Introduction:
There is little more disheartening as to finally complete a construction project that has taken years to accomplish and to discover that there are defects in its construction or design that can make its value plummet or even endanger the people using the property. And the trauma is equally upsetting to both the builder and the user.
Construction projects, by their nature, often have setbacks, delays, and alterations in plans and specifications and, as one veteran builder once told the author, he had never seen either a battle or a construction project that went strictly according to plan. Change orders are inevitable in even the simplest project.
But construction defects go beyond the issue of alterations in plans and specifications or change orders. Defects constitute errors in construction, design, or specification that must be corrected, are often hidden for years (either intentionally or not) and significantly lower the value or utility of the construction. California, home of so much construction over the years with much of the construction in earthquake or flood zones, has myriad statutes and much case law addressing the issue of construction defect and providing remedies for owners and defenses for builders, architects, engineers and developers.
This article shall outline the basic law that applies to claims for construction defects in California. This is a constantly changing area of the law and the reader is advised to obtain up to date legal advice before taking any action.
The Basic Law:
There are numerous legal theories that arise when a party claims defect in construction, each giving rise to causes of action that may be brought singly or in combination by the injured party. Note we have articles on this site addressing each of the types of actions below.
Causes of Action:
Breach of contract
Negligence
Breach of implied or express warranties of suitability of construction
Strict Liability
Statutory Violations These causes of action may be applicable depending on the facts of a case. As an example, if the defect comprises some use of a prohibited construction material (hazardous paint or insulation, for example) then causes of action might include violation of civil and even criminal statutes, both State and Federal.
The facts of each case are critical to analyze closely so that all potential causes of action may be considered. Each case is unique and requires legal analysis to determine the full extent of the property owner’s rights and defenses that may be available to the builders.
Breach of Contract:
Most construction contracts, including the standard AIA contracts, have extensive provisions regarding quality of construction, design, materials required, inspections required, role of the architect and engineer, etc. They often have provisions for mediation and arbitration of disputes concerning design and construction defects and often contain limits on liability and warranties. It is vital to review those provisions closely before executing the construction contract since those provisions can limit the remedies available.
It is also important to realize that California law often restricts the ability of builders and construction professionals to limit their liability in the case of breach of contract or warranties and especially in the area of construction defects. This is even more extreme when the property subject to alleged construction defect is residential construction, as more fully discussed below.
There are also provisions that require the owner in certain types of construction to offer to allow corrective work by the builder, more fully discussed below.
Negligence:
Negligence is the breach of a duty that results in or causes damage as more fully discussed in the Tort article on this website. In the field of construction, it is the duty of the builder and the professionals who constructed a building to exercise the “standard of care of reasonable tradesmen conducting the same type of work.” Professional malpractice can be asserted against the architect, engineer or other design professional if they were negligent in the performance of their duties.
If a breach of this standard of care occurs, resulting in a construction defect which causes damage, the property owner may file an action against the builder and/or the professionals and note that these causes of action are available to the property owner whether the property owner directly purchased the property from the builder or from a third party such as a prior owner or the developer.
Breach of Express Warranty:
In construction defect claims, the breach of contract refers to the failure of the property owner to receive the benefit of a reasonably defect-free building. But a breach of express warranty requires that the property owner actually received a specific warranty from the builder or has entered into a contract with the builder that expressly warranted the condition or quality of the property. The builder “warrants” the quality or condition of the property and construction in the same manner that any seller warrants the quality of the item sold or constructed. The warranty is usually in writing and specifies in the contract what tasks must be performed and what quality must be achieved.
A warranty is, essentially, a separate contract to perform according to certain levels of quality and a failure to do so is similar to a breach of contract but is limited to the sole issue of the warranty expressly granted in the warranty commitment. Note that the statute of limitations for breach of a written contract is four years from breach in California, but that period may be extended if the injured party did not know of the breach and could not be reasonably expected to know of the breach. The same applies to warranty which often have specific periods that the warranty extends…which may be ignored in some circumstances if the defect was hidden.
Breach of Implied Warranty:
In addition to the possible breach of an express warranty, California imposes an implied warranty that work performed on new construction is performed in a “reasonable workmanlike manner” according to current construction practices and the regulations put forth by governmental statutes. And note that proof of a defect due to improper construction, design, or preparation is sufficient to establish liability of the builder or developer and breach of this implied warranty.
