In a decision issued on April 14, 2014 the 11th Circuit provided a major victory for subsequent owners of apartments and other types multi-family housing. In Harding v. Orlando Apts. LLC, 748 F.3d 1128 (11th Cir. 2014) the Court dismissed the notion that merely owning or operating an apartment complex could create liability for a failure of the apartments to meet the FHA design standards. Following the best reasoning of scattered earlier district court decisions the Court found that the clear language of the FHA imposed design and construction liability only on those involved in the original design and construction, and that the general anti-discrimination provisions of the FHA did not create an ongoing duty to bring a multi-family development into compliance with the design standards. (See my blog of November 21, 2013 for background on the pending district court cases).
Of particular importance in the decision is the Court’s rejection of the District Court’s rationale for granting summary judgment in favor of the Defendant. The District Court granted summary judgment based on its finding that the Defendant had no wrongful knowledge that the apartment complex at issue was not in compliance with the FHA standards. The 11th Circuit simply found that subsequent purchasers were not liable for earlier failures to design and build in compliance with the standards, rejecting the notion that knowledge or motive had any relevance to liability at all. While the opinion does not exclude liability for sham transactions, it seems to leave little room for other theories of subsequent owner liability.
While binding only in the 11th Circuit, the case has national implications. There is no doubt at all that the risk of liability for design and construction failures has had some influence on market activity if only because prudent purchasers are either paying for or demanding FHA compliance surveys and demanding indemnities or price concessions when accessibility issues are found. Prudent buyers will still want to know where they stand, but at least Harding v. Orlando Apts. eliminates the catch 22 created by the prospect that knowledge might create liability.
There is no doubt that plaintiffs in other circuits will continue to explore theories of liability that might require subsequent owners of multifamily projects to remediate; however, this strong precedent will certainly encourage district courts to reject such efforts and reduce the risks that often drive settlement in these cases. Both developers with properties to sell and operators interested in buying have good cause to celebrate.