|
Signed into law Sept. 20 by Gov. Gray Davis after unanimous endorsements this past summer by both branches of California's state government, S.B. 800 takes effect Jan. 1, 2003 and applies to residential construction sold on or after that date. There is no retroactive provision in the new law, and builders must prepare now for warranty obligations imposed on new construction currently underway in preparation for sale after the New Year. While the new law attempts to establish definitions for construction defects, pre-litigation procedures and responsibilities for both homeowners and homebuilders, the reality is that most construction defect litigation is initiated several years after the dwelling is sold. We likely will not see what benefit, or detriment, S.B. 800 brings to the table for 5 or 6 years.
The new law establishes definitions, or "functionality standards," for construction defects and rigorous pre-litigation procedures for violating the standards. The pre-litigation procedures include a builder's right to repair, a statute of limitations, burden of proof, recoverable damages, and builder defenses.
Further, the bill establishes responsibility for homeowners to notify homebuilders of possible defects and, conversely, a responsibility to inspect and repair possible problems. Builders will have a window within which they can repair defects before homeowners seek legal action; however, the bill also creates more opportunity to mediate disagreements.
While many praise S.B. 800 for its attempt to establish ground rules for litigating construction defects and means of alleviating immediate efforts to bring disputes to trial, the law has flaws that may come to the fore as some disputes make their way to court. Meanwhile, the complexities of S.B. 800 are not easy to digest for either homeowner or homebuilder. Both parties are wise to consult with experienced counsel in advance of pursuing any disputes. What follows is an analysis of S.B. 800 and the impact.
ANALYSIS OF SENATE BILL 800
WITH COMMENTS REGARDING PRACTICAL EFFECT
ON THE CONSTRUCTION INDUSTRY
Approved by Governor September 20, 2002. Filed with Secretary of State September 20, 2002. The Statute will take effect January 1, 2003 pursuant to California Constitution, Article IV, § 8(c)(2).
The Statute's language makes no reference to retroactivity, and in the absence of specific retroactive language a statute is presumed not to be retroactive. That means cases filed prior to January 1, 2003 will be controlled by a different set of laws than subsequent filed cases (involving homes originally sold after 1-1-2003, explained below).
The effects of the Statute will not surface for a significant time period. The law applies to "residences originally sold on or after January 1, 2003." Delaying the Statute's application to residences constructed after the New Year allows the "builder" to develop the warranties referenced in Chapter 3. The "builder" must decide on choosing between the one-year warranty (the language set forth in the Statute) or opt for an "enhanced protection agreement."
The legislation is added to Title 7 of the Civil Code. The Title is broken out into the following chapters:
Chapter 1 Definitions
Chapter 2 Actionable Defects
Chapter 3 Obligations
Chapter 4 Pre-litigation Procedure
Chapter 5 Procedure
The legislation provides immunity to a professional who reviews plans and specifications in order to determine compliance with governmental regulations, assuming that professional maintains specified experience and E&O insurance.
Chapter 1 Definitions
"Structure" is defined as any residential dwelling. "Design moisture barrier" and "actual moisture barrier" are defined to mean any component or material specified in the plans or actually installed that serves as a barrier against moisture.
Chapter 2 Actionable Defects
(Sets forth standard of care for specific building component parts, underground utilities and soils; also includes new limitation periods for specified areas of construction)
Relates to any "action" seeking damages against a builder, a subcontractor or design professional. Provides that those entities will be liable for, but limited to, the following standards:
1. Water Issues - defined as unintended water that penetrates moisture barriers. Windows, patio decks, and deck doors fall within this definition. Simply put, water is not to penetrate any barrier that is meant to be waterproof. The waterproof systems also shall not allow "excessive condensation" within the structure. Roofs and other components of the roofing system shall not allow water to enter the structure. Decks, balconies, and exterior stairs also are not to allow water to pass. Foundation systems and slabs shall not allow water or vapor to enter the structure so as to cause damage to another building component. The foundation systems and slabs shall not interfere with flooring material "typically used for the particular application."
Hardscape, including patios, irrigation systems, landscaping systems and drainage systems, shall not be installed in such a way as to cause water or soil erosion to enter into or come into contact with the structure. Stucco or any other exterior siding shall not allow unintended water to pass into the structure, nor allow excessive condensation to enter the structure. Retaining and site walls shall not allow water to pass beyond, around or through its designed or actual moisture barriers. Retaining walls shall not allow water to flow "beyond, around, or through the areas designated by design."
