HOA Has Standing To Bring A Claim On Behalf Of Homeowners For Construction Defect Claims

• Jurisdiction: California,United States
• Law Firm: Wood Smith Henning & Berman LLP
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Real Estate and Construction, Contracts and Commercial Law, Trials & Appeals & Compensation, Construction & Planning
• Author: Andreea Custurea and Thomas Fama
• Published date: 31 March 2023

In the case of River's Side at Washington Sq. Homeowners Assn. v. Superior Court, 3d. Cir. No.C095860 (2023), a homeowners association successfully argued that it had standing to sue for construction defects on behalf of individual unit owners. Under the Right to Repair Act, homeowner associations do not have standing to sue on behalf of members for construction defects within individual units, but may sue for defects in the common areas. In this case the court distinguished between claims brought under the Right to Repair Act and claims for breach of contract or fraud. If those claims qualify as representative actions, then the association may have standing to sue for issues in the common areas as well as the individual units pursuant to section 382 of the California Civil Code.

Background Facts

River's Side at Washington Square Homeowners Association (HOA) is a homeowners association tasked with managing a development that contains twenty-five residential units and one commercial unit as well as several common areas. All of the individual units-both residential and commercial- were owned individually by the HOA's members. The common areas of the development were owned by the HOA. The development was originally financed and built by a group of both entities and individuals referred to in this case collectively as the developers. At the time the units were ready to sell, the economic conditions were not ideal and the developers were only able to sell three of the twenty-five residential units. The remaining twenty-two were sold in a bulk sale to the defendants, River's Side LLC.

This case arose out of alleged construction defects in the "structure, components and common areas" of the development. Some of the examples of defects included water intrusion and cracked stucco among others. In all, the HOA asserted seven causes of action against the defendants:

• Violations of statutory standards for residential construction contained in the Right to Repair Act
• Breach of implied warranty
• Assigned rights
• Breach of contract
• Intentional or negligent nondisclosure
• Intentional or negligent misrepresentation, and
• Breach of fiduciary duty

The defendants argued that the HOA lacked standing to sue on behalf of the members and the trial court agreed. On appeal, the court found that the HOA did in fact have standing as to the common areas and may have standing as to the residential units if it can meet the requirements to bring a representative action according to Civil Code section 382.

Did the HOA Have Standing to Sue on Behalf of its Members in This Case?

The HOA challenges the trial court's ruling that it did not have standing to pursue a claim on behalf of its members. The defendants relied on Civil Code section 367 to support their contention that the HOA lacked standing. That section states, "Every action must be prosecuted in the name if the real party in interest, except as otherwise provided by the statute." Generally, a real party in interest is the person or entity that has the right to sue under the substantive law. "A party who is not the real party in interest lacks standing to sue because the claim belongs to someone else." Estate of Bowles, 169 Cal. App.4th at 690. The HOA argues that their basis for standing is found in three sections of the civil code and the court discussed each in detail. Civil Code Section 5980

This code section states in applicable part, "An association has standing to institute.litigation. in its own name as the real party in interest and without joining it with the members, in matters pertaining to the following:

• Enforcement of the governing documents;
• Damage to the common area;
• Damage to a separate interest that the association is obligated...