The New California Construction Defect Laws Changes And How They Relate To Existing Dispute Resolution Procedures

The New California Construction Defect Laws Changes
And
How They Relate To Existing Dispute Resolution Procedures.

By
William C. Last, Jr.

On September 20, 2002, Governor Davis signed a new law (SB 800) that changes the procedures for resolving homeowner’s construction defect claims. The new laws are intended to give a developer an opportunity to correct alleged defective workmanship. The existing laws were referred to as the Calderon Act. The Calderon Act will remain in effect through July 1, 2011

This article shall provide an overview of the major reforms to the existing construction defect claim resolution procedures under AB 800 and there relationship to the Calderon Act.

What Are The Primary Differences Between The Calderon Act and SB 800?

During 1995, “meet and confer” requirements were added to the The Davis-Stirling Common Interest Development Act (California Civil Code sections 1350-1376). In essence, the 1995 changes set forth certain procedural requisites that had to be satisfied before a homeowner’s association could file a lawsuit against the developer. During 2001, those procedural requirements were further modified. Those requirements will be hereafter referred to as the Calderon Requirements.

SB 800 specifies “the rights and requirements of a homeowner to bring an action for construction defects, including applicable standards for home construction, the statute of limitations, the burden of proof, the damages recoverable, a detailed pre-litigation procedure, and the obligations of the homeowner.” Most importantly, the SB800 gives the developer an opportunity to repair the alleged defective work prior to the commencement of litigation.

While the Calderon Act did not allow the developer an opportunity to correct the alleged defective workmanship, the provisions of SB 800 do provide such a right. Since SB 800 is only applicable to sales of new units that occur on or after January 1, 2003, the Calderon Act will remain the primary dispute resolution procedure until it becomes inoperative.

What Are The Calderon Requirements?

Prior to a common interest association filing a construction defect lawsuit they must serve a "Notice of Commencement of Legal Proceedings" upon the developer or alternatively the general contractor. The notice must include all of the following: (1) The name and location of the project; (2) An initial list of defects sufficient to apprise the respondent of the general nature of the defects at issue; (3) A description of the results of the defects, if known; (4) A summary of the results of a survey or questionnaire distributed to homeowners to determine the nature and extent of defects, if a survey has been conducted or a questionnaire has been distributed; and (5) Either a summary of the results of testing conducted to determine the nature and extent of defects or the actual test results, if that testing has been conducted. Service of the Notice commences a period, not to exceed 180 days, during which the association, the developer, and all other participating parties are to try to resolve the dispute.

Within 25 days of the date the association serves the Notice, the developer/builder may request in writing to meet and confer with the board of directors of the association. Unless the respondent and the association otherwise agree, there shall be not more than one meeting, which shall take place no later than 10 days from the date of the respondent's written request, at a mutually agreeable time and place.

Within 60 days of receiving the Notice, the developer/builder shall provide the association with access to, for inspection and copying of, all plans and specifications, subcontracts, and other construction files for the project that are reasonably calculated to lead to the discovery of admissible evidence regarding the defects claimed. The association shall also provide the respondent with access to, for inspection and copying of, all files reasonably calculated to lead to the discovery of admissible evidence regarding the defects claimed, including all reserve studies, maintenance records and any survey questionnaires, or results of testing to determine the nature and extent of defects. During the same period the developer/builder shall provide written notice by certified mail to all subcontractors, design professionals, their insurers, and the insurers of any additional insured (hereafter the “Other Parties”) whose identities are known to the respondent or readily ascertainable by review of the project files or other similar sources and whose potential responsibility appears on the face of the notice. The notice to the Other Parties shall specify the date and manner by which the parties shall meet and confer to select a dispute resolution facilitator. Within ten days, the Other Parties shall acknowledge receipt of the notice and provide insurance information. The Other Parties may also ask the dispute resolution facilitator for designation as a peripheral party. If granted, the peripheral party’s involvement in subsequent meetings maybe limited in nature.

Within 20 days of sending the notice to the Other Parties, the association, respondent, subcontractors, design professionals, and their insurers shall meet and confer in an effort to select a dispute resolution facilitator to preside over the mandatory dispute resolution process. The statute has a process for selecting a facilitator if the parties cannot agree on one.

