Alert: Governor Davis Signs New Law on Construction Defect Litigation
October 04, 2002
Governor Davis has signed a new law that provides detailed standards of construction, legal requirements, and procedures for home construction defect litigation. The law applies to new single family homes, attached homes, and common interest developments originally sold after January 1, 2003, but excludes condominium conversions. It impacts contractors, subcontractors, material suppliers, product manufacturers, and design professionals.
Standards of Construction
The new legislation provides a very specific list of actionable defects, based on performance standards for the installation of building materials, establishing essentially implied minimum warranties by the builder. The list contains numerous entries for forms of water intrusion. For example, windows and patio doors may not allow water to pass beyond their moisture barriers, and stucco shall not permit excessive condensation to enter the structure and cause damage to another building component. Other categories of actionable defects include structural issues, soil issues, fire protection, plumbing and sewer, and general items. Some defects have individual time limitations on when a lawsuit can be brought, generally one to four years, but the maximum statute of limitations is 10 years. The law also requires that builders provide a minimum one-year express warranty on "fit and finish" items.
The list of mandatory standards is quite extensive. The builder's liability is, however, limited to failure to meet those standards with respect to those areas where standards are provided. Thus, failure to strictly comply with drawings and specifications should no longer be actionable, so long as the minimum standards are met. Areas of construction not covered by the standards, however, remain actionable if they "cause damage."
Builders may offer more extensive warranties through an "enhanced protection agreement," which must be disclosed at the time of sale. So long as the warranties exceed the minimum performance standards described in the new legislation, the builder's express warranty will supercede the statutory definitions of "defects."
Pre-Litigation Requirements
From the building industry viewpoint, the main benefit of the new law is to require owners to give the builder notice and rights of inspection and repair before litigation can commence. If the defect is repaired to the stated standards (not necessarily to the original plans and specifications), the owner has no further claim for repair costs, although the owner retains a claim for other damages. The hope of the legislation is that the builder's repairs will largely defuse any incentive to sue.
The law spells out a detailed pre-litigation procedure for providing notice to builders of defects, which carries "the same force and effect as a notice of commencement of legal proceedings" (that is, it cuts off the statute of limitations for the defect). It spells out the requirements builders must meet in response, including detailed lists of documents that must be produced upon demand, a schedule for testing and inspection of defects, simple mediation procedures, when invitations of subcontractors and design professionals to inspections should be made, and the procedure for offering to remedy defects. Any failure by the builder to meet the specified deadlines releases the homeowners from the procedures outlined here, and clears the way for litigation. On the other hand, the builder can delay any litigation until the procedures are followed. The law applies to subsequent owners of the property as well as the original owners.
The provisions of this law apply to subcontractors, material suppliers, product manufacturers, and design professionals to the extent they caused the defect through negligence, omission, or a breach of contract. The law does not modify existing laws with regard to joint and several liability, express warranties and express contract claims, personal injury, statutory violation or fraud, and does not apply to those for whom strict liability would apply.
Damages and Offsets
Damages for claims covered by the new law are limited to certain categories of expenses, primarily the reasonable cost of repairing the defect and any associated damage. For detached single family homes, the cost of repair cannot exceed any diminution in value.
Under the law, the owner also has maintenance and repair obligations, both those specifically recommended by the builder or manufacturer and "commonly accepted homeowner maintenance obligations." The builder is also not liable for reasonable wear and tear and misuse by the owner.
The law is complicated and many aspects of its application remain uncertain. If you have questions about how this new law may apply to you, or any other legal matter, please do not hesitate to contact your Farella Braun + Martel attorney or Adam Dawson at adawson@fbm.com or (415) 954-4928.
This Construction Law Update is published as a service to our clients and friends. It should be viewed only as an overview of the law, not as a substitute for legal consultation.