By Michael G. Kim, Esq. (originally published in Winter 2002)

On September 20, 2002, Governor Gray Davis signed into law SB800, also known as the “Fix-It Bill.” At the outset, it is important to recognize that SB800 only applies to homes first sold in California after January 1, 2003. This means that for homes built before 2003, existing law regulating how construction claims are resolved, such as that set forth at Civil Code Section 1375, et. seq., continues to apply.

SB800 accomplishes several things which have never been done before in California law. First, it actually defines what is and what is not a construction defect according to standards of how a home and its components should function. Second, it provides shorter statutes of limitation for making a legal claim for certain construction problems. Third, it provides the builder an absolute right to repair problems before homeowners can file a lawsuit over construction defects.

These developments are beneficial to homeowners associations confronting construction defects primarily because SB800 essentially overrules Aas v. Superior Court (2000) 24 Cal. 4th 627, which requires that a construction defect cause actual damage to other property before monetary recovery can be obtained for it under tort theories. At the same time, SB800 will require homeowners associations and homeowners to more stringently monitor and inspect their property for manifestations of construction problems due to the shorter statutes of limitation created by SB800.

What prompted this change in the law? At the start of the 2001-2002 Legislative Session, California legislators sought to address the concerns of homeowners and their advocates stemming from the Aas decision, while at the same time balancing builders’ concerns over their ability to obtain general liability insurance for construction of attached housing. SB800 is the product of extensive negotiations between the Consumer Attorneys of California and the California Building Industry Association. Section I of SB800 defines its mission as follows:

The prompt and fair resolution of construction defect claims is in the interest of consumers, homeowners, and the builders of homes, and is vital to the State’s continuing growth and vitality. However, under current procedures and standards, homeowners and builders alike are not afforded the opportunity for quick and fair resolution of claims. Both need clear standards and mechanisms for the prompt resolution of claims.

Thus, SB800 recognizes certain shortcomings of the current framework for a resolution of construction claims and seeks to streamline that process.

CONSTRUCTION DEFECTS DEFINED BY SB800

Prior to SB800, what constituted a construction defect was essentially dictated by industry standards. SB800 now defines certain categories of recoverable construction problems by negative reference. SB800 sets forth functionality standards for certain home components, which include the following:

• Windows and doors must not permit water or excessive condensation to enter a unit

• Decks, balconies and stairs must not permit water intrusion or vapor to enter a structure

• Stucco and siding shall not allow water intrusion

• Plumbing and sewer lines shall not corrode so as to impede the useful life of the system

• Shower and bath enclosures shall not leak water

• Dwellings must materially comply with the Building Code for earthquake and wind load resistance

• Structures must comply with the Building Code with respect to fire protection

If a component does not fit into these standards, it is considered a defect.

The defined defects relating to structural integrity and fire protection overrule the Aas decision, which provided that defects such as an unsafe structure that has not yet fallen down or caught on fire were unrecoverable under California law. In this regard, SB800 is of substantial benefit to the safety of homeowners in the State of California.

SHORTER STATUTES OF LIMITATION

For homes built before 2003, the ten-year statute of limitations for latent, or hidden defects and the three-year statute of limitations for patent, or visible defects remains in effect. For homes built after 2003, SB800 significantly shortens the applicable statutes of limitation for certain categories of construction defects. From a homeowners association standpoint, what this means is that property managers, vendors and board members will have to be more diligent when inspecting common areas for potential problems. If there is an issue with a certain common area feature, the time frame within which to raise that issue with the builder is significantly shortened. SB800 provides shortened statutes of limitation for the following construction issues (unless otherwise noted, the beginning of the limitation period runs from the close of escrow of the subject unit):

• Noise transmission – 1 year (from the date of original occupancy of the adjacent unit

• Irrigation systems and drainage – 1 year

• Untreated wood posts – 2 years

• Untreated steel fences and components – 4 years

• Paint and stain – 5 years

• Landscaping systems – 2 years

• Dryer ducts – 2 years

Because these changes significantly affect a homeowners association’s legal recourse for certain common area amenities if they are defective, it is imperative that managers, committee members and board members make a point to inspect for construction problems with the common area features described above. In fact, it would be a wise idea to tailor inspection and maintenance protocols to afford the homeowners association sufficient time after the discovery of a potential problem, for example with landscaping or irrigation systems, to consult with an attorney and other appropriate consultants to ascertain whether the builders should be pursued for these problems before the door is shut on recourse for them under SB800.

