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Howrey LLP
In
holdings of significance to developers, design professionals,
contractors and their insurers, the California Court of
Appeal has determined that Code of Civil Procedure §337.15's
10-year cutoff of suits for latent construction defects
may be extended if the contractor that performed the defective
work attempts repairs.
Section
337.15, a statute of repose, provides that developers, designers
and contractors may not be sued for latent construction
defects (those not apparent by reasonable inspection) more
than 10 years after substantial completion of a project.
Section 337.15 generally has been recognized as the outside
statute of limitations applicable to construction projects.
In contrast, suits for patent construction defects -- those
that can be discovered by reasonable inspection -- must
be brought no later than four years after substantial completion
under Code of Civil Procedure §337.1, the statute of
repose for patent defects. (The right to sue for patent
defects can be cut off in less than four years by other
statutes of limitation, such as for personal injury or property
damage.)
Many
times a construction defect will be latent because it is
hidden behind walls, is within inaccessible portions of
the roof or ceiling, or is otherwise unobservable to the
owner. Because of §337.15, developers, contractors
and design professionals generally had understood that 10
years after substantial completion of a project, they were
safe from construction defect claims relating to it.
However,
the Court of Appeal held that the 10-year statute of limitations
is not absolute but may be equitably extended if the developer
or contractor that performed the defective work takes any
action to correct the defect(s) during the 10-year period.
Jackson Plaza Homeowners Association v. Alcal Roofing
and Insulation, 2002 Cal. App. LEXIS 4041, 2002 Cal.
App. LEXIS 4177 (2002).
There,
the developer filed a notice of completion for the condominium
project on October 26, 1985. In 1995, the homeowner association
discovered that there were serious water intrusion problems
throughout the project. On June 12, 1996, more than 10 years
after the notice of completion was recorded, the homeowner
association sued the project's developer, general contractor
and several subcontractors. The general contractor moved
for summary judgment, citing the 10-year statute of limitations
in §337.15.
The
homeowner association argued that the general contractor
had engaged in significant repair work after the notice
of completion and through 1986 relating to the same water
leakage problems that re-emerged in 1995. The homeowner
association argued that the 10-year statute of limitations
in §337.15 should be equitably tolled during the repairs
and should resume running only after the repair efforts
ended in 1986.
The
trial court rejected the homeowner association's argument
and granted the general contractor's summary judgment motion.
However, the Court of Appeal reversed, holding that the
10-year statute of limitations in §337.15 was equitably
tolled while repairs were being made. The court reasoned
that equitable tolling is similar to estoppel, i.e.,
the plaintiff relied on the words or actions of the defendant
that the defects were being repaired. Significantly, the
court held that equitable tolling would not apply if a third
party, rather than the original contractor, had attempted
the repairs. The court also made clear that for the doctrine
to apply, the attempted repairs must have been to the same
defect that later re-emerged. Thus, if the general contractor
repaired an electrical problem and water infiltration problems
later developed, the 10-year statute would not be equitably
tolled.
The
Jackson Plaza holding is contrary to a 1999 decision
from the 3rd District Court of Appeal, which rejected equitable
tolling for repairs. FNB Mortgage Corp. v. Pacific General
Group, 76 Cal.App.4th 1116, 1134 (1999). In FNB Mortgage,
the court reasoned that §337.15 is supposed to protect
contractors and other professionals in the construction
industry from perpetual exposure to liability for their
work and that equitable tolling for repairs would defeat
this purpose. In Jackson Plaza, the 1st District
Court of Appeal declined to follow the FNB Mortgage
decision. The California Supreme Court may decide this issue.
In Lantzy v. Centex Homes, 89 Cal. App. 4th 1059
(2001), review granted August 22, 2001, the Supreme
Court granted a petition for review in a case involving
equitable tolling.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2002 Howrey LLP
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