In late March, a trial court in Bergen County, New Jersey dismissed a condominium association's construction defect claims against several construction entities for failure to comply with the applicable statute of limitations. This decision's appellate aftermath will be interesting to follow, because the trial court stripped away some of the protection that New Jersey's discovery rule affords to property owners who become aware of latent defects well after a project is substantially completed.

Pursuant to the discovery rule, "a cause of action will be held not to accrue until the injury party discovers, or by an exercise of reasonable diligence and intelligence should have discovered that he may have a basis for an actionable claim." Lopez v. Swyer, 62 N.J. 267, 272 (1973). And unlike some states, New Jersey's discovery rule applies in contract cases involving latent construction and design defects. Torcon, Inc. v. Alexian Bros. Hosp., 205 N.J. Super. 428, 432 (Ch. Div. 1985). What this means is that the statute of limitations for design deficiencies and construction defects begins to run upon substantial completion. Mahoney-Troast v. Supermarkets General, 189 N.J. Super. 325, 329 (App. Div. 1983).

In Palisades at Fort Lee Condo. Ass'n v. 100 Palisade, 2014 N.J. Super. Unpub. LEXIS 743, *3 (Law Div. Mar. 31, 2014), construction was deemed substantially complete on May 1, 2002. The Association hired a consultant to perform inspections in November 2006, and in May 2007, the consultant issued a report identifying various construction and design defects. The Association, however, did not file a Complaint until March 2009, almost seven years after the date of substantial completion. The trial court held that although the Association's claims may not have accrued until May 2007, when it received the report, it still had until May 2008 to file suit. The trial court stated, "[i]t has been well established in New Jersey case law that if the plaintiff has sufficient knowledge of its claim and there remains a reasonable time under the applicable limitations period to commence a cause of action, the action will be time barred if not filed within that remaining time." Id. at *8. One of the reasons the court dismissed the Complaint is because the Association had one year to file suit after becoming aware of its potential claims.

The Palisades court cited to Torcon (another trial court opinion) for this proposition, although the Torcon court's holding in this regard related to application of equitable estoppel in the context of a contractor's misrepresentation or concealment of material facts. By contrast, the intent of New Jersey's discovery rule is to toll the accrual of the statute of limitations, and the Association's six-year statute of limitations should have commenced in May 2007, if that is the date when it knew or should have known that it may have claims arising out of defective construction.

Nevertheless, the Palisades decision should give pause to property owners and their attorneys to carefully monitor early signs of faulty workmanship, and to not assume that the discovery rule will automatically extend the six-year time period to bring claims for construction defects. A Notice of Appeal has been filed in Palisades and it will be interesting to see how the Appellate Division handles this issue.