High Stakes in High-Risk Condos

Condominium (condo) projects represent a unique set of risks for architects and engineering (A/E) firms compared to other types of residential or commercial developments. While these projects can be lucrative, the increased exposure to litigation, stringent code requirements, and heightened expectations from individual unit owners make them a riskier project type. Understanding the nature of these risks and implementing sound risk management practices is essential to mitigate liability.

Risk Factors

One of the primary reasons condo projects are higher risk is the number and type of potential claimants. Unlike commercial or apartment buildings where a single entity owns and manages the property, condos are typically owned by individual unit owners and governed by a homeowners’ association (HOA). This structure increases the number of potential litigants, often leading to class action style claims if defects affect multiple units.

Another key factor is the marketing of condominiums. Many units are marketed as luxury properties, raising buyer expectations for quality design and construction. Also the lack of maintenance by homeowners and HOA for common areas and building envelope. When problems arise—such as water intrusion, structural cracks, HVAC failures, sound proofing or accessibility issues—disappointed owners often attribute them to design defects, whether justified or not. Additionally, states like California and Florida have strong consumer protection laws and statutes specific to condo defect litigation, which have intensified legal exposure.

Common Claims

• Water intrusion and envelope failure: Improper detailing of windows, roofs, balconies, or exterior cladding lead to leaks and mold, often cited as evidence of design negligence.
• Structural issues: Load-bearing miscalculations, slab deflection, or foundation settling are serious concerns, particularly in high-rise condos.
• Mechanical, electrical, and plumbing (MEP) deficiencies: These include HVAC performance problems, insufficient fire suppression, or plumbing failures.
• Code and accessibility violations: Non-compliance with building codes or the Americans with Disabilities Act (ADA) can lead to lawsuits and remediation costs.
• Sound proofing: Did not adequately address acoustic performance, violating building codes and industry standards for sound insulation in multi-family residential buildings.

Claim Trends

Claims against A/E firms on condo projects have trended upward over the past decade. Insurers have reported more frequent and higher-severity claims, especially in densely populated urban markets and coastal communities. Design professionals are often named in lawsuits alongside contractors and developers, even when their responsibility is tangential. In many cases, A/E firms are dragged into disputes due to a perceived “deep pocket” or get to their professional liability (PL) insurance coverage despite limited fault.

Based on industry claims data - condo’s projects account for approximately four percent (4%) of design fees, however account for eighteen percent (18%) of losses. As the prime design firm, architects are in the cross-hairs for most claims followed by structural and mechanical engineering firms. Litigation often arises years after project completion, during the turnover period when the HOA assumes control from the developer. At this stage, unit owners may conduct forensic inspections and pursue construction defect claims aggressively, often facilitated by specialized law firms marketing legal services to HOA’s.

Risk Management Recommendations

• Careful due diligence of Clients: Work with reputable developers that won't disappear after completion, and has a strong track records on condo projects. Selects a quality team and contractor and has the financial stability to complete the project.
• Homeowner documents: Majority of claims are brought by Unit Owners and the HOA. Work with a developer that includes guidance and protections into homeowner documents including; buyer inspection, maintenance, dispute resolution process, certificate of merit and right to repair.
• Contracts and project scope: Use detailed contracts that limit liability, delineate responsibilities, especially concerning construction administration and code compliance.
• Maintain thorough documentation: Keep detailed records of all design decisions, communications, and site visits.
• Use peer reviews: Have independent professionals review critical systems and envelope detailing before finalizing drawings.
• Insurance: Maintain professional liability coverage tailored to high-risk residential projects. Demonstrate your knowledge to the carrier of the risks and applied practices to obtain more favorable terms.   

Conclusion

While condo projects will always present heightened risks, this project type is not going away. Condos are purchased by first time buyers, for second and vacation homes, families downsizing and built in populated urban markets and in desirable coastal communities. A proactive approach to managing liability can assist A/E firms participate in this market with greater confidence and protection. The objective is understanding the risks and proactively working towards mitigating liability exposures. 

Stay tuned - next SmartRisk Report: Florida condo's and risk created by Chapter 558 legislation.