After selection of the facilitator, the facilitator and the participating parties shall agree to a date, time, and location to hold a case management meeting of all parties and the dispute resolution facilitator. During that meeting the parties shall discuss the claims being asserted and the scheduling of events. The case management meeting with the dispute resolution facilitator shall be held within 100 days of service of the initial Notice. During the case management meeting the facilitator is to establish deadlines for compiling lists of alleged defects, testing and inspection dates and other specific requirements as set forth in the statute.

At a time to be determined by the facilitator, the builder/developer may submit to the association all of the following: (a) A request to meet with the board to discuss a written settlement offer; (b) A written settlement offer, and a concise explanation of the reasons for the terms of the offer; (c) A statement that the respondent has access to sufficient funds to satisfy the conditions of the settlement offer; and (d) A summary of the results of testing.

No less than 10 days after the developer/builder submits the above-referenced items, as required by the Facilitator, the builder/developer and the board of directors of the association shall meet and confer about the builder/developer’s settlement offer. If the association's board of directors rejects a settlement offer, the board shall hold a meeting open to each member of the association. The meeting shall be held no less than 15 days before the association commences an action for damages against the respondent. Prior to the meeting the individual homeowners are to receive specific information concerning the settlement offer.

Upon the completion of the aforementioned mandatory pre-filing dispute resolution process, if the parties have not settled the matter, the association may file a lawsuit. The Act also provides for specific pre-trial procedures that are intended to facilitate resolution of the dispute.

To Whom Does SB 800 Apply and When Is It Effective?

SB 800 is only applicable to homeowner claims. However, under the new law a homeowner includes the individual owners of single-family homes, individual unit owners of attached dwellings and a common interest development association as defined under California law. The homeowners claim must be for original construction sold as individual dwelling units. The individual dwelling units can be single family or attached units. The new laws only apply to sales of new units on or after January 1, 2003.

The law is generally applicable to defect claims by Homeowners against builders, developers or original sellers. The claims can also be made against subcontractors, material suppliers, product managers and/or design professionals.

Does the New Law Set Standards For Types of Construction Defects?

Yes. Part of the new law contains a detailed list of standards of how a building should function. There are forty-five standards that fall within seven major categories. The major categories are water intrusion issues, structural issues, fire protection issues, electrical, plumbing and sewer and soils. The standards set forth Act are intended to address every function or component of a structure. To the extent that a function or component of a structure was not addressed in the standards, it still can be actionable if it causes damages. If the construction fails to satisfy the standards, the homeowner can file a lawsuit with regard that aspect of the construction.

What Are The Builder’s Obligations?

“As to fit and finish items, a builder shall provide a home buyer with a minimum one-year express written limited warranty covering the fit and finish of the following building components.” This warranty shall cover the fit and finish of cabinets, mirrors, flooring, interior and exterior walls, countertops, paint finishes, and trim, but shall not apply to damage to those components caused by defects in other components governed by the other provisions of this title.”

“A builder may, but is not required to, offer greater protection or protection for longer time periods in its express contract with the homeowner than that set forth...” “This type of express contract constitutes an "enhanced protection agreement."”

Does the New Law Include a Pre-litigation Remedy?

Yes. Generally, the pre-litigation procedures are as follows: “The claimant or his or her legal representative shall provide written notice via certified mail, overnight mail, or personal delivery to the builder, in the manner prescribed in this section, of the claimant's claim that the construction of his or her residence violates any of the standards.”

Within 30 days of a written request by a homeowner or his or her legal representative, the builder shall provide copies of all relevant plans, specifications, mass or rough grading plans, final soils reports, Department of Real Estate public reports, and available engineering calculations, that pertain to a homeowner's residence specifically or as part of a larger development tract. Furthermore, the builder shall provide to the homeowner or his or her legal representative copies of all manufactured products maintenance, preventive maintenance, and limited warranty information.

The builder is also obligated to: (a) provide the name the builder’s agent for receiving notice of claims; (b) record a notice of the existence of pre-litigation procedures; and ( c) acknowledge a claim within 14 days of receipt.

Within fourteen days of receiving the claim the builder must complete the initial inspection. A second inspection maybe made if notice of that inspection is given within three days of the initial inspection. If the builder intends to hold a subcontractor, If a builder intends to hold a subcontractor, design professional, individual product manufacturer, or material supplier, including an insurance carrier, warranty company, or service company, responsible for its contribution to the unmet standard, the builder shall provide notice to that person or entity sufficiently in advance to allow them to attend the initial, or if requested, second inspection of any alleged unmet standard and to participate in the repair process. The second inspection must be completed within forty days. The cost of the investigation is borne by the builder. The builder is also obligated to notify all responsible parties of the time inspection so that they may attend the inspections.

