Remember – It IS possible in California to shorten the time allowed to bring defect claims!
(Brisbane Lodging, L.P. v. Webcor Builders, Inc. 216 CalApp. 4th 1249 (2013).)
California law generally allows up to ten years to bring a claim for latent defects (those not apparent by “reasonable inspection”). This “delayed discovery rule” extends the accrual of a claim until the defects were, or could have been, discovered while capping it at ten years after substantial completion. (California Code of Civil Procedure sections 337.1 and 337.15). Therefore, it is not uncommon for a property owner to bring a defect claim against a builder 9 to 9 1/2 years after project completion alleging recently discovered latent construction defects.
In 1999, Brisbane Lodging and Webcor Builders entered into a contract for the design and construction of a hotel. The agreement was extensively negotiated between the parties. Revisions were made to the agreement with the aid of counsel by both parties before “mutually acceptable language” was reached.
One of the provisions of the agreement stated: “As to acts or failures to act occurring prior to the relevant date of Substantial Completion, an applicable statute of limitations shall commence and run and any alleged cause of action shall be deemed to have accrued in any and all events not later than such date of Substantial Completion”. The hotel was substantially completed in July 2000.
The hotel owner discovered previously unknown underground plumbing problems five (5) years after completion. Three (3) years later, in May 2008, Brisbane filed a complaint against Webcor for breach of contract, negligence and breach of implied and express warranties. Brisbane alleged that because the defect was underground and “not apparent by reasonable inspection” it had ten (10) years to bring suit.
The Court of Appeal disagreed with Brisbane ruling that the parties were sufficiently sophisticated and engaged in an arms-length transaction, utilizing the assistance of counsel. The Court held that Parties are free to agree contractually to a “date certain” to “avoid the uncertainty surrounding the discovery rule for the security of knowing the date beyond which they would no longer be exposed to potential liability”. Therefore, the contractual language agreed to by the parties meant that the ten year statute for the delayed discovery of latent defects would not apply. Instead, the 4-year statute of limitations for written contracts applied. The Court ruled that the claim was barred because it was brought more than four (4) years after substantial completion.
This case is an important precedent in California for construction projects, particularly in the commercial realm. Parties to construction contracts will now pay greater attention to claims bar dates and other terms involving statutes of limitation and substantial completion.
Blog by: Cherrie D. Harris