Washington state is among the strictest in the nation when it comes to new condominium development, which has largely deterred developers in recent years from building any new projects outside of apartments for rent. The reason? Developers don’t want to face costly lawsuits, which have become somewhat of a norm. As Sightline Institute reports, conventional wisdom states that “if you build condos, you’ll get sued.”
Lawmakers in Washington are attempting to change that, with the introduction of SB 5332 in mid-January. This new piece of legislation follows an attempt in 2018 that aimed to require a 51 percent vote among HOA members prior to filing a lawsuit and would have allowed developers to avoid a day in court by repairing the defects; that bill failed to make it out of committee.
As Sightline Institute outlines, SB 5332, introduced by Senator Jamie Pedersen and Representative Tana Senn,
aims to quell frivolous lawsuits in two ways. It reduces the incentives for condo association board members to file lawsuits by explicitly stating that they cannot be held personally liable to pay for defects they did not sue buildings for causing. And it prunes out bogus claims by refining the definition of a warrantable defect.
However well-intentioned current legislation is, it puts great pressure on the cost to insure against potential defects (between $5,000 and $35,000 per unit) and dampens affordability, as projects at lower-price points are forced to fork over large expenses for protection.
It is difficult to determine just how many projects in Washington state failed full realization due to the law, but as Sightline Institute notes, the lack of new condominium opportunities amidst a strong real estate market in Seattle “suggests it is a big number.” To be sure, 2018 did see many new condominium projects—and a number of apartment-to-condo conversions—but there is still a great need to repair the law because it inflicts the most damage on affordable homes, which are in short supply in the region.
Condos are an important piece in the homeownership puzzle for two primary reasons. First, they allow those that cannot afford a single-family, standalone residence, the opportunity to own a home. Second, they provide a space for downsizers to shift into a space more suited to their needs, which opens up more single-family homeownership opportunities for those looking to move up or into that residence type.
How this new bill will fare in Washington’s legislative remains to be seen, but other states, including Colorado, Minnesota, Idaho and Nevada have all made changes to their condo laws in recent years, all to great success.