Strict Liability (Residential Property)
Strict liability is a legal doctrine that imposes liability whether or not the defendant was negligent or breached an agreement, indeed, often without the defendant even knowing a defect or error exists. It normally only applies under statute or in remarkable situations. And it does exist in California for one type of construction defect: defects in residential property.
The builder is strictly liable for the construction defects existing in a residential property only. There is a requirement that there be resultant damage as a result of the construction defect for strict liability claims. If a defect exists that is irrelevant to the rest of the structure, strict liability will not apply. Resultant damage must exist.
Resultant damage is defined as one building component causes damage to another part of the building. For example, if a roof leaks when it rains, then recovery against the builder under strict liability requires that the leaking water causes additional damage, such as the floor or subfloor of the residence damaged due to the water. The recovery sought is the repair of the construction defect and the repair of the additional damage caused by the construction defect. See our discussion of SB 800 as to construction defect in residential construction.
Statute of Limitations:
A statute of limitations is the time during which a suit may be brought. Even if the builder supplied a warranty for one or two years, it will likely not affect the rights to a remedy for construction defects since California law determines the length of time a lawsuit may be filed. The time period to bring a construction defect action against the builder is based on (1) the time period after the substantial completion of the property, (2) the nature of the defect, and (3) when the defect was discovered by the property owner. Hidden defects that can not be reasonably expected to be discovered by the owner have quite long statute of limitations, often exceeding ten years under particular circumstances.
These statute of limitations laws can be very difficult to understand and interpret, and such concepts as concealed defects can create longer statute of limitations which, however, are still normally limited to ten years in most cases even if not discovered until later. Prompt discussion with an expert in the field is suggested.
Senate Bill 800 (SB 800)
A more recent addition in construction defect law for residential property owners is the passage of Senate Bill 800, which establishes building standards that, if violated, may allow a homeowner to file a claim against the builder. The building standards of SB 800 are applicable to new residential construction when the original purchase agreement for residential property was signed by the seller on or after January 1, 2003.
Note that quite often purchase agreements contain terms related to construction defect disputes between the buyer and the seller such as arbitration, judicial reference, and mediation. The agreement can also contain requirements for notice to be given to the builder of a home with construction defects prior to the filing of a lawsuit; give the builder an opportunity to repair defects; or myriad other provisions that attempt to alter or limit homeowner rights under California Law.
SB 800 Remedies
SB 800 contains pre-litigation requirements for construction defect claims. However, builders are allowed to opt out of the SB 800 pre-litigation procedures. At the time the purchase and sale agreement is signed, the builder must choose whether to utilize the pre-litigation procedures or opt out of the pre-litigation procedures and wording in the agreement as to SB 800 is required to have the builder be able to rely on prelitigation procedures.
A review of the original purchase and sale agreement is required when deciding what options are available to the homeowner faced with construction defects or other problems in their home.
The pre-litigation procedures of SB 800 can be technical, but here is a basic summary.
- If the builder used the pre-litigation procedures of SB 800 (or failed to make an election to opt out) and gives appropriate notice in the agreement to the home owner, then the homeowner is required to give notice of the violation(s) of the building standards and the builder has the opportunity to inspect the home.
- After the time for inspection, whether such occurred or not, the builder has the option to make an offer to repair the building violations. If accepted, repairs of the home are made. The owner is not required to accept the offer. The owner is required to follow the procedures so that the offer can be made.
- If the builder fails to make an offer to repair, fails in the repair, or fails any of the obligations that the builder has during the SB 800 pre-litigation process, the homeowner has the right to file a lawsuit.
California law applicable to SB 800 provides a statute of limitations for each individual building violation addressed with time periods ranging from one year to 10 years, depending on the building component. If a construction defect or other problem is observed, the homeowner must promptly seek legal advice as to their rights under the statute of limitations.
It is important to note that the various SB 800 building standards that are affected by statutes of limitation are different from the warranty sometimes provided by the builder. The warranty typically lasts for one or two years and likely has no impact on one’s rights to a remedy pursuant to the SB 800 building standards.
The concept behind SB 800 is to avoid the cost of litigation.
To minimize the costs, risks and time delays of regular construction defect litigation, the Act provides in Civil Code §§ 910-938 for a pre-litigation, non-adversarial, private procedure that is a precondition to litigation regarding alleged violations of the standards listed in Section 896. The contractor must provide the homeowner notice of these procedures in its construction documents and waives the right to enforce these requirements if it fails to do so.
