By Scott Sowers (MultiFamilyExecutive.com Article) —
In 2015, the developer behind Brickell House, a 46-story condo tower in Miami’s financial district made the news as a brand-new $16 million robotic car garage that was supposed to retrieve residents’ vehicles in under 10 minutes went haywire and became inoperable. Condo owners were forced to find new places to park, and they responded by filing a lawsuit and winning a settlement for $40.6 million.
That amount comes in addition to a $32 million settlement awarded to the condo association last year, paid by the elevator’s insurer, the Hartford Steam Boiler Inspection and Insurance Co. The settlement is one of the largest of its kind in the state of Florida.
With so many new real estate developments incorporating emerging technologies, construction-related disputes around new tech is inevitable. To get a legal perspective, Miami attorney Jason Kellogg, a partner at Levine Kellogg Lehman Schneider + Grossman, responded to a few question about what developers should be thinking about when it comes to incorporating new technology into their buildings. Kellogg, a partner at Levine Kellogg Lehman Schneider + Grossman, represents individuals and business entities in, among other matters, commercial contract and business torts disputes, class actions, owners and contractors in construction litigation, and securities litigation.
Jason Kellogg, partner, Levine Kellogg Lehman Schneider + Grossman
MFE: Besides the malfunctioning garage in Miami, have there been other examples of malfunctioning technology that has resulted in legal action?
Kellogg: The situation with Tesla Solar Panels catching fire at residences and commercial properties is another good example of malfunctioning technology. According to recent media coverage, these panels caught on fire at homes in Massachusetts and Maryland. As a result, the two homeowner insurers, Citation Insurance Co. and All State Co., have filed lawsuits against Tesla as well as the company that makes electrical connectors, which are used in Tesla installations. Walmart has also filed a lawsuit against the company claiming the Tesla solar panels failed to meet industry standards in the installation of solar systems on top of hundreds of its stores and has caused fire in at least seven of them, according to recent articles.
Residential and multifamily developers are increasingly incorporating solar into their projects as consumers are demanding the newest technology. As emerging technologies are being incorporated into new developments, the risk that these technologies could fail increases. Builders as well as condo and homeowner associations need to be aware of the consequences and what actions they can take to mitigate risk and litigation.
MFE: Is the rise of construction defect claims surrounding new and emerging technologies unique to the real estate/building industry or especially problematic? If so why?
Kellogg: In this real estate cycle, buildings have become smarter thanks to new technology that hasn’t been around long enough to have a proven track record. As a result, we expect to see an increase of construction defect claims with so many new real estate developments incorporating emerging technologies. Improperly installed windows and doors, roofing systems, wood floors, and fire prevention features have traditionally been, and will likely continue to be, the more common defects experienced on a project. However, we expect to see more litigation involving the malfunction of new technology behind cutting-edge real estate developments.
MFE: How and why should developers and condo associations be prepared for defects arising from malfunctioning technology?
Kellogg: There are many steps developers and condo associations should take to be prepared in the case of malfunctioning technology. Builders should consider purchasing additional insurance coverage for design liability; meanwhile, condo associations should look closely at the condo docs in the turnover process. Both parties need to be aware of who will take the responsibility if the technology fails. The builder can prevent liability by ensuring that the responsibility falls on the subcontractor contractually if the technology is installed incorrectly. At the same time, the builder should explore the possibility of suing the manufacturer and provider if the design and functionality are inadequate.
MFE: How do these defects arise from designs that are allegedly tested and safe?
Kellogg: One explanation could be that testing these technologies is done in a controlled environment. Once you start retailing the product that’s when you see how it performs in different environments. It’s not until you implement this technology in a larger scale that you begin to see the flaws typical of younger generations. For example, hurricane impact windows have been around for decades, giving manufacturers the opportunity to identify and fix any problems that may have occurred with this product in the past.
MFE: What should developers and HOAs be aware of and what steps can they take to properly vet new technologies in their buildings or homes?
Kellogg: Builders need to do their due diligence to make sure they are doing business with a company that has a good track record manufacturing products that don’t break easily. They need to have a Plan B if the technology fails. In the case of the failed automated parking garage in Miami, the condo association didn’t have a backup plan and residents were forced to park on the street. Furthermore, builders need to be aware that bad publicity on failed technology may influence people’s decisions to buy or not into their projects. If that’s the case, builders should update their marketing materials to address any concerns that prospective buyers could have as a result of bad publicity in similar projects with similar technology.
Before the project turns over to the HOA or condominium association, residents and the board members need to hire an engineer that is knowledgeable of this new technology and can assess the short-term and long-term problems that may arise. The condo associations and HOA may need to buy additional insurance or create a reserve fund in case these products malfunction. A reserve fund is crucial since it may be a challenge to secure financing from a traditional bank to finance upgrades or repairs. If litigation is required, the association needs to document everything with photos, videos and correspondence with the developer that can be used as evidence in the case.