What is a Construction Defect?
Developers and contractors are required to construction projects to meet certain criteria including state and local building codes, industry standards, product manufacturer specifications and, in California, the functionality standards embodied within Civil Code Section 895, et seq. known as the “Right to Repair Act” or “SB 800.”
In general, the building components of the project (i.e., roof, windows, siding, stucco, decks, trim, patios, walkways, landscaping, etc.) should meet the applicable standards and perform such that only normal maintenance is required and the components last long enough to perform during the period of their expected “useful life.” This allows the community to properly budget for regular maintenance and replacement of each component at the time they reach their expected ‘useful life.’
The ‘useful life’ is the time period that a certain component is expected to last before needing to be replaced. For example, a shingle roof with an expected ‘useful life’ of 15 years should not experience leaks and failure (if properly maintained) from the time it is installed until at least 15 years have elapsed from the date of installation. In order to set adequate reserve funds (money set aside for major building component replacement) the components must meet or exceed their expected life cycle. Otherwise, your community will find itself underfunded if a fifteen year roof fails and requires replacement eight years after installation as the reserve funding plan will not have considered replacement to be necessary for another seven years.
What is the Deadline to Bring a Claim (Statute of Repose and Limitation)?
The statutes of repose and limitation periods provide absolute deadlines to bring a claim for construction defects. If you miss the deadline, you will be forever barred from pursuing a claim. The absolute deadline to assert a claim in California is ten (10) years from “Substantial Completion” of the project as that term is defined in the applicable statutory scheme.
However, there are shorter time frames that are applicable including three (3) years from the discovery of the defect (i.e., generally defined as when you had sufficient information that should have put you on notice of the claim). Further, under SB 800 there are component specific deadlines of 1, 2, 4 and 5 years depending on the particular component at issue in the claim.
Therefore, it is critically important to engage counsel and a competent construction consultant early on to ensure that the statutes are protected and you do not miss the deadline to bring a claim.
What is the Board’s Fiduciary Responsibility to Investigate and Pursue a Claim?
Each Director has a duty to act in good faith, in a manner they believe to be in the best interests of the Association, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would under similar circumstances. Therefore, in order to meet this standard, before making a Board related decision, a Director must inquire into the matter and rely on others with particular experience and competence when needed.
In performing their duties, directors are entitled to rely on information, reports or statements, including financial statements or other financial data prepared or presented by one or more officers or employees of the association whom the director believes to be reliable and competent in the matters presented and on attorneys, accountants and other persons as to matters which the director believes to be within such person’s professional or expert competence.
If a director performs his or her duties in accordance with the above standard of care, then such director may be able to avoide liability based on a failure to discharge the person’s obligations as a director under the ‘business judgment rule.’
“The common law business judgment rule has two components–one which immunizes [corporate] directors from personal liability if they act in accordance with its requirements, and another which insulates from court intervention those management decisions which are made by directors in good faith in what the directors believe is the organization’s best interest.” [citation omitted] A hallmark of the business judgment rule is that, when the rule’s requirements are met, a court will not substitute its judgment for that of the corporation’s board of directors.” (Lamden v. La Jolla Shores Clubdominium Homeowners Assn. (1999) 21 Cal.4th 249, 257)
One of the primary duties of the Board of Directors is to maintain and repair the Common Areas of the community. This includes performing routine maintenance as required or as set forth in the Developer’s maintenance manual. The Board also has a duty to investigate and pursue construction defect claims to ensure that any construction defects are paid for and/or repaired by the developer or other responsible parties to ensure that the homeowners are not subject to a large Special Assessment or increase in Regular Assessments to implement repairs to components that should rightfully be the responsibility of the project developers and/or contractors.
The Board of Directors must be careful to perform such investigations (with the assistance of competent professionals and legal counsel) to avoid the running of the applicable statute of limitations as discussed above.
What is the Defect Claim Process?
If it is determined that there are construction defects, the first step in the process is to commence and complete any necessary non-adversarial pre-litigation dispute resolution procedures (i.e., SB 800 and/or Calderon). There also may be alternative non-adversarial dispute resolution procedures embodied within the project governing documents (i.e., CC&Rs) that are different than the statutory procedures under SB 800. Therefore, these provisions must be carefully analyzed by legal counsel to ensure they are followed. The developer (and other potentially responsible parties) are then put on notice of the claims and will have an opportunity to investigate and offer to make repairs or offer monetary compensation under the SB 800 statutory scheme (provided the developer strictly complies with the mandated procedures).
If the matter does not resolve during the dispute resolution procedures, a complaint may need to be filed in Superior Court and/or if the CC&Rs provide for arbitration of such disputes, the claim will be submitted to arbitration.
What Fee Arrangements Are Available?
Our Firm routinely handles construction defect matters on a contingency fee basis. This means that our fee is based on a percentage of the recovery and if there is no recovery you are not responsible for our fees. We are open to other fee arrangements as well depending on your particular needs including a straight hourly arrangement or hybrid arrangement with a reduced hourly rate and reduced contingency percentage. In addition, we are always willing to inspect your property for any issues and meet with the Board and/or homeowners at no charge to discuss the process and whether you have claims that should be pursued. Please contact our office to arrange for a free consultation.