During the past three years, about half the U.S. states have enacted so-called "construction-defect" or "right-to-cure" statutes. These statutes, which apply almost exclusively to residential construction (with Colorado and Tennessee being exceptions), are intended to try to reduce the amount of construction litigation by providing contractors with notice and a right to correct alleged construction defects before homeowners or condominium associations file suit.
The statutes apply only to claims for construction defects and property damages and have no applicability to suits for personal injury. Western states generally were the first to enact construction-defect statutes; the trend has moved east as several Midwestern, Southern and Northeastern states enacted similar statutes recently. The insurance industry and contractor groups have been the principal sponsors of this legislation.
General information
The objectives and general requirements of most state construction-defect statutes are quite similar though the specific time periods for notices by homeowners and responses by contractors and follow-up steps vary by state. The statutes are intended to facilitate out-of-court settlements of construction disputes by requiring homeowners and contractors to communicate with each other before beginning litigation or arbitration. The statutes afford a reasonable opportunity for contractors to be notified of a problem and fix it or settle a claim before being sued.
At the time a construction contract is consummated, you should notify the homeowner about the statute and requirement that the homeowner give written notice of alleged claims before filing a lawsuit. Assuming you included the requisite notice with the construction contract, you will have the benefit of the statute. Before filing a lawsuit or arbitration demand, the homeowner is required to give you written notice stating in reasonable detail the nature of the claimed defect. Typically, a homeowner must give this notice at least 60 days to 90 days before filing suit.
Upon receiving notice from the homeowner, you are entitled to conduct an inspection within a certain time period. Following the inspection, you must make a formal response to the homeowner offering to repair the defect; make a monetary settlement; combine repairs and a monetary settlement; or dispute and reject the claim.
Assuming you have given the requisite initial notice regarding the construction-defect statute, if the homeowner does not give you notice and an opportunity to cure the alleged defect before filing suit, the suit may be stayed or dismissed without prejudice until the statutory procedure has been followed.
Typically, with California being the leading exception, state "right-to-cure" construction-defect statutes do not change the substantive law on which a claim can be based or the defenses you can raise; however, they establish a procedure that is to be followed as a pre-condition to filing a formal legal claim. Construction-defect statutes differ in how they interact with statutes of limitation and repose. Frequently, the statute of limitations will be stopped as of the date the homeowner gives written notice of an alleged defect.
Alaska, Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Kentucky, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Jersey, Ohio, Oregon, South Carolina, Tennessee, Texas, Washington and West Virginia have enacted construction-defect statutes. Brief summaries of some of these states' statutes follow.
Arizona
Arizona's statute has been in effect since August 2002. It applies to any action (lawsuit or arbitration) brought by a purchaser of a dwelling against a person "engaged in the business of designing, constructing or selling dwellings." Dwellings include single-family or multifamily units, including condominiums. The statute requires the purchaser of a dwelling to give written notice by certified mail to the designer, contractor or seller at least 90 days before filing suit. The notice must specify in reasonable detail the bases for the claim, and the claimant must allow the architect, contractor or seller to conduct an inspection.
California
California's statute, which was passed in 2002, is the most unique construction-defect statute. It is much more comprehensive and far-reaching than statutes enacted in other states and far more comprehensive than a "right-to-cure" statute. California's statute establishes performance warranties pertaining to residential construction. The statute was enacted in response to the concern, most vocally voiced by insurers and homebuilders, that construction-defect litigation and unavailability of insurance was causing a slowdown in new residential construction and contributing to a housing shortage in California. The statute affects developers, contractors, subcontractors, suppliers, architects and engineers, as well as their insurance carriers.
The California statute establishes minimum performance standards for new housing and specific statutory performance standards concerning water intrusion and the following building systems: structural, soil, fire protection, plumbing, sewer and electrical, among others. If any component falls below the specified performance standard during California's 10-year statute of repose for latent defects, the developer will be strictly liable for the defect. The statute covers performance of roofs, doors, windows, fireplaces, chimneys, decks, balconies, foundations, landscaping, hardscape improvements, exterior siding, retaining walls, plumbing, shower enclosures, electrical components, fire protection, heating, air conditioning, noise transmission, painting and other components.
Unless a higher standard of performance is established by contract, a homeowner has no claim against a developer if the house fulfills the statute's performance standards. Similarly, a developer cannot by contract provide new housing that falls below the statutory standards. The statute imposes a strict liability standard on all developers for all new housing. Although the liability of contractors, suppliers and design professionals is based on breach of contract or negligence, the standards applicable to developers undoubtedly apply to contractors, suppliers and designers.