"Plumbing systems, sewer systems and utility systems shall not leak." Plumbing lines, sewer lines and utility lines shall not corrode so as to impede "the useful life of the systems." Sewer systems shall be installed so as to allow the sewage to flow through the system. Shower and bath enclosures shall not leak. Ceramic tile and tile countertops shall not allow water into the interior of the walls, flooring systems or other components so as to cause damage.
2. Structural Issues - foundations, slabs and load bearing components shall not contain "significant cracks or significant vertical displacement." Theses systems shall not cause the structure "to be structurally unsafe." These systems shall "materially comply with the design criteria set forth by applicable government building codes, regulations and ordinances for chemical deterioration or corrosion resistance in effect at the time of original construction." The structure shall be constructed in order to comply with design criteria for earthquake and wind load resistance set forth by applicable government codes.
3. Soil Issues - soils and engineered retaining walls shall not cause "damage to the structure built upon the soil or engineered retaining wall." Nor shall soils cause the structure to be "structurally unsafe." Soils shall not cause land upon which no structure is built to "become unusable for the purpose represented at the time of original sale by the builder or for the purpose for which that land is commonly used."
4. Fire Protection Issues - the structure must comply with design criteria and applicable government building codes, regulations and ordinances. (This does away with the Aas v. Superior Court restriction that "damage" is required prior to recovering damages for life safety issues.)
5. Plumbing and Sewer Systems - shall not "materially impair the use of the structure by its inhabitants." A four-year limitation period is applicable to plumbing and sewer claims.
6. Electrical Systems - four-year limitation period from the "close of escrow."
7. Four-year limitation period - applicable to "pathways, driveways, hardscape, sidewalks, side walks, and patios installed by the original builder which shall not contain cracks that display significant vertical displacement or that are excessive."
8. Stucco and Exterior Siding - shall not "contain significant cracks or separations."
9. Manufactured Products - such as windows, doors, roofs, plumbing products, fireplaces, etc., shall be installed so as not to interfere with the product's useful life, if any. "Useful life" means a representation of how long a product is warranted or represented to last by the manufacturer. Where there is no representation of useful life, a builder shall install manufactured products so as not to interfere with the product's utility. In the absence of a "useful life representation" the period shall not be less than one year. This statute does not apply to any action seeking recoveries solely for defect in a manufactured product located within or adjacent to the structure.
10. Heating - shall be capable of maintaining room temperature at 70 degrees at a point three feet above the floor in any living space.
11. Attached Structures - shall be constructed to comply with "interunit noise transmission standards" set by applicable governmental codes and ordinances. A one-year limitation period applies to noise transmission claims.
12. Irrigation Systems - shall operate so as not to damage landscaping or external improvements. A one-year limitation period (from close of escrow) applies to irrigation system and drainage claims.
13. Untreated Wood Posts - shall not be installed on contact with soils so as to cause "unreasonable decay." Two-year limitation period applies here.
14. Steel Fences - shall be installed so as to prevent unreasonable corrosion. Four-year limitation period.
15. Paint and Stains - shall be accomplished in a manner not to cause deterioration of the building's surfaces. A five-year limitation applies.
16. Landscaping Systems - shall be installed so as to survive for not less than one year. A two-year limitation period applies.
17. Dryer Ducts - shall be installed properly. A two-year limitation period applies.
18. Structure shall not constitute a "public health hazard" - as determined by a "authorized public health official, health agency, or governmental entity having jurisdiction."
"The standards set forth in this chapter are intended to address every function or component of a structure. To the extent that a function or component of a structure is not addressed by these standards, it shall be actionable if it causes damage." (This means the Chapter was to extend to all component parts, but it really doesn't.)
Chapter 3 Obligations (required builder warranties)
This chapter sets forth the obligations of both builders and homeowners. A builder shall provide a homeowner with a minimum "one year express warranty, limited warranty covering the fit and finish of the following building components." If the builder fails to provide the express warranty required by this section, the warranty for these items shall be for a period of one year.
a) Enhanced Warranty Option
The builder may "offer greater protection or protection for longer periods in its express contract with the homeowner than that set forth in Chapter 2." A builder may not limit the application of Chapter 2 or lower its protection. An offer greater than that set forth in Chapter 2 is characterized as a "enhanced protection agreement." Such an agreement allows the builder the option to be subject to its own express contractual provisions in place of Chapter 2. The enhanced warranty agreement preempts Chapter 2. The builder must state in writing the enhanced warranty and advise homeowner that builder has elected not to be subject to the Chapter 2 provisions.
