sort, the board couldn't have discovered it. If they discovered the problem in year seven, you might have two more years on a fraud claim. The exact circumstances, the exact damages, details differ between what you have to allege to make out each of these claims.

So if you think initially that your statute of limitations is completely blown, has run, there's no claim, there's a possibility that a good litigation team could figure out a way to plead it in a manner that it's not time barred. And you'll have a statute of limitations fight because the other side's gonna argue, no, this is a contract claim, it's not a fraud claim.

But the better course, of course, is good planning. As litigators, we work hard to make the case work however we can. But the board that calls the attorney, Hey, I just need a 10 minute call to run this by you in year one ends up in a much better position because they know how quickly they have to act.

Emily Myers: So presumably understanding the statute of limitations also affects financial decisions like setting aside funds for potential litigation as well. 

Jennifer Stewart: Of course. This often happens in the slip and fall context too. If the building is aware that someone took a fall and was carried away in an ambulance right outside the front door.

We know there's a potential claim there, right? We don't know how seriously that person might have been injured. We don't know if they're likely to bring a claim, but it makes sense A, for that building to put their carrier on notice if they know that this happened. But aside from that, it makes sense for the board or management to make a little note in a calendar three years down the road.

'Cause in a negligence claim, that kind of trip and fall is typically that three year statute of limitations. So if this happens in 2023, it doesn't hurt to have a little calendar note in 2026, that same month that says, Hey, to the extent we were concerned about exposure from that trip and fall, it looks like they never sued.

It's good news for the board, though ideally you're in a situation where that sort of thing is covered by insurance, so those are not funds that would be coming outta your reserve. 

Emily Myers: So your takeaway then for boards is primarily about planning, 

Jennifer Stewart: is that right? Yeah. 

It's crucial to understand statutes and limitations and that the concept exists.

There's a time limit on claims. People who might wanna sue you have a time limit on their claims. If you wanna sue somebody else, you have a time limit on your claims. To understand generally that concept exists and where the board's concerned there might be exposure, or that it might have a claim that it would lose by waiting check in with the attorney. What's the statute of limitations on this, and when should we plan to make a final decision about whether or not to take action and go to court? 

Emily Myers: So just to sum up, what advice then would you give to boards regarding how to approach managing potential claims before the statute of limitations expires?

Jennifer Stewart: I'd say when the board is aware that somebody might be asserting a claim or that it might have a claim, it should have a very quick call with counsel about where this is going and how long we have before we have to take action. It's good for planning purposes and that way you don't have to have the call with counsel on year seven when you had a six year statute of limitations and talk about strategies for perhaps being able to get around the fact that we didn't act quickly enough. 

Emily Myers: And are there any cautionary tales or illustrative examples of best practice that you can share in this area? 

Jennifer Stewart: I have to tell you, some of my most heartbreaking conferences with prospective clients are those year seven calls with the board.

Where they knew in the first year that there were problems, but they, sometimes we wanna look the other way. Sometimes we think it's a quick repair. Sometimes we're, oh, calling an attorney is gonna be so expensive. Most of us aren't going to charge for that first call, but we'll give you the general, listen, there's a statute of limitations here. You need to get an architect or an engineer in to take a look at that because maybe it's fine. Then you don't have to ever think about it again. But if it's not, you have to be prepared to take action promptly, because it's extraordinarily expensive to do all the litigating and have the motion to dismiss and have to brief all of that in year seven when you could have been there in year three.

Emily Myers: Wow. Thanks so much, Jennifer. 

Jennifer Stewart: Thank you for speaking with me. 

Emily Myers: Jennifer Stewart, partner at the law firm, Smith Buss and Jacobs.