D.C. Condominium Act is Amended – Impacts to Standards and Procedures Related to the Developer’s Warranty Bond

            The District of Columbia is unique in the DMV area in that it requires a developer to post a bond equal to 10% of the estimated hard construction and conversion costs of the project. This is intended to satisfy limited warranty claims pursuant to the D.C. Condominium Act (the “Act”).  Neither Maryland nor Virginia have similar requirements for condominium developers. The D.C. Council approved an amendment to the Act, which took effect March 8, 2023, clarifying the standards and procedures governing the resolution of a claim filed upon the developer’s warranty against structural defects. This amendment impacts how these warranty claims are pursued by individual unit owners and condominium associations as well as the developer’s responsibilities and duties related to the warranty bond.

            The limited warranty requirements are set forth in §42-1903.16 of the Act. The recent amendment modified the requirements in several significant ways.  Some of the notable modifications include:

• The standard for a “structural defect” was amended to include the failure to comply with the applicable building code in effect at the time of construction. This creates a rebuttable presumption that an affected component of a unit or common area falls below standards commonly accepted in the real estate market if the failure to comply with the building code requirements results in demonstrable harm to the health or safety of a unit owner, lawful unit inhabitant, or guest.
• The timing to post the warranty bond has changed. Previously, the developer had to post the warranty bond prior to the first conveyance. However, the developer must now post the bond at the time that the condominium registration order has been issued by the Mayor (the limited warranty program is administered by the D.C. Department of Housing and Community Development on behalf of the Mayor). If the developer has not posted the required warranty security payment bond prior to the conveyance of the first residential unit to a purchaser, the escrow agency for the sale of the residential unit must collect the warranty security payment prior to closing and submit the warranty security payment to the Mayor on the settlement date. 
• The bond, letter of credit, or other security must be in a form that is automatically renewable and may only expire with permission by the Mayor, unless a release or approval of revocation is granted by the Mayor.
• The amendment requires additional warranty security if the actual hard construction and conversion costs, including labor and materials, as of the time of substantial completion of the condominium, as certified by the project architect, exceeds the previously estimated costs by more than 10%. The developer shall post an additional warranty security equal to 20% of the difference between the estimated hard construction and conversion costs, including labor and materials, and the actual hard construction and conversion costs, including labor and materials, as of project substantial completion, as certified by the project architect.
• The developer must now provide a sworn statement attesting to the costs estimates for the conversion construction work proposed, including the costs of materials and labor at the time of filing the application for registration.
• The amendment creates a strict timeline and process for administering a claim on the warranty bond, including information required by the claimant and responses by the developer and the Mayor.
• This amendment provides authority for an award of reasonable attorney’s fees and costs as may be determined by a court if a unit owners’ association or unit owner files suit in court for a breach of the warranties in this section.
• The amendment added requirements of the developer to provide a copy of the warranty security to the purchaser at least 7 days prior to the initial conveyance; and the developer must provide a copy of the warranty security to the condominium association board of directors at any time prior to 30 days after the date that the developer’s control of the condominium expires.

Developers, investors, unit owners associations, and prospective purchasers should take note of the significant changes in the standards and procedures related to the posting of the warranty bond and pursuing claims against such warranty bond.  If you have any questions regarding the amendments or wish to discuss further, please contact Brian D. Bichy, Esq., Chair of the Firm’s Condo/HOA Practice Group, bbichy@sgrwlaw.com (301.634.3151).