CLIENT: Jack Leer, Partner, Caldarelli Hejmanowski Page & Leer, LLP San Diego, CA
EXPERT: Ted Bumgardner
Xpera Group has been publishing articles about the risks of wood-framed cantilevered balconies and other Exterior Elevated Elements (EEEs) for many years. One of our articles caught the attention of attorney Jack Leer of Caldarelli Hejmanowski Page & Leer LLP in San Diego, who happened to be working on a case involving that very topic and needed an expert to help his client find resolution to a costly dispute.
Leer was representing a group of real estate investors that had purchased a large apartment community in the Seattle, WA area involving multiple buildings and more than 100 units. Prior to the sale, the seller had a Property Condition Assessment (PCA) performed on the property by a large engineering firm, which reported that the balconies were all in good condition and had a 30-year useful life remaining. With reliance on that inspection report, Leer’s clients proceeded with the deal.
After closing escrow, the new owners hired a painting crew to freshen up the property, only to be told by the painters that the buildings’ balconies were rotting, falling apart and ready to collapse. Major alarm bells rang, as the owners braced for an extremely costly fix to the dangerous situation on their hands.
Leer’s client called the engineering firm that produced the inspection report for answers, explaining that they might not have closed the deal on the property if they had known about the balcony problems, or would have at least negotiated a lower price to account for the necessary repairs. The engineering firm flew out its own team of special balcony inspectors to take another look at the property. Their conclusion: All the balconies did indeed need to be replaced.
Armed with this information, Leer’s client sued the engineering firm that produced the original report saying all the balconies were in good condition, and the case moved into arbitration.
Recognizing Xpera’s expertise on the subject of balconies and EEE evaluations, Leer hired Ted Bumgardner to conduct a physical inspection of each of the balconies on the property and then testify about their condition at the arbitration hearing.
Bumgardner’s findings not only confirmed the fact that the balconies were failing and needed to be replaced, but that the previous owner’s attempts to fix the problem balconies actually made them worse.
“Ted found evidence that there had been previous fixes attempted on the balconies, including nailing extra wood alongside the rotting beams,” said Leer. “But Ted explained that because the wood supports were not cantilevered, they were just adding additional weight and stress that would pull the balconies down faster. They were doing nothing to actually make the balconies safer. These were things we would never have known about without Ted’s evaluation.”
Leer worked closely with Bumgardner to prepare the attorneys for cross examination of the opposing side’s experts, and as a result, they were able to get them to make key admissions about the structural problems with the balconies. Both of the engineering firm’s experts agreed that the balconies needed to be replaced.
“Ted spent two days on-site inspecting the balconies and was meticulous with his documentation, photographs and notes for every balcony involved,” said Leer.
“His preparation was impeccable, and he was able to discuss the specific details of each individual balcony the arbitrator inquired about. We could not have been happier with his contributions to the case.”
Then things got a little strange.
Despite the fact that the experts on both sides agreed that all the balconies needed to be replaced, and no contrary evidence was presented, the engineering firm argued that it was not clear that all the balconies needed to be replaced immediately, that some of them would last longer than others. This was, of course, quite a departure from their original PCA report, which claimed that they would last another 20 to 30 years.
Ultimately, the arbitrator found the engineering firm to be liable, but for reasons that boggled the minds of many involved, decided that only two of the balconies needed to be replaced immediately, rather than all of them. This finding appeared to contradict all the compelling evidence that was presented during the arbitration hearing.
“There are pros and cons associated with arbitration,” said Bumgardner. “While it is quicker and less expensive, it also may not be as thorough as the discovery process in trial. In this particular case, it appears the arbitrator chose a ‘split the baby’ approach, finding the engineering firm liable for its failure to report the bad balconies, but awarding damages to the client at a more modest level. It was a strange outcome, given how clear cut the evidence we presented was.”
“From a personal standpoint, I learned a lot more about the dangers of cantilevered balconies and the effect the weather can have on them over time,” said Leer. “As was proven in this case, there was negligence on the part of the engineering firm for not identifying the deteriorated balconies in their inspection report. It underscores the need for thorough, competent inspections of these critical structures before disaster strikes.”
Unfortunately, stories of botched or incomplete due diligence are all too common in the real estate industry. At Xpera, we have found that even some of the “heavyweight” firms that investors rely on for unbiased data and peace of mind can do a poor job of inspecting properties, missing issues that can pose significant risk. In the case of balconies, these hidden risks can be devastating – not just financially for investors, but also in terms of the potential risk to human life.
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This project was completed by Xpera Group which is now part of The Vertex Companies, Inc.
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This article was originally published by Xpera Group which is now part of The Vertex Companies, Inc.