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Arizona’s New “Right to Repair” Statute

On July 3, 2015, Arizona’s new “Right to Repair” statute will take effect. Here’s a look at some of the important key differences between Arizona’s old Purchaser’s Dwelling Act (“PDA”) and the new “Right to Repair” statute, HB-2578.

Notice and Right to Repair Process
Under the current version of the PDA, a claimant must provide a written notice of claim followed by an opportunity for the builder to inspect the property. The builder may then provide a good faith offer of settlement that a claimant may accept, or reject and counter. If a counteroffer is made by the claimant, a builder may accept it or provide a best and final offer of settlement. If the builder’s best and final offer of settlement is rejected by the claimant, the claimant may then file suit for all recoverable damages arising out of the alleged construction defect.

Under HB-2578, a claimant must still provide written notice of a claim and allow a “seller” to inspect the property. Under the new law, however, a “seller” will have an absolute right to repair the alleged defects. The builder (“seller”) must provide written notice of its intent to repair and begin the work within 35 days of its written notice. Under the new law, the claimant does not release the builder for any repairs performed and the claimant can still sue the builder for inadequate scope or performance of the repairs. Also under the new law, the parties’ conduct is admissible should the matter proceed to a trial. In this regard, the statute provides, in pertinent part, that “[b]oth parties’ conduct during the repair or replacement process…may be introduced in any subsequent dwelling action. Any repair or replacement efforts undertaken by the seller are not considered settlement communications or offers of settlement and are admissible in evidence.”

Key Terms Now Defined
Under HB-2578, several key terms are now statutorily defined for the first time, providing much-needed guidance to homeowners and builders alike. For instance, the new law provides the following key definitions:

Construction Defect: A material deficiency in the design, construction, manufacture, repair, alteration, remodeling or landscaping of a dwelling that is the result of the following:

  • (a) A violation of construction codes applicable to the construction of the dwelling.
  • (b) The use of defective materials, products, components or equipment in the design, construction, manufacture, repair, alteration, remodeling or landscaping of the dwelling.
  • (c) The failure to adhere to generally accepted workmanship standards in the community.

Construction Professional: An architect, contractor, subcontractor, developer, builder, builder vendor, supplier, engineer or inspector performing or furnishing the design, supervision, inspection, construction or observation of the construction of an improvement to real property.

Material Deficiency: A deficiency that actually impairs the structural integrity, the functionality or the appearance of the dwelling at the time of the claim, or is reasonably likely to actually impair the structural integrity, the functionality or the appearance of the dwelling in the foreseeable future if not repaired or replaced.

Seller: Any person, firm, partnership, corporation or association or other organization that is engaged in the business of designing, construction or selling dwellings, including construction professionals.

Attorney’s Fees
Under the old law, the prevailing party could recover attorney’s fees if the party beat the opposition’s best and final offer of settlement, regardless of the theory of liability.

That provision has been repealed under HB-2578. Come July, a party will only be able to recover attorney’s fees in a construction defect action if it is successful on a claim for breach of contract or express warranty – consistent with existing Arizona law in contract actions. Under HB-2578, the prevailing party will still be able to recover its costs (including expert fees) under ARCP 68.

Net Effect of HB-2578
The most significant differences in the new statute are the “seller’s” absolute right to repair defects alleged to exist in a written notice of claim and the specific definition of what qualifies as a “construction defect”. Only time will tell as to whether “sellers” actually elect to enforce this right. The potential for conflicting interpretations of this new statutory language will result in debate unless and until Arizona appellate courts address these issues after the new law takes effect.

HB-2578 will undoubtedly remain a hot button issue and will be of particular interest to developers, contractors, subcontractors and homeowners in Arizona. Construction law partner Holly Davies and associate Teague R. Lashnits in the Arizona office of LGP will closely monitor this topic.

Blog by: Teague R. Lashnits, Esq.

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