D.C. Council Considers Significant Changes to Condo Warranty Claim Procedures

At its public hearing on September 22, 2022, the Council of the District of Columbia (D.C. Council) will consider new legislation on condominium warranty claims in the District. The pending bill is known as the Condominium Warranty Claims Clarification Amendment Act of 2022 (B24-934) (the 2022 Proposal).

The 2022 Proposal aims to streamline the ability of condominium associations to access warranty security funds deposited by condominium developers for the repair of structural defects. This initiative was initially raised in 2020. As noted in our prior alert, that proposed legislation threatened to dramatically increase developer exposure for condominium warranty liability and materially impact the ability of developers to finance, develop, and construct condominiums. There was substantial testimony against the 2020 proposed legislation and discussions halted as consideration of more pressing issues arose related to residential tenants and COVID-19.

While the 2022 bill is different from the 2020 legislation, it remains equally problematic for D.C. condominium developers. The 2022 Proposal creates many specific concerns. We enumerate some of the concerns below. The full text of the current bill can be accessed here.

• The bill will allow substantive action by the Mayor, implemented by the Department of Housing and Community Development (DHCD) upon receipt of a “perfected claim” but defines no standards of what constitutes a perfected claim.
• A developer will be given only 30 days to respond to a claim, which may be insufficient for complex issues.
• The Mayor, through the DHCD, will have the authority to make decisions on the cost of repair or the replacement of structural defects payable from the warranty security posted by the developer, without reasonable objective standards and appropriate due process.
• DHCD will have no resources to substantively evaluate claims or defenses, and funding is not contemplated by Council.
• A developer may be stripped of its property, i.e. the warranty security, without an opportunity for a hearing, in violation of its due process rights. Furthermore, the burden may be placed on the developer rather than the claimant, which is contrary to law.
• The warranty security must be held, and may not be released or reduced, if any claim is pending, without regard to the value of the claim. 
• There is no protection against double liability if the claimant also pursues legal action.
• The reasonable dispute procedures often found in condominium governing documents may be rendered unenforceable as the legislation provides that such procedures may not interfere with the warranty bond procedures.

Anyone wishing to testify at the September 22 hearing may email housing@dccouncil.gov or phone (202) 724-8198. The committee will ask for name, address, phone number, email address, organizational affiliation, and title, if any. Additionally, written statements will be made a part of the official record. Statements must be submitted to the Committee on Housing and Executive Administration, John A. Wilson Building, 1350 Pennsylvania Avenue, N.W., Suite 116, Washington, D.C., 20004, or by email at housing@dccouncil.gov. The record will close at 5 p.m. on September 29, 2022.

We encourage you to review the full legislation. Please contact us if you are planning to testify before the D.C. Council.

The attorneys in Ballard Spahr’s Mixed-Use, Condominium, and Multifamily Development practice group can assist developers with any further questions about this proposed legislation, condominium warranty liability generally, and as it relates to any other real estate issue.

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