In the event builder elects enhanced protection agreement, and homeowner disputes that the particular provision or time periods of the enhanced protection agreement are not greater than or equal to Chapter 2, the homeowner may seek to enforce the application of Chapter 2 standards as to those claimed deficiencies. If homeowner seeks to enforce Chapter 2, in lieu of the enhanced protection agreement in subsequent litigation or legal action, the builder shall have the right to have the matter bifurcated and an immediate binding determination in his or her responsive pleading within 60 days after the filing of that pleading, but in no event after the commencement of discovery.
Builder waives any rights under statute if it fails within a specified time period to seek bifurcation.
b) Subsequent Purchasers
Regarding subsequent purchasers, that subsequent purchaser homeowner shall be deemed to be in privity for purposes of the enhanced protection agreement, only to the extent the builder has recorded the enhanced protection agreement on title or provided actual notice to the subsequent purchaser. If the enhanced protection agreement is not recorded or no actual notice given, "the standards set forth in this Title apply to any non-original homeowner's claims."
Chapter 4 Pre-litigation Procedures for Homeowner and Builder
Prior to a homeowner filing an action for violation of the standards set forth in Chapter 2, they shall initiate the following pre-litigation procedures:
(a) Provide written notice via certified mail to builder of claimant's claims relating to standards set forth in Chapter 2. Must describe the claim in reasonable detail sufficient to determine the nature and location and, if known, the claim violation. If a homeowner's association is involved, the notice may identify the claimant solely by address or other description sufficient to apprise builder of locations of subject residences.
(b) Notice requirements of this section do not apply to normal customer service procedures set forth in any contract or warranty.
The builder is then obligated to the following:
(a) Within 30 days of a written request, provide copies of all relevant plans, specifications, grading plans, and Department of Real Estate public reports. The builder is not a copying service, and reasonable copying costs shall be borne by the requesting party. Builder may require documents be copied on site, except that homeowner may, at their option, use their own copying service at an off-site facility that is "bonded and insured." If the plans are lost, builder may be excused from the requirements of this subdivision, in which case the builder shall act with reasonable diligence to assist homeowner in obtaining documents from governmental entities or other sources. Also, upon request, builder, at the homeowner's expense, shall provide all maintenance records within 30 days of written request. Copies of all manufactured products, maintenance, preventative maintenance, and limited warranty information shall also be made available within 30 days' request. The builder shall maintain the name and address of an agent for notice pursuant to this chapter with the Secretary of State or alternatively, elect to use a third party for notice purposes.
(b) If a builder contracts with a third party regarding acceptance of claims, the builder must give notice to the homeowner and shall record on title the facts relating to notice.
(c) Within 14 days, builder is required to acknowledge receipt of the notice of claim. The chapter establishes a "non-adversarial procedure." A builder may attempt to commence non-adversarial contractual provisions other than this chapter, such as alternative dispute resolution procedures set forth in the purchase agreement. At the time the sales agreement is executed, builder shall notify homeowner whether builder intends to engage in alternative dispute resolution procedures or utilize this chapter. The election is binding. Nothing in this chapter affects the viability or enforceability of alternative dispute resolution clauses set forth in purchase agreements.
(d) If a builder fails to acknowledge receipt of the notice of claim within the 14 days, or elects not to go through the process, the statute does not apply and homeowner is allowed to file suit.
(e) If builder elects to inspect the claims made by homeowner, the initial inspection shall be completed and testing accomplished within 14 days after acknowledgment of the receipt of notice of claim. All costs of inspection and testing shall be borne by builder. Builder must provide proof that builder has liability insurance to cover any damages caused by inspection.
(f) If a builder deems a second inspection or testing necessary, it must specify in writing within three days following initial inspection, and then second inspection is allowed. That inspection must be completed within 40 days of the initial inspection or testing.
(g) Failure to inspect or test property within the time specified release homeowner from chapter, allowing civil action to be filed.
(h) If builder intends to hold a subcontractor, design professional, material supplier (including insurance carrier) or service company responsible for its contribution to the unmet standard claimed, builder must provide notice to that person or entity sufficiently in advance to allow the subcontractors to attend the initial and secondary inspections. This subdivision does not apply to the "builder's insurance company."
