New Jersey Supreme Court Justice Barry T. Albin. Photo: Carmen Natale/ALM

The New Jersey Supreme Court ruled Thursday that a condominium association can’t restart the clock on the six-year statute of limitations for construction defects after acquiring a former rental property.

The justices reversed an Appellate Division ruling that found three suits filed against contractors by the Palisades at Fort Lee Condominium Association on various dates in March and April 2009 and September 2010 were within the six-year limit because the association received notice of construction defects in the building in an engineer’s report issued in June 2007.

The construction defect action accrued when the building’s original or subsequent owner first knew, or should have known through reasonable diligence, about the basis for a claim, the court said. The statute of limitations clock is not reset whenever a property changes hands, the court said, rejecting the Appellate Division’s view that the statute of limitations could not accrue before the plaintiff gained full control of the condominium association.

But the court said it could not determine from the record when the accrual clock began running, and it remanded the case to the trial court for that issue to be addressed.

The Palisades at Fort Lee Condominium Association commissioned its engineering report after taking full control of the building in July 2006. Its report was issued in June 2007 by a company called The Falcon Group. But construction defects were revealed in another engineering report issued to the developer of the property, A/V Acquisitions Co. That report, written by Ray Engineering, was issued in October 2004. A/V Acquisitions operated the 41-story residential building in Fort Lee as a rental property for two years before selling it to 100 Old Palisade LLC, which converted it to condominiums. The condominium association took over control of the building from 100 Old Palisade after 75 percent of the building’s units were sold.

The Supreme Court ruled that the construction defect cause of action accrued when a building’s original or subsequent owners first knew, or should have known through reasonable diligence, about the basis for a claim. The statute of limitations runs for six years after that point, and a subsequent owner stands in no better position than the prior owner in calculating the limitations period, the court said.

Although the justices reversed the Appellate Division ruling, they said the trial court, which dismissed the plaintiffs’ complaints as time-barred, also failed to properly analyze the issue of the statute of limitations in the case.

Judge Robert Wilson of Bergen County Superior Court dismissed the construction defects suits after finding that the statute of limitations began to run when the Palisades complex was substantially completed, in May 2002.

The Appellate Division reversed, holding that the condominium association did not have sufficient facts to assert actionable claims until it received its engineering report, which was more detailed than the report obtained by the developer. Therefore, the appeals court concluded that the suits against the contractors were within the six-year statute of limitations.

The justices, in an unanimous ruling by Justice Barry Albin, rejected the Appellate Division holding that the six-year statute of limitations could not accrue before the plaintiff took full control of the condominium association.

“An owner of a building cannot convey greater property rights to a purchaser than the owner possessed. If the building’s owner knew or reasonably should have known of construction defects at the time of the sale of the property, the purchaser takes title subject to the original owner’s right—and any limitation on that right—to file a claim against the architect and contractors,” the court said.

“If the building’s original owner does not file a construction-defect lawsuit within the six-year limitations period from accrual of an actionable claim, the purchaser taking title has no right to revive a lapsed claim,” the court said.

Raymond Garcia of Garcia & Milas in New Haven, Connecticut, who represented the condominium association, said his client would not be harmed if the trial court holds that the claim accrued when the Ray Engineering report was issued. The court’s rejection of the notion that claims are accrued by substantial completion of the building is good news for his client, Garcia said.

The Supreme Court ruling is “wonderful news for the client and, I think, generally for the industry because it removes substantial completion as a trigger for the statute of limitations,” Garcia said. “If the Ray report is the touchstone, for me, it doesn’t make a difference.”

Mark Shifton of Seiger Gfeller Laurie in Princeton, representing defendant Benfatto Construction, declined to comment on the ruling. Stephen Cahir of William Staehle’s office in Morristown, representing defendant Luxury Floors Inc.; Eric Schlesinger of Golden Rothschild Spagnola Lundell Boylan & Garubo in Bridgewater, representing Forsa Construction; and John Osorio of Marshall, Dennehey, Warner, Coleman & Goggin in Mount Laurel, representing general contractor ADJ Construction, did not return calls.