The principal standard pertinent to roofs is, "Roofs, roofing systems, chimney caps and ventilation components shall not allow water to enter the structure or to pass beyond, around, or through the design or actual moisture barrier, including, without limitation, internal barriers located within the systems themselves." For purposes of this standard, "systems" include, without limitation, framing, substrate and sheathing, if any.
The statute gives developers an absolute right to fix defects before litigation may be filed. If the developer opts to fix the defect, repairs must be started within four months after the initial notification to the developer.
Colorado
The Colorado Construction Defect Action Reform Act became effective in August 2001. Unlike other statutes, the Colorado statute is not limited to residential construction, but the statute is much more limited than most statutes. It requires anyone who files a construction-defect lawsuit or arbitration proceeding to file a list of construction defects within 60 days of filing suit.
Florida
The most recent version of Florida's construction-defect statute applies to contracts entered into after July 1, 2004, for the design, construction or remodeling of dwellings, including condominiums. The statute, which applies to new construction, reroofing and alleged deficiencies in or arising out of repairs or alteration, covers contracts with condominium owners and homeowners of single-family homes, manufactured homes, modular homes, duplexes, triplexes, quadraplexes or other multifamily dwellings designed for residential use.
For you to have the benefit of the statute, you must include with the construction contract written notices of the statute and procedures to be followed in the event of a construction-defect claim. To be effective, your initial notice must be conspicuous and in capital letters and substantially follow the text set forth in the statute.
If you include the initial statutory notice in a contract with a condominium association or homeowner, the condominium association or homeowner is required to give you notice of an alleged construction defect before initiating a formal legal claim. After receiving notice from the owner, you are entitled to conduct an inspection, propose repairs and negotiate a settlement. If you refuse to respond or dispute the claim, the claimant can proceed with its legal action. Condominium and homeowner associations with 20 or more owners must give you notice 120 days in advance of filing any lawsuit or demanding arbitration. Homeowners and associations representing 20 or fewer residential units are required to give written notice at least 60 days before filing suit.
Within 30 days after receiving notice of a claim involving a single-family home or association representing 20 or fewer residential units or within 50 days for condominiums with more than 20 units, you are entitled to perform a reasonable inspection of the dwelling or of each unit that is the subject of the claim. You have either 45 days (for single-family homes and multifamily residences with 20 or fewer units) or 75 days (for associations representing more than 20 residential units) after receiving notice of a claim to give a written response to the claimant.
Georgia
The Georgia Right to Repair Act became effective May 13, 2004, and applies to "dwellings" and all suits commenced after that date regardless of the date when the construction, improvement or repairs took place. Dwellings include condominiums and other systems, improvements or recreational features related to dwellings. You must provide conspicuous notice to homeowners of the alternative dispute procedures as part of the contract. The definition of a contractor in the statute is quite broad, encompassing entities "engaged in the business of designing, developing, constructing or selling dwellings."
A homeowner must give written notice of his claim by certified mail or overnight delivery, with a return receipt requested, to the last known address of each responsible contractor at least 90 days before initiating suit. The notice must describe the claim in detail sufficient to explain the nature of the alleged construction defects and results of the defect. The homeowner also must provide you with any expert reports he has describing the nature and cause of the defects, including inspections, photos and videos. A lawsuit can be stayed if a claimant files suit without complying with the statute.
Upon receipt of the notice, you have 30 days to respond in writing and can choose to inspect the house or attempt to settle the dispute without an inspection. If you want to make an inspection, the homeowner must provide you that opportunity within 30 days. Within 14 days of the inspection, you have to provide a written offer if you want to settle the claim by either fixing the defect at no cost to the homeowner, making a monetary payment or settling by a combination of the two. If the homeowner wants to accept your offer, he must provide written acceptance within 30 days. If you fail to respond to the homeowner's initial notice or reject the claim after 90 days, the homeowner may file suit.
Idaho
The current Idaho statute went into effect in July 2003. The claimant must give written notice to the construction professional describing the claim in reasonable detail. If a claimant files suit without first complying with the statute, the suit will be dismissed without prejudice until there has been compliance with the statute.
Kentucky
The Kentucky "Notice and Opportunity to Repair Act" took effect July 15, 2003. Builders must give notice to each homeowner upon execution of a contract for the construction of a residence. The notice by the builder may be included as part of the general contract or issued separately at the time of the construction contract. The clause must be written conspicuously and bear the homeowner's signature to indicate his awareness.
