Professional consultants and sub-consultants provide essential services to a Project during its planning, design, construction, and acceptance. In some jurisdictions, they enjoy protections from liability for “economic losses” if they are not in a contract with the person or entity claiming damages for the consultant’s negligence. On the other hand, consultants are often held accountable for negligence where personal injury or property damages result from the negligence.

Two recent cases in California confirm wider liability for sub-consultants to condominium owners or homeowners in a housing development. A Superior Court in San Francisco ruled in Flaherty vs. Dolan that Treadwell & Rollo, Inc., a geotechnical engineer (under contract with a developer of a multi-unit housing development), had potential liability to the homeowners for damages to the homes arising from subsurface conditions. The Court based its decision on (1) the amount of money paid to the geotech for its design and construction advisory services, (2) the contractual undertaking (in a memo) by the geotech which included observation of the installation of the geotechnical elements of the project “to check they are constructed in accordance with the intent of our recommendations”; and (3) the geotech’s participation (at the developer’s request) in the published materials about the homes in the development.

The springboard for this case was a California Supreme Court decision two weeks earlier in Beacon Residential Community Associate v. Skidmore, Owings & Merrill LLP involving a suit by a condominium association against the designers, developers, and others regarding alleged water infiltration, inadequate fire separations, structural cracks, and other safety hazards, involving some or all of the 595 units. The plaintiffs alleged that “solar heat gain” made the units uninhabitable for periods of time, resulting from the specification of substandard windows and inadequate ventilation of the units. The Court held that the two architectural firms involved owed a duty of care to future homeowners, in the firms’ design of a residential building where the architect is a principal architect, not subordinate to other design professionals. This was so, the Court concluded, even though the designers did not build the project, nor did they exercise ultimate control over the construction. The critical facts for the Court were the payment of more than $5 million for their services, and, the active role they played during construction, coordinating “efforts of the design and construction teams,” conducting “weekly site visits and inspections,” recommending “design revisions as needed,” and monitoring “compliance with design plans.”

The case serves as both an instruction to attorneys of the role of the reduced importance of the concept of “privity of contract” in construction cases and a reminder to industry professionals that condominium projects provide a high degree of risk to every party in the design, construction, and ownership chain. The primary goal of all participants is, or should be, to avoid placing defective homes on the market or to avoid being sold a defective home. The recognition of a duty to homeowners and others—who of course are unknown at the time of design and for at least parts of the construction—likely fosters that common goal.