Troubles continue for Millennium Tower, the luxury high-rise building that has been coined “the leaning tower of San Francisco” for tilting two inches at its base and sinking 16 inches. As we predicted in our August 11th blog, a lawsuit ensued and it’s huge: Condo owners filed a $500 million class-action lawsuit against the developers, Millennium Partners, and the Transbay Joint Powers Authority.
In addition to the lawsuit, the developers have been served with two (2) violation notices for making repairs without obtaining permits. To add insult to injury, a homeowner posted a video of a rolling marble on Vimeo to demonstrate the building’s tilt.
As a result, San Francisco building officials are conducting investigative hearings to determine what caused the building to sink and whether developers are guilty of deceiving the buyers by not informing them of the issues.
The irony is that Millennium Tower was built to code and permitted correctly, so the Department of Buildings had no reason to suspect there was a construction defect. The investigation was triggered by an anonymous call from a concerned citizen into the 311 “help” line. There is an ongoing battle as to whether the cause of the sinking was the fault of the developer/contractor/subcontractors, or the adjacent Transbay Joint Powers Authority construction project. Millennium Partners is blaming groundwater pumping at the neighboring Transbay construction site for the excessive settlement. Transbay has said Millennium Partners’ foundation design, which is not anchored into bedrock, is at fault.
Meanwhile, condo owners are experiencing wall cracks, crooked floors, and windows and doors that are becoming difficult to close. In addition, they are claiming their home values have nosedived as a result of the construction defect.
Briefly, a construction defect (known as CD in the industry) is a deficiency in the design or construction of a building or structure resulting from a failure to design or construct in a reasonably workmanlike manner and/or in accordance with a buyer’s reasonable expectations. While many CDs usually do not result in bodily or property damage, there is intrinsic harm to the owner in the form of loss of use, diminution of value and expenses incurred to correct the defects.
Issues of this magnitude do not go away on their own and, as mentioned in our earlier blog, should be addressed when the contracts and coverage are being negotiated. We work with our clients and address these before the contracts are signed so the owner has additional leverage to drive cost and coverage. Developers can find themselves the target of a construction defect claim even if everything is built according to code. It is often too late in the game to mitigate risk properly and effectively when something goes awry. In addition to having a solid, proactive risk management strategy in place, here are some best practices to help avoid construction defects claims:
- Stay current on building codes, standards and best practices for the jurisdiction(s) in which you are developing;
- Use the correct products and understand the limitations of all materials used in the project;
- Make sure contracts are written to so that appropriate risk is transferred downstream to protect your company;
- Choose contractors and subcontractors with care; perform due diligence;
- Keep meticulous records documenting all phases of construction;
- Utilize the industry’s highest standards regarding construction means and methods;
- Conduct an appropriate geotechnical survey by a licensed engineer to assure the geography can uphold your foundation/structure.
As independent, third-party risk management consultants, we have reviewed many contracts and insurance policies to mitigate risk for both owners and contractors. Click here to request information on how we can help you design and implement a construction risk management program.