Once a homeowner gives notice, the builder then gives notice to any affected subcontractor. Three options are available to a builder after receiving notice from a homeowner: offer settlement, offer to purchase the residence for its reasonable value or dispute the claim.
If the homeowner does not comply with any step in the statute, the builder can have the suit placed on hold until the homeowner completes the process. Unlike other state "right-to-cure" statutes, the Kentucky statute does not specify a certain number of days that must elapse between when the homeowner gives notice and when the homeowner can file suit; rather, a lawsuit can be initiated upon failure of the negotiation process.
Missouri
Missouri's construction-defect statute was effective as of Aug. 28. Contractors must provide notice in contracts with homeowners for the sale, construction or remodeling of a residence and a flowchart showing the time deadlines for compliance with the statute.
Montana
Enacted in 2003, the Montana statute regarding construction defects requires a claimant to serve written notice of his claim on the "construction professional" before commencing a suit. The notice of claim must describe the claim in reasonable detail. The statute of limitation is stopped once the claimant serves the initial notice. You cannot enforce the statute unless written notice was given to the homeowner.
You have 21 days after receiving the initial written notice from the homeowner to respond. The written response must propose to inspect within a specified time frame and offer to remedy the problem, compromise by payment or dispute the claim; offer to compromise and settle the claim without inspection; or dispute the claim. If you request to undertake an inspection, you must respond to the homeowner within 14 days of the inspection.
Tennessee
Tennessee's construction-defect statute, which applies to suits arising after May 24, 2004, has a unique scope of coverage that includes actions for damages to all types of property, except single dwelling units intended as the residence of a person or family. The statute covers remodeling and new construction of all such structures. Although there is no requirement that a contractor, subcontractor, supplier or design professional notify the owner about the statute, a claimant cannot proceed with an action unless he first complies with the statute.
Before a claimant can file suit, he must provide notice of the claimed defects after which the contractor, subcontractor, supplier or design professional has 10 days to assess the alleged defects and notify anyone else whom he reasonably believes is responsible for the defects. Within 30 days of the notice, there must be a written response offering to remedy the defect at no cost, offering to settle the claim by monetary payment or disputing the claim.
Texas
The Texas statute is much broader than a typical notice and right-to-cure statute. The Texas Residential Construction Commission Act, effective Sept. 1, 2003, creates a commission charged with establishing and governing a state-sponsored inspection and dispute-resolution process, including building standards, performance standards and administrative regulations, for disputes arising between builders and homeowners.
The act defines builders as any business entity or individual who constructs, supervises or manages the construction of a new home; improves the interior of an existing home at a cost exceeding $20,000; or constructs, supervises or manages the construction of a material improvement to a home other than an improvement solely to replace or repair the roof of an existing home. The act requires builders to obtain certificates of registration from the commission. The commission also is required to adopt, by rule, warranties that supersede all implied warranties of one year for workmanship and materials; two years for plumbing, electrical, heating and air-conditioning delivery systems; and 10 years for major structural components of the home. A contract between a builder and homeowner may not waive the limited statutory warranties and building and performance standards or the warranty of habitability.
Washington
Washington's right-to-cure statute, enacted in 2002, requires homeowners and condominium associations to give notice to builders at least 45 days before filing suit against a builder for construction defects. The Washington Court of Appeals ruled in Lakemont Ridge Homeowners Association v. Lakemont Ridge Limited Partnership that the statute is to be applied retroactively to homes built before enactment of the statute. If a homeowner files suit without giving notice, the suit can be dismissed.
The homeowner's notice of the claim must reasonably describe the defects. You have 21 days to respond by proposing an inspection; offering to pay money or buy back the residence; or dispute the claim. The homeowner can refuse to allow an inspection and can file suit immediately if you dispute the claim. To trigger application of the statute, you must give written notice to the homeowner of the homeowner's duty to give the 45-day notice and your right to cure. Your notice must be included in the contract for sale, construction contract or remodeling contract.
Wrapping up
The "right-to-cure" statutes that have been enacted in many states can benefit you. About half the states already have enacted "right-to-cure" statutes and other states are likely to do so. At present, most of the statutes apply only to residential construction but encompass condominium projects typically undertaken by commercial contractors.
If you perform condominium and other residential construction work, ascertain whether a "construction-defect" or "right-to-cure" statute has been enacted in the state and become familiar with the procedures required by the statute. If you comply with the statute, you will be able to investigate and remedy alleged defects before being subject to a lawsuit.
Stephen M. Phillips is a partner with the Atlanta-based law firm Hendrick, Phillips, Salzman & Flatt.
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