Articles Posted in construction defect

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The California Legislature enacted a comprehensive law covering the requirements for lawsuits regarding construction defects. Its application is limited to new residential units where the purchase agreement with the buyer was signed by the seller on or after January 1, 2003. The “Right to Repair Act” (Civil code section 895 +) provides standards for residential design and construction, the violation of which gives rise to liability on the part of a subcontractor, material supplier, individual product manufacturer, or design professional. Section 696 of the law establishes an extensive list of standards for specific elements of the design and construction of the home. The statutes do not apply to an action by a homeowner to enforce a contract or express contractual provision, or any action for fraud, personal injury, or violation of a statute. In an important recent decision where there was actual damage to the property, the court found that an owner’s claims for damages regarding a burst pipe were not governed by the Right to Repair Act limitation of “four years after close of escrow.” Civil Code section 896(e).

Woodland real estate attorney.jpgIn Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC, a sprinkler system burst, causing significant damage, including relocation expenses incurred while the homeowner was forced to be out of the home. This lawsuit was filed, but the trial court found that it was time-barred by the four-year statute of limitations.

The court of appeal first looked at the legislative history of the Right To Repair Act. It provides remedies where construction defects have negatively affected the economic value of a home, even though no actual property damage or personal injury has occurred yet. It was enacted as a result of a California Supreme Court decision holding that construction defects in residential properties, in the absence of actual property damage, were not actionable in tort. (Aas v. Superior Court (2000) 24 Cal.4th 627, 632.) A key provision in the Act is that liability would accrue under the standards regardless of whether the violation of the standard had resulted in actual damage or injury. As a result, the standards would essentially overrule the Aas decision and, for most defects, eliminate that decision’s holding that construction defects must cause actual damage or injury prior to being actionable. There was evidence that the Act was intended to address the inequity of the Aas decision and give homeowners the ability to have specified defects in the construction of their homes corrected before the defects cause harm or damage.

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California Construction defect claims in common interest communities are subject to a number of California statutes. The California Supreme Court recently decided that a developer can bypass all these statutes by including in the CC&Rs a provision requiring arbitration under the rules of the Federal Arbitration Act. This benefits developers as they can avoid a jury by requiring that construction defect actions be decided by an arbitrator, and gives them settlement leverage. This decision will result in Sacramento and Yolo real estate attorneys advising developers to include FFA provisions in all their CC&Rs. The FAA makes arbitration provisions irrevocable, and drastically limits the court’s ability to fix errors of the arbitrator.

CC&Rs FAA construction defect.jpgIn Pinnacle Museum v. Pinnacle Market, The developer recorded a “Declaration of Restrictions” (the Project CC & R’s) to govern a residential and commercial common interest community. As usual for CC&R’s, these contain a number of easements, restrictions and covenants, which it describes as “enforceable equitable servitudes” and “binding on all parties having any right, title or interest” in the property, and their heirs, successors and assigns. Again, as usual, The CC & R’s also provided for the creation of a nonprofit mutual benefit corporation (the Association) to serve as the owners association responsible for managing and maintaining the Project property.

The Association sued the developer, on behalf of the owners, for construction defects. The CC&Rs provide:

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Under California law, “benefit of the bargain” damages for breach of a real estate contract is the difference between the actual value of what the plaintiff got and what he expected to receive. If Joe breaches his contract to buy a house from Sam for $100,000, and Sam later sells it for $80,000, Sam is entitled to damages of $20,000.

In a recent California decision parties contracted to buy & sell a commercial property, with environmental and financial contingencies in the contract. There was a problem with subsurface contamination, and it was unclear what the cleanup cost would be.

The buyer unexplainably released all financing contingencies, though they apparently did not have a firm commitment from the bank. The lender said they would not fund the loan due to the environmental contamination. The seller ended up selling to a third party for less, and in the process lost out on a 1031 exchange.

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California law provides a scheme for pre-lawsuit resolution of construction defect claims from new home buyers (Civil Code section 895+).  It requires the builder to provide documentation of the law, and also give the buyer a name and address upon whom to make claims.  If the builder follows these rules, the procedure requires the buyer to make a written claim as to construction defects, and provide the builder an opportunity to repair.  If the Builder does not provide this information as required, the buyer can go directly to court.

In a recent case the buyer went directly to court, simply claiming in their lawsuit that the builder had not complied, but did not explain in what manner, at what time, or with respect to which of those duties the builder failed to comply.  The builder had the suit stayed (stopped) until the buyer gave notice and opportunity to repair.  The buyer appealed.

The court of appeals first noted that this was a mandatory procedure for builders and buyers.   The provision that allows the buyer to go directly to court if the builder did not comply was an exception.  The party seeking to rely on an exception to a general rule (here, the buyer) has the burden of proving the exception.  Thus, the buyer must do more then generally state that the builder did not comply.  They must go back to the trial court and  present evidence to show that the builder did not comply.