Within thirty days of the completion of the inspection the builder must make an offer to repair all applicable damages. “Any such offer shall be accompanied by a detailed, specific, step-by-step statement identifying the particular violation that is being repaired, explaining the nature, scope, and location of the repair, and setting a reasonable completion date for the repair. The offer shall also include the names, addresses, telephone numbers, and license numbers of the contractors whom the builder intends to have perform the repair. Those contractors shall be fully insured for, and shall be responsible for, all damages or injuries that they may cause to occur during the repair, and evidence of that insurance shall be provided to the homeowner upon request. Upon written request by the homeowner or his or her legal representative, and within the time frames set forth in this chapter, the builder shall also provide any available technical documentation, including, without limitation, plans and specifications, pertaining to the claimed violation within the particular home or development tract. The offer shall also advise the homeowner in writing of his or her right to request up to three additional contractors from which to select to do the repair...”

“Upon receipt of the offer to repair, the homeowner shall have 30 days to authorize the builder to proceed with the repair. The homeowner may alternatively request, at the homeowner's sole option and discretion, that the builder provide the names, addresses, telephone numbers, and license numbers for up to three alternative contractors who are not owned or financially controlled by the builder and who regularly conduct business in the county where the structure is located. If the homeowner so elects, the builder is entitled to an additional noninvasive inspection, to occur at a mutually convenient date and time within 20 days of the election, so as to permit the other proposed contractors to review the proposed site of the repair. Within 35 days after the request of the homeowner for alternative contractors, the builder shall present the homeowner with a choice of contractors. Within 20 days after that presentation, the homeowner shall authorize the builder or one of the alternative contractors to perform the repair.”

“The offer to repair shall also be accompanied by an offer to mediate the dispute if the homeowner so chooses. The mediation shall be limited to a four-hour mediation, except as otherwise mutually agreed before a nonaffiliated mediator selected and paid for by the builder. At the homeowner's sole option, the homeowner may agree to split the cost of the mediator, and if he or she does so, the mediator shall be selected jointly. The mediator shall have sufficient availability such that the mediation occurs within 15 days after the request to mediate is received and occurs at a mutually convenient location within the county where the action is pending. If a builder has made an offer to repair a violation, and the mediation has failed to resolve the dispute, the homeowner shall allow the repair to be performed either by the builder, its contractor, or the selected contractor.”

“If the builder fails to make an offer to repair or otherwise strictly comply with this chapter within the times specified, the claimant is released from the requirements of this chapter and may proceed with the filing of an action. If the contractor performing the repair does not complete the repair in the time or manner specified, the claimant may file an action.”

The builder can opt-out of the prelitigation SB 800 procedures. However, that notice must be in the sales agreement.

Does The New Law Include Defenses and Other Limitations On A Defendants Liability?

Yes. “A homeowner is obligated to follow all reasonable maintenance obligations and schedules communicated in writing to the homeowner by the builder and product manufacturers, as well as commonly accepted maintenance practices. A failure by a homeowner to follow these obligations, schedules, and practices may subject the homeowner to the affirmative defenses...”

Other Issues:

At anytime during the dispute resolution process a builder may offer to pay cash rather than make the repairs. If the dispute is settled in accordance with the procedures in the new law, SB 800 does not have provisions that require the parties to enter into a legal release. If upgrades or a cash payment is made, a release maybe available.

The foregoing discussion is a brief overview of the Calderon Act and SB 800. While a substantial portion of the text of the article is taken directly from the two statutes, the two legislative acts contain numerous detailed and specific requirements. If you are involved in a dispute that subject to the Calderon Act or SB 800 you should consult with an attorney who is familiar with the requirements of the specific statutes.

This article, ©2003, was written by William C. Last, Jr. The quoted text and other parts of the article are from SB 800. Parts of the article are from the Civil Code section 1375. Mr. Last is an attorney who has been specializing in Construction Law for over eighteen years. Mr. Last also holds a California A&B contractors license. If you have any questions Mr. Last can be contacted at 415-764-1990 or 650-425-7679 or by e-mail at wclast@lastlawfirm.com. He has other articles on his web site: lhfconstructlaw.com. This bulletin is published periodically to provide general information about current legal issues. If you have a specific legal question or need legal advice, you should contact an attorney.