The Subrogation Strategist

Courts often struggle with the question of when the statute of repose starts to run for construction projects that involve multiple buildings or phases. In Village Lofts at St. Anthony Falls Ass’n v. Housing Partners III-Lofts, LLC, 937 N.W.2d 430 (Minn. 2020) (Village Lofts), the Supreme Court of Minnesota addressed how Minnesota’s 10-year statute of repose, Minn. Stat. § 541.051, applies to claims arising from the construction of a condominium complex. The court held that the statute of repose begins to run at different times for: a) statutory residential warranty claims brought pursuant to Minn. Stat. §§ 327A.01 to 327A.08, et. seq.; and b) common law claims arising out of the defective and unsafe condition of the condominium buildings.

As stated in Village Lofts, Housing Partners III-Lofts, LLC (Housing Partners) developed the Village Lofts at St. Anthony Falls, a condominium complex consisting of Building A and Building B. Housing Partners retained Kraus-Anderson Construction Company (Kraus-Anderson) as the general contractor for Building A. Kraus-Anderson retained Elness Sweeney Graham Architects, Inc. (ESG), Doody Mechanical, Inc. (Doody) and Kenneth S. Kendle, P.E. (Kendle) to work on Building A. In September 2002, the City of Minneapolis (City) issued a partial certificate of occupancy (CO) for Building A, including the building’s public spaces. On October 4, 2002, Housing Partners filed the declaration creating the Village Lofts at St. Anthony Falls condominium, to be operated by Village Lofts at St. Anthony Association (Village Lofts Association). On October 10, 2002, Housing Partners sold the first unit in Building A and in November of 2003, the City issued a CO for the entire building, excluding two units.

In May of 2003, Housing Partners entered into a separate contract with Kraus-Anderson related to the construction of Building B. Kraus-Anderson engaged Doody and M&E Engineering, Inc. (M&E) as subcontractors for Building B. Housing Partners added Building B to the condominium development in September of 2004. In October of 2004, the architect issued a certificate of substantial completion for Building B and the City issued a CO for the building. Housing Partners continued to sell units in both buildings into 2005 and later.

In January of 2014, Village Lofts Association hired Encompass, an engineering consulting firm, to investigate a water leak in a unit in Building A. Encompass determined that the leak was caused by a broken pipe that was part of the heating, ventilation, and air conditioning (HVAC) system in Building A. Encompass discovered similar defects throughout the entire building. In May of 2015, Village Lofts Association notified Housing Partners and Kraus-Anderson of the defects. By the end of June 2015, Encompass discovered similar defects in Building B.

In August of 2015, Village Lofts Association commenced its action. Village Lofts Association asserted breach of the residential warranties provided by Minnesota Statutes chapter 327A against Housing Partners; claims of common-law negligence, breach of implied warranty and breach of contract against Housing Partners, Kraus-Anderson and Doody; and common law negligence claims against ESG, Kendle and M&E. The district court, relying on Minnesota’s statute of repose, granted summary judgment for all defendants.

The district court determined that the statutory warranty claims began to run when the first unit in each building was occupied: in 2002 for Building A and in 2004 for Building B. With respect to the common law claims, the district court found that both buildings were separate improvements and that the repose period for each building ran more than 10 years before the claims accrued. The Court of Appeals affirmed the district court’’s holding on the common law negligence claims but reversed its dismissal of the statutory warranty claims, finding that each unit was entitled to its own warranty period. The instant appeal followed.

As stated by the Supreme Court of Minnesota, with respect to the plaintiff’s statutory warranty claims, the statute of repose bars actions for breach of the statutory warranties that accrue more than 10 years after the warranty date. In this case, the court found that the plaintiff’s warranty claims accrued, at the earliest, in May 2015, when Village Lofts Association notified Housing Partners and Kraus-Anderson of the faulty pipes. Thus, if the warranty date was before May of 2005, the plaintiff’s statutory warranty claims were barred by the statute of repose.

To decide the issue, the court considered whether each unit within a condominium building has its own warranty date or whether a single warranty date for each building – running from the date the first unit owner occupies or takes title to his unit - applies to the entire building. The court found that interpreting the statute of repose to apply a different warranty date for each unit would create the kind of uncertainty about the length of a builder’s liability exposure that the statute of repose was designed to limit. Thus, reversing the Court of Appeals to the extent that it held that the warranty dates were determined on a unit-by-unit basis, the Supreme Court held that a single warranty date applies to the entire building, running from the date the first unit owner occupies or takes title to his unit. As found by the district court, the warranty date for Building A was 2002 and for Building B was 2004. Consequently, Village Lofts Association’s warranty claims were barred by the statute of repose.

Regarding the plaintiff’s common law claims, the court considered whether the buildings constituted a single improvement to real property for purposes of the statute of repose, or two separate improvements. Minnesota law, consistent with Pacific Indemnity Co. v. Thompson-Yeager, Inc., 260 N.W.2d 548 (Minn. 1977), and its progeny, defines an “improvement” as “a permanent addition to or betterment of real property that enhances its capital value and that involves the expenditure of labor or money and is designed to make the property more useful or valuable as distinguished from ordinary repairs.”

Applying this definition of an “improvement,” the court held that “a building or project is a separate improvement that triggers the repose period . . . when the building or project satisfies the definition of ‘improvement’ . . . and is sufficiently complete so that the improvement may be turned over to the person who hired the construction entities to use it for the purposes for which it was intended.” On the facts of this case, the court held that each building was a separate “improvement” for purposes of the statute of repose. Thus, the date of substantial completion for each building, which triggered the statute of repose period, was distinct and, in this case, was the date the City issued the CO for the complete building. According to the court, Building A was substantially complete at the latest by November 2003, and Building B was complete on October 18, 2004. Because Village Loft Association did not file its lawsuit until August of 2015, more than 10 years after the substantial completion date for both buildings, the court affirmed the dismissal of Village Loft Association’s common law claims.

As Village Lofts establishes, when faced with a question about when the construction statute of repose begins to run, subrogation professionals practicing in Minnesota need to consider the type of claim at issue. Considering the type of claim at issue is important because the trigger for the statute of repose period is different for statutory warranty claims than it is for common law claims. Absent an analysis of the trigger date for the statute of repose period, a subrogation professional may pursue claims barred by the statute of repose.