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June 20, 2021

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State’s condo law fix may be kick-start to development

Clark County developers optimistic Legislature’s correction to 1989 law will boost construction

By , Columbian business reporter
3 Photos
A construction worker scales the side of a structure while working on the Hotel Indigo and Kirkland Tower project at The Waterfront Vancouver. The tower portion of the project is one of the only condo buildings under construction in Clark County, despite a high demand.
A construction worker scales the side of a structure while working on the Hotel Indigo and Kirkland Tower project at The Waterfront Vancouver. The tower portion of the project is one of the only condo buildings under construction in Clark County, despite a high demand. Photos by Nathan Howard/The Columbian Photo Gallery

Single-family homes? Absolutely.

Apartments? Go for it.

Condos? Not a safe bet.

Broadly speaking, that description characterizes the recent development pattern for residential housing in Clark County. Despite what developers and real estate agents say is a high demand for housing of all types, condominium projects have been few and far between in the Vancouver area.

“Condos are just not being built,” says Ryan Makinster, government affairs director at the Building Industry Association of Clark County.

It’s a problem that builders and Washington lawmakers hope will be fixed by a recently enacted change to state law. Senate Bill 5334 passed unanimously through both chambers of the Legislature during the 2019 session, and Gov. Jay Inslee added his signature on Tuesday. The new law is scheduled to go into effect July 28.

SB 5334 seeks to correct an issue that many developers point to as the cause of the condo disparity, both in Vancouver and statewide: a 30-year-old state law that they say puts condo developers at a high risk for lawsuits.

Developers began to shy away from condo projects in order to avoid the liability issues, and even those who wanted to pursue them weren’t able to secure construction loans.

“Financing is major, and the other thing is insurance costs are extremely high — over $10,000 per unit,” says Elie Kassab, president and CEO of Vancouver-based Prestige Development.

The rate of condo construction has declined to almost nonexistent levels in the past 10 years, according to Rian Davis, public affairs director at the Clark County Association of Realtors. The Hotel Indigo and Kirkland Tower project at The Waterfront Vancouver is perhaps the only condo project currently under development in Clark County.

Prestige is nearing the end of construction on a mixed-use project in downtown Vancouver called Our Heroes Place, which was originally envisioned as a two-building project with apartments in one tower and condos in the other.

But the condo liability issues made banks and insurers unwilling to back the project, Kassab says, so Prestige had to change gears and build all the units as apartments — although some of them are designed to be converted into condos in the future. Kassab says Prestige is still reviewing the new law to see if it makes the necessary changes that would allow that to happen.

The current regulatory framework dates back to the Washington Condominium Act, adopted in 1989. According to a legislative bill report for SB 5334, the 1989 law created “implied warranties” on condo units to cover construction defects.

“What (SB 5334) really focuses on is clarifying what a ‘construction defect’ is,” Davis says.

The original definition was very broad, according to Davis and Makinster, prompting condo owners to file lawsuits for almost any reason — even for small, easy-to-fix construction mistakes that had no impact on the building’s long-term usability.

Condo boards and homeowners associations often felt pressured to file lawsuits against the builders whenever any issues emerged, Makinster says, because they were afraid that under the terms of the 1989 law, they too would be held liable if a defect prompted a condo owner to file a lawsuit in the future.

“For practical purposes, lawsuits were filed on almost every condo,” Makinster says.

The 1989 law was replaced last year by the Washington Uniform Common Interest Ownership Act, which was a broader update to state law governing all “common interest communities” such as condos, cooperatives and plat communities.

But the language defining implied warranties for condos wasn’t updated in the 2018 law, and the 1989 law continued to apply to condos built prior to 2018.

The updated language in SB 5334 states that a warranty breach has to be more than just a technical issue, and must be “significant to a reasonable person,” according to the legislative summary. It also adds language to lower the liability risk for homeowners associations and condo boards.

Davis says it’s too soon to know whether the new law will have the intended effect, but he, Makinster and Kassab agree that there’s a strong demand for more condos in and around Vancouver, and they all express a hope that the law’s passage will spur renewed interest in condo development in Clark County.

“There’s a huge market for condos,” Kassab says. “Especially for baby boomers who are retiring and want to age in place and live on one level (without stairs).”

Condos also offer a wide range of pricing, Davis says, and have the potential to provide more entry-level options at a time when Clark County is seeing many first-time homebuyers join the market.

“Condos have more capacity to reach price points that are in pretty high demand,” he says.