Should Your HOA Board Vote to Sue the Developer?

A Nevada HOA board can face a difficult decision when homeowners begin reporting the same construction problems throughout a community.

Maybe multiple buildings have stucco cracking. Perhaps water is entering through windows or roofs. There may be drainage problems, defective siding, foundation issues, or recurring failures in common-area improvements.

The developer may offer repairs.

The homeowners may demand litigation.

And the board is suddenly being asked to answer a much bigger question:

Should the HOA actually sue the developer?

The answer should not be based simply on how frustrated homeowners are or how aggressive the developer has become. The board needs to determine what property is affected, whether the association has authority to pursue the claim, what evidence exists, what the likely costs are, and what Nevada’s construction-defect procedures require.

Nevada law specifically allows an association to pursue certain construction-defect litigation involving common elements, property owned by the association, or property the association is expressly obligated to maintain, repair, insure, or replace.

If your board is dealing with potential construction defects, our Construction Defect Litigation practice page explains the broader Nevada process.

The First Question: What Exactly Is Defective?

Before voting to sue, the board needs to understand what is actually wrong.

That sounds obvious, but construction defects can become complicated quickly.

A community may report “water problems,” for example, when the actual issues include defective flashing, improper grading, roofing failures, window installation problems, or drainage deficiencies.

The board should distinguish between:

A visible symptom and the underlying construction defect.

That distinction matters because repairing a symptom may not solve the underlying problem.

A good starting point is a qualified inspection or expert evaluation that identifies the suspected defects, their locations, potential causes, and the damage they are causing.

The board does not necessarily need to know every technical answer before beginning the process.

But it should have enough information to make an informed decision rather than voting based entirely on homeowner complaints.

Does the HOA Actually Have the Right to Bring the Claim?

This is one of the most important questions for the board.

Under NRS 116.3102, an association generally has authority to institute litigation on matters affecting the common-interest community.

However, Nevada places an important limitation on construction-defect claims.

The association may not bring a construction-defect action under Chapter 40 on behalf of itself or unit owners unless the action pertains to:

• Common elements;
• Property owned by the association; or
• Property the association does not own but is expressly obligated under its governing documents to maintain, repair, insure, or replace.

That distinction can determine whether the HOA is the proper claimant.

Common Elements vs. Individual Units

Consider a condominium community where the roof, exterior walls, and common plumbing systems are defective.

Those issues may fall within the association’s responsibility because they concern common elements.

Now consider a defect affecting only the interior finishes of one privately owned unit.

The HOA’s authority may be different.

This is why the board should review the declaration, CC&Rs, bylaws, maintenance obligations, and applicable title documents before deciding that the association should pursue a developer.

The question is not simply:

“Is there a defect?”

It is:

“Who legally owns or has responsibility for the component affected by the defect?”

That answer can determine who has standing to pursue the claim.

Does the HOA Board Alone Decide to Sue?

Not necessarily.

Nevada law places specific requirements on associations before certain civil actions are commenced.

Under NRS 116.3102, except for specified categories of actions, an association generally may commence a civil action only after obtaining a vote or written agreement from owners holding at least a majority of the votes allocated to the association. The statute also identifies exceptions, including certain actions involving assessments, governing documents, vendor contracts, counterclaims, or health, safety, and welfare.

A construction-defect lawsuit against a developer should therefore not be treated as an ordinary board-management decision without reviewing the applicable statutory requirements and governing documents.

The board should determine whether owner approval is required and what voting procedure applies to the specific community.

What Information Must Homeowners Receive Before the Vote?

When owner approval is required under NRS 116.3102, the association has additional disclosure obligations.

At least 10 days before the association commences or seeks to ratify a civil action on which the owners are entitled to vote, the association must provide written information to the unit owners.

That information includes a reasonable estimate of the costs of the action, including reasonable attorney’s fees, an explanation of the potential benefits, and potential adverse consequences if the association does not bring the action or if the outcome is unfavorable. Required property-sale disclosures must also be included.

This is significant for boards.

Homeowners should not be asked to vote on an expensive construction-defect lawsuit without understanding the financial exposure and potential consequences.

How Much Will the Lawsuit Cost?

Construction-defect litigation can be expensive.

There may be attorney fees, engineering and expert costs, inspections, testing, document review, mediation expenses, and other litigation costs.

