BUILDERS IN NEW JERSEY RECEIVED A SET-back earlier this year when the state Supreme Court ruled that a municipality may issue a code violation even if the builder no longer owns the property and a certificate of occupancy (CO) has been issued.

The 5-0 decision in late January was hailed by consumer advocates in the Garden State as an important victory. Advocates, including the New Jersey State League of Municipalities, argued that the decision offers new-home buyers an extra measure of protection. Builders, many of whom have been at war with state government during the past few years, don't agree.

Patrick O'Keefe, executive vice president and CEO of the New Jersey Builders Association, says home buyers already have protection under the state's mandated 10-year warranty program.

Ten-year warranties are fairly standard among builders nationwide, but O'Keefe says New Jersey is the only state with a mandated warranty program managed by state government. He says home buyers with defects claims should use the warranty program or file a lawsuit.

“The state Department of Community Affairs had already adopted regulations addressing this issue,'' says O'Keefe, who believes the state agency makes it clear that the issuance of a CO terminates a municipal code official's jurisdiction.

The case stems from a series of defects complaints that Montgomery Township, N.J., started receiving in May 2000 from homeowners at the Cherry Valley Country Club. The homes were built by DKM Residential Properties Corp. between 1995 and 1998. During the late 1990s, DKM sold the homes in the development and retained ownership of a few nonresidential structures.

According to the decision, the homeowners complained about improper installation of the stucco-like exterior finish that was applied to the DKM homes. The homeowners maintained that the installation was not in line with the manufacturer's specifications and that moisture had penetrated the homes, causing decay, rotting, and mold. Montgomery Township's construction official determined that the installation was a code violation and identified 62 breaches, all but one of them pertaining to the residences.

DKM filed suit and lost in lower court, but the company won on an appeal. The appeals court ruled that neither the state's Uniform Construction Code (UCC) nor its regulations allowed Montgomery Township to issue a code violation on a property DKM no longer owned.

Trishka Waterbury, the attorney who successfully argued the case for Montgomery Township before the state Supreme Court, says there's nothing in the state's UCC to suggest that a code official couldn't issue a code violation when the builder no longer owned the property or a CO was issued. She also points out that the state's Tort Claims Act limits a municipality's liability from performing a negligent inspection or negligently issuing a CO.

“The state does not intend for the CO to be a bulletproof certificate that lets everyone off the hook,” says Waterbury.