OBLIGATIONS CREATED BY SB800

SB800 requires builders to provide a minimum one-year, express, written, limited warranty covering the fit and finish of the cabinets, mirrors, floor, interior and exterior walls, counter tops, paint finishes and trim. Builders are also encouraged, but not required under SB800, to offer what are called “enhanced protection agreements” to homeowners desiring warranties for periods of time longer than the one year minimum set forth in SB800.

SB800 PRELITIGATION PROCEDURE

Before any lawsuit may be filed against a builder for construction defects for a home built after 2003, the homeowners association or affected homeowner must provide notice to the builder via certified mail of the construction problems. SB800 then sets forth a detailed procedure for exchange of documentation, an opportunity for the builder to inspect the property, involve the sub-contractors in the process, and an absolute right of the builder to offer to repair the problems. The offer to repair must be accompanied by a detailed, specific step-by-step statement identifying the construction violation that will be repaired, the nature and location of the repair, and setting forth a reasonable completion date for the repair. The offer also must identify the contractors whom the builder intends to have perform the repair. The homeowner may request alternative contractors for the repair.

A builder’s offer to repair must also be accompanied by an offer to mediate the dispute. Mediations under SB800 are limited to four hours except as otherwise mutually agreed to between the parties. If the homeowner chooses, the homeowner may agree to split the cost of the mediator, in which case the mediator shall be selected jointly. What this means is unless the homeowners association or the homeowner split the cost for the mediator, the builder gets to pick the mediator. If the mediation fails to resolve the dispute, the homeowner must allow the repairs offered to be performed by the builder. The builder may also make a cash offer without repair to settle the dispute.

If at any time the builder fails to comply with the strict time and notice and requirements set forth in SB800, the homeowner can then file a lawsuit against the builder.

In the event the procedures of SB800 do not resolve the problem, the new law provides that all applicable statutes of limitations, which may have otherwise run during the process are extended from the time of the original claim to one hundred (100) days after the conclusion of the procedure, or after the inadequate repair by the builder is completed. Certain claims are not covered under SB800. These include personal injury, class action and fraud based claims.

Under prior law, builders were strictly liable for construction defects. SB800 now affords the builder the opportunity to assert a comparative fault defense based upon an “unforeseen act of nature.” From a legal standpoint, in addition to the explicit definition of certain construction defects reversing the effect of the Aas case, this change is the most significant in SB800. It is anticipated that builders will assert comparative fault based upon “unforseen acts of nature” whenever possible in an effort to mitigate their liability for construction defects in homes built after 2003.

CONCLUSION

It is important to remember what SB800 covers and what it does not cover. First and foremost, it only covers homes built after January 1, 2003. Second, it does not cover fraud and personal injury claims. How SB800 will be applied remains to be seen. On its four corners, it is more tailored for individual homeowner claims against builders for construction problems to a single home or condominium unit. Extrapolating its potential application to construction problems in the common area of a large homeowners association begs the question of its effective application given the fairly short time constraints imposed upon builders and other parties by SB800. Some claims simply as a matter of structural reality will be too large for the expedited resolution procedures of SB800. It is more likely than not that traditional construction defect litigation procedures will fill in the gaps created by the shortcomings of SB800. For homes built before 2003 involved in construction defect litigation, SB800 may impact the resolution of those claims as parties may adopt the procedures of SB800, or agree to the definitions of certain construction defects set forth in the statute.

From a homeowners association standpoint, SB800 clearly means the following:

Homeowners associations with homes and common area built after 2003 must carefully monitor and inspect those features for construction problems in accordance with the shortened statutes of limitation set forth in SB800 for certain categories of construction defects. Maintenance and inspection schedules should be tailored to the shortened statutes of limitation set forth in SB800 to fully protect the association’s recourse in the event construction defects are discovered in those areas. Above all, when construction problems are discovered, legal counsel should be contacted as soon as possible.