The board should understand how the attorney proposes to structure fees.

Is the representation hourly?

Is there a contingency arrangement?

Are experts paid separately?

Who advances litigation expenses?

What happens if the case is unsuccessful?

These questions should be answered before the community commits to litigation.

A lawsuit can potentially recover substantial damages, but that does not mean recovery is guaranteed.

What If the Developer Offers to Repair the Defects?

Do not automatically reject the offer.

Nevada’s Chapter 40 process gives contractors an opportunity to inspect alleged constructional defects and, in applicable circumstances, elect to repair them.

Under NRS 40.647, a claimant generally must allow the required inspection and provide a reasonable opportunity to repair when the contractor elects to do so.

For an HOA, the repair process can become particularly significant because the defect may affect common areas throughout an entire community.

The board should have the proposed repair evaluated rather than simply deciding that litigation is preferable.

The critical question is:

Will the proposed repair actually correct the underlying defect?

A Cosmetic Repair May Not Solve a Systemic Defect

Imagine an HOA discovers recurring stucco cracking throughout a development.

The developer offers to patch and repaint the visible cracks.

That sounds reasonable until an expert determines that the underlying problem involves improper installation or moisture management.

Patching the cracks may improve the appearance temporarily without solving the cause.

The same problem can occur with roofing, windows, drainage, foundations, balconies, siding, and other building components.

The board should therefore ask for a detailed repair scope.

A technical expert can help determine whether the proposed work addresses the cause or merely the visible symptom.

What Is a Chapter 40 Notice?

For a covered construction-defect claim, the HOA may need to provide a formal notice under NRS 40.645 before commencing an action.

Nevada defines “claimant” to include a representative of a homeowners’ association acting within the scope of the representative’s duties under Chapter 116 or Chapter 117.

The notice must comply with statutory requirements.

Among other things, it must describe the alleged defects and known resulting damage or injuries with reasonable detail and include the required verification. A notice sent on behalf of an HOA must contain a verification signed under penalty of perjury by a member of the executive board or an HOA officer.

The notice is generally sent by certified mail, return receipt requested.

This is not something the board should treat as a casual complaint letter.

What Happens After the HOA Sends Notice?

The Chapter 40 process provides an opportunity for the developer, contractor, subcontractors, suppliers, and design professionals to investigate the allegations.

The contractor generally must respond within the statutory timeframe and state whether it will repair the alleged defect, make a monetary settlement offer, disclaim liability, or take another position permitted by the statute.

If the contractor elects to repair, the claimant generally must provide a reasonable opportunity for the repair.

For notices received from a representative of a homeowners’ association, Nevada law generally provides 150 days for completion of an elected repair unless the parties agree to an extension.

The board should therefore understand that sending a Chapter 40 notice does not necessarily mean the HOA immediately files a lawsuit.

There is a statutory process between notice and litigation.

What Evidence Should the HOA Gather?

Before deciding whether to sue, the board should build a reliable record.

That can include inspection reports, engineering opinions, photographs, maintenance records, homeowner complaints, builder communications, repair histories, warranties, contracts, governing documents, and records showing when the defects were first discovered.

If several homeowners report similar problems, the HOA should organize those reports rather than treating them as isolated complaints.

Patterns can be important.

For example, ten separate reports of window leaks in different buildings may suggest a systemic installation problem rather than ten unrelated maintenance issues.

What If the Developer Controlled the HOA?

This can create an especially sensitive situation.

Many Nevada communities begin with a period of declarant control.

NRS 116.31032 governs the period of declarant control and establishes when that control terminates under statutory circumstances.

If the alleged construction defects occurred during the developer’s control of the association, the board should pay particular attention to potential conflicts of interest and the association’s historical records.

The transition from developer control to homeowner control can also be an important point for reviewing unresolved construction issues.

Should the HOA Get an Independent Construction Expert?

For a significant claim, that can be highly valuable.

The developer will typically have its own contractors, engineers, consultants, and attorneys.

The HOA should have an independent assessment of the defects.

An expert can help answer:

What is defective?

Why did it fail?

How widespread is the problem?

What would it cost to correct?

Is the proposed repair adequate?

Are additional components likely to be affected?

The answers can dramatically change the board’s litigation decision.

A $25,000 repair problem is a different decision from a $2 million systemic defect.