The steps of the notice procedure are;
1) The homeowner must provide the contractor with written notice of his/her claim that the construction violates Section 896 and must “describe the claim in reasonable detail sufficient to determine the nature and location, to the extent known, of the claimed violation.” (Civil Code § 910(a).)
2) Once the builder has received the claim, it has 14 days to provide written acknowledgment of the claim and another 14 days to inspect and test the claimed defects. (Civil Code §§ 913, 916.)
3) The builder then has an additional 40 days to conduct a second inspection or testing. (Civil Code § 916.)
4) Within 30 days of the last inspection or testing, the builder may offer to repair the violation, set a reasonable completion date, and compensate the homeowner for all recoverable damages. (Civil Code § 917.)
5) The homeowner then has 30 days to either authorize repairs as proposed or request repairs by a different contractor. (Civil Code § 918.)
6) The repairs must be commenced within 14 days of acceptance, done “with the utmost diligence,” and “completed as soon as reasonably possible,” with every effort made to complete them within 120 days.” (Civil Code § 921.)
If the builder fails to acknowledge receipt of the claim, fails to request an inspection within the time specified, fails to make an offer to repair, fails to complete the repair within the time specified, or fails to “strictly comply with this chapter within the times specified,” the homeowner is released from the requirements of Chapter 4 and may proceed with the filing of a lawsuit. (Civil Code §§ 915, 920, 925, 930.)
Once this prelitigation procedure has commenced, the homeowner can proceed with litigation only 1) if the contractor fails to make an offer to repair or 2) if the contractor does not complete the repair in the time or manner specified. (Civil Code § 920.)
NOTE: these prelitigation requirements apply only to defects that have not caused damage to other parts of the residence. Homeowners are free to sue over defects that have caused actual damage to other parts of the home, e.g. improper window flashing that causes water intrusion that results in dry rot to framing. SB 800 does not apply to those sorts of defects that result in independent damage.
7) Remedies if a homeowner fails to comply with SB 800
Civil Code Section 930(b) states:
If the claimant does not conform with the requirements of this chapter, the builder may bring a motion to stay any subsequent court action or other proceeding until the requirements of this chapter have been satisfied. The court, in its discretion, may award the prevailing party on such a motion, his or her attorney's fees and costs in bringing or opposing the motion.
The homeowner has the burden of proof on such a motion to prove he/she complied with the SB 800 prelitigation procedures.
Remedies for Construction Defect:
Once a lawsuit is filed, the remedies that may be available are:
The reasonable cost of repair of the construction defect, or the reduction in the fair market value of the property (legal analysis is required to determine which remedy is available)
The cost of repairs for any property damage as a result of the construction defect
Relocation expenses which are required as a result of the repairs
Storage expenses as a result of the repairs
The cost of hiring experts to investigate the defects affecting the property
Lost income if the home was used as a principal place of business of a business licensed to be operated from the home
The reasonable investigative costs for each established violation and
All other costs or fees recoverable by contract or statute
SB 800 Standards
The SB 800 building standards attempt to cover all the major components of residential property. Just in case the Legislature left anything out, there is a provision which provides that if a function or component of a residential structure causes damage, then the same remedies exist as for a violation of a building standard.
If violations of the building standards exist, and after any pre-litigation requirements are met or excused, a lawsuit can be filed to seek available remedies, as long as the filing of the lawsuit conforms to the time allowable by the applicable statute of limitations.
Conclusion:
Construction litigation is expensive and the details of the defect are often confusing to the average juror. For that reason, most attorneys are comfortable with using arbitration to obtain a judgment, usually under the construction rules of the American Arbitration Association. Nevertheless, if arbitration is not available, this is one area of litigation often worth the cost of admission. Not only is repair expensive, but failure to repair can drastically reduce the value of the property and full disclosure of the defect must be made to any buyer or lender or the owner faces claims of fraud upon sale.
For the builder, the remedies of SB 800 should always be included in any residential construction since repairing the problem on your own is far cheaper than having a replacement contractor do it. Replacement contractors are known to often pad their bids and make the repairs at the highest possible price, knowing that the initial contractor (or the insurance company) will be paying the bill.
But the law as to defects is excellent law and one reason as to why when earthquakes or floods hit California real estate the damage and injury to persons is much less than in other locales where such statutory protections do not exist or are not enforced. A typical earthquake in Istanbul or China or Tibet will result in tens of thousands of deaths while even the major 6.9 Richter scale earthquake of 1989 in San Francisco killed less than sixty people. The lesson is clear.