(i) Within 30 days of the initial, or if requested, second inspection or testing, builder may offer in writing to repair the violation. The offer must be accompanied by detailed, specific, step-by-step statement identifying the particular violation, explaining the nature, scope and location of the repair, and setting a reasonable completion date for the repair.
(j) "The offer shall also advise the homeowner in writing of his or her right to request up to three additional contractors from which to elect to do the repair, pursuant to this chapter." (What this means is builder can spend significant time developing a repair plan, only to be thwarted by the homeowner's request that another contractor perform the repairs.)
(k) Upon receipt of the repair offer by homeowner, homeowner has 30 days to authorize builder to proceed. Alternatively, homeowner may request the builder provide the identity of three licensed alternate contractors not controlled by builder, to perform the repairs. If homeowner so elects, builder is entitled to an additional non-evasive inspection within 20 days of the election in order to permit the alternate contractors to review the purposed site of the repair. Within 35 days after the request of the homeowner for alternate contractors, builder shall present the homeowner with a choice of contractors. Within 20 days after presentation, homeowner shall authorize the builder or one of the alternate contractors to perform repairs.
(l) The offer to repair shall be accompanied by an offer to mediate the dispute if the homeowner so chooses. Mediation is limited to four hours.
(m) If a builder fails to make offer to repair within the specified time, homeowner is released from the requirements of this chapter and may file civil action.
1) Procedure for Repairs
Repair procedures are discussed, including requirements to make appointment with homeowner, etc. Repairs shall be commenced on a mutually convenient date within 14 days of acceptance, or if an alternate contractor is used, within 14 days of selection, or if mediation occurs, within 7 days of the mediation, or within 5 days after a permit is obtained, if one is required. Every effort shall be made to complete the repair within 120 days. Repairs may be photographed.
If builder elects to repair some but not all of the claimed unmet standards, builder must state with particularity the reasons for not repairing all claimed unmet standards. If a builder fails to complete repairs within the time specified in the chapter, homeowner is released from the requirements and may file civil action.
Builder may not obtain a release or waiver of any kind in exchange for the repair work. At conclusion of repair, the claimant may proceed with filing a civil action for violation of the standards set forth in the chapter, or for inadequate repairs or both. The statute of limitations are tolled during the time to comply with this Chapter.
If the builder invokes the Chapter and completes repairs, before filing a civil action (assuming there has been no previous mediation between parties), the homeowner and/or his lawyer must request mediation in writing. The mediation is limited to four hours.
2) Cash Settlement
Nothing in Chapter prohibits builder from making a cash offer and no repair. In this event, the builder may obtain a reasonable release in exchange for cash payment.
3) Default By Builder
Any default by builder of the requirements in Act allows homeowner to file civil action. If the homeowner fails to conform to any requirements of chapter, builder may bring motion to stay any subsequent court action, and the prevailing party is allowed attorneys' fees.
4) No Application to Personal Injury Actions
The Act does not apply to personal injuries or fraud claims.
5) Subsequent Discovered Claims
Subsequent discovered claims shall be administered separately under this chapter. If the claim relates to a single-family residence, the subsequent discovered claim may not relate to a claim already made.
6) Admissibility of Repair Efforts at Trial
The repair effort may be introduced as evidence in a trial. The homeowner may use the condition of the property prior to the repair as a basis for contending the repair work was inappropriate, inadequate or incomplete, or that the violation still exists.
"Evidence of both parties' conduct during this process may be introduced during a subsequent enforcement action." (Does this make attorney a witness?) Any repair effort by builder shall not be considered settlement communications or offers and are not inadmissible in evidence on such a basis.
Each provision of this chapter applies to subcontractors, material suppliers, and design professionals.
Chapter 5 Procedure
No action under this Title shall be brought "more than 10 years after substantial completion of the improvement, but no later than the date of recordation of a valid notice of completion." "Action" means a claim for indemnity, except a cross-complaint for indemnity may be filed after the 10 years (conforming to the Valley Circle Estates case).
Sections 337.15 and 337.1 of the Code of Civil Procedure do not apply to actions brought under this Title. Existing cases regarding tolling shall apply relating to repairs.
No other cause of action for a claim covered by this Title or for damages recoverable under sections in this Title is allowed. The Title does not apply to an action to enforce a contract or an action for fraud, personal injury or violation of a statute.