What Are the Risks of Not Acting?

The board should evaluate both sides of the decision.

Not suing may save the community significant legal expenses.

But delaying action can also create risks.

Evidence can become harder to preserve.

Buildings can be repaired or altered.

Experts may have more difficulty determining what caused the original defect.

And applicable legal deadlines may continue to run.

Nevada’s construction-defect laws contain statutes of limitation and repose, and Chapter 40 contains specific procedures affecting the timing of claims.

A board should therefore avoid allowing a construction-defect issue to sit indefinitely while members debate whether it is worth pursuing.

What Are the Risks of Suing?

Litigation also carries real risks.

The developer may deny responsibility.

The case may take years.

The community may incur substantial legal and expert expenses.

Homeowners may disagree about litigation strategy.

The developer may make settlement offers that divide the community.

And the HOA may ultimately recover less than expected or nothing.

That does not mean the board should avoid litigation.

It means the decision should be based on evidence, economics, legal advice, and the community’s actual interests.

What If the HOA Settles?

Settlement can be a practical alternative to a full trial.

A settlement might involve repairs, monetary compensation, or a combination of both.

But the board should understand exactly what the community is giving up in exchange.

Settlement documents can address releases, future claims, warranties for repairs, payment schedules, and other obligations.

Nevada law also contains specific requirements concerning disclosure of the terms of an association’s settlement after a civil action is settled. Under NRS 116.3102, the executive board must disclose the settlement’s terms and conditions at the next regularly scheduled board meeting after the settlement is reached.

The Board Should Think About the Community, Not Just the Lawsuit

A construction-defect lawsuit is ultimately a community decision.

The board should ask:

What outcome is best for the association and its owners?

That might be litigation.

It might be a negotiated repair program.

It might be a settlement.

Or it might be taking no further action after an independent investigation determines that the alleged defects do not justify pursuing a claim.

The important thing is that the board’s decision should be informed, documented, and consistent with its statutory duties and governing documents.

How a Nevada Construction Defect Attorney Can Help an HOA Board

A construction-defect attorney can help the board evaluate the legal and procedural issues before the HOA commits to litigation.

That can include reviewing the governing documents, identifying whether the defects involve common elements or other property within the association’s authority, evaluating the Chapter 40 process, coordinating with construction experts, assessing potential defendants, and analyzing settlement proposals.

For HOAs in Las Vegas and Reno, early legal and technical evaluation can be particularly important because construction-defect claims can involve multiple buildings, contractors, subcontractors, engineers, architects, and insurance policies.

The goal is not simply to determine whether the HOA can sue.

It is to determine whether pursuing the claim makes sense for the community.

Frequently Asked Questions

About Milan Chatterjee

This article was prepared by Milan Chatterjee, a Nevada and California licensed attorney and founder of My Real Estate Lawyer, a real estate law practice dedicated to protecting property owners, investors, homeowners, businesses, and other clients throughout Nevada.

Milan represents clients in matters involving construction defect litigation, HOA and condominium disputes, real estate disputes, purchase and sale agreements, property transfers, title disputes, partition actions, boundary and easement disputes, landlord-tenant matters, and complex real estate ownership conflicts.

He earned his Juris Doctor from UCLA School of Law and studied at New York University School of Law as a visiting student. Before entering private practice, he served as Associate Compliance Counsel at Las Vegas Sands Corporation, where he advised on corporate governance, regulatory compliance, investigations, and risk management.

Today, through My Real Estate Lawyer, Milan helps homeowners, HOA boards, investors, sellers, and property owners throughout Las Vegas, Reno, and Nevada navigate complex real estate disputes and protect their property rights.

Conclusion

An HOA board should not vote to sue a developer simply because homeowners are frustrated with construction problems.

But it should not dismiss a potentially significant construction-defect claim simply because litigation sounds expensive or complicated.

Nevada law gives associations authority to pursue certain construction-defect claims involving common elements and other property the association owns or is obligated to maintain.

At the same time, statutory voting requirements, Chapter 40 notice procedures, inspections, repair opportunities, expert evaluations, litigation costs, and potential deadlines all need to be considered.

For many communities, the best decision begins with an independent investigation.

Once the board understands what is defective, what it will cost to repair, who may be responsible, and what legal deadlines apply, it can make a much more informed decision about whether litigation is actually in the community’s best interests.