Claims relating to detached single-family homes are limited to the cost to repair or diminution in value, whichever is less. The homeowner is entitled only to damages for the reasonable value of repairing any violations set forth in this Title, reasonable relocation and storage expenses, lost business income if the home was used as the principal place of business, licensed to be operated from the home, reasonable investigative costs for each established violation, and all other costs or fees recoverable by contract or statute.
The provisions in this chapter are binding upon all original purchasers and their successor-in-interest. Homeowners associations shall be considered original purchasers and shall have standing to enforce this Title.
A builder is allowed to assert comparative fault defenses, such as unforeseen act of nature, homeowner's unreasonable failure to minimize or prevent damages, failure to follow the builder's or manufacturer's recommendations, ordinary wear and tear, misuse, abuse and neglect.
CONCLUSION
The "standards" set forth in Chapter 2 will provide the basis for summary judgment motions. Defendant may argue as a matter of law a particular defect alleged by homeowner does not breach the standard of care set forth in the Chapter.
Limitation periods set forth in Chapter 2 preempt the 10 year limitation period contained in Civil Code §337.15. However, Chapter 5 sets forth its own 10-year limitation period "after substantial completion." This 10-year period applies to indemnity claims, allowing developer to reach a subcontractor after the limitation period in Chapter 2 has expired. The subcontractor, therefore, is exposed to liability (or at least defense costs) even though the specified limitation period has expired.
The astute developer will, however, use the limitation period as an affirmative defense. Perhaps a custom and practice will develop wherein developer's counsel and subcontractor's counsel will join together to file summary judgment motions based on the particular limitation period.
Chapter 4, Pre-litigation Procedure, is an attempt to strengthen what is known of the "Calderon Bill," Civil Code §1375. The inherent problem with Civil Code §1375 was insurance carriers would not become involved until suit was filed, hence the requirements of the statute were rarely followed. The new statute does not deal with this issue of nonparticipation by the carrier. There is no statutory method to preempt wording of an insurance policy, thereby forcing insurance companies to participate in the "pre-litigation procedure," and carriers need to recognize the value of a joint effort with builder in the pre-litigation stage.
The Statute allows insufficient time for the usual "notice of claim" and administrative delay before an insurance carrier decides what to do. Insurance companies need to create a strike force designed for rapid deployment with counsel and experts able to immediately commence course of action. Otherwise Statute timelines will lapse and Statute will be as ineffective as Calderon Bill.
The Aas v. Superior Court case is, in effect, repealed for cases filed after the first day of 2003. Life safety concerns such as absence of proper fire proofing, although causing no damage to structure, will constitute compensable damage to homeowner (bringing structure into conformance with code).
Subcontractors have little empowerment under Statute, although Chapter 4 requires Builder to notify subcontractors (and other potentially responsible parties "P.R.P.") of inspections allowing participation of the P.R.P. This notice requirement to P.R.P. places added pressure on builder to comply with time limits.
There is discussion at the legislative level of modifying the statute in the near future to deal more directly with the liability of subcontractors and design professionals.
Implementation of the concepts contained within the Act will involve creative lawyering. The prospect of simultaneous lawsuits with divergent law (those cases filed prior to January 1, 2003, and subsequent filed cases) will also prove interesting. Success of the Act from the construction industry's viewpoint will hinge on the willingness of the judiciary to legally adjudicate inconsequential construction defects as nonactionable, avoiding the tremendous expense of dealing with trivial claims that traditionally have forced settlement of defect cases.
Because the Statute applies only to homes originally sold after January 1, 2003, it should be years before we see the first lawsuits applicable to the Statute. The time line for construction defect litigation typically involves a lapse of 6 to 8 years from construction to litigation. The plaintiffs' bar may have an incentive to push cases to litigation sooner in order to avoid the time limits imposed by the Statute.
Defendants in the future would be wise to select experienced trial counsel, as the new law should allow more of these cases to trial due to a more even playing field for the construction industry.
Finally, the absence of damage as a prerequisite for a cause of action under the new law (for instance, the requirement that design criteria be met or the builder is required to bring the residence into conformance with code) may create new insurance coverage issues for the construction industry. The prudent builder should rely on defense counsel familiar with the insurance coverage issues in order to avoid finding itself in the position of having no instance coverage or compromising the available coverage.
© Copyrighted
|
