Claims for Construction Defects on Commercial and Multifamily Rental Properties

What YOU as an Owner (or Owner’s Agent / Manager) Should Know

This article is contributed by Gregory E. Meisenhelder, Partner, and Paul W. Windust, Principal, Berding & Weil

California law imposes several rigid time limitations on a property owner’s right to bring an action / lawsuit for construction defects and property damage caused by construction defects. Construction defect litigation is often required for a property owner to obtain the money needed to complete what often are expensive repairs. In most cases, this money comes from the insurance company that insured the responsible contractor or design professional.

Given these realities, property owners should understand their legal rights, including the deadlines imposed by California’s Statutes of Limitations and Repose (discussed below), and should inspect their property for latent construction defects and resulting property damage well before these deadlines.   

This article is intended to provide a summary of the key time limitations applicable to construction defect litigation under California law. This article is in no way offering legal advice of any kind. If you have any questions about these time limitations or any other construction defect related matters, please contact Berding & Weill.

California’s Statute of Repose – What is it, and Why is it Important to Me?

In general, under current California law a commercial or multifamily property owner has 10 years from the date of “Substantial Completion” of the work / improvement to bring a lawsuit against culpable construction professionals such as contractors, subcontractors, architects, and engineers. The 10 year deadline from the date of “Substantial Completion” to bring an action is a firm deadline. Regardless of how egregious the construction defects and related property damage are or how costly the repairs, a property owner may not bring a legal action for construction defects or resulting property damage more than 10 years after substantial completion of the work/improvement.

This means that any such action must be commenced within ten years of “Substantial Completion” and, in no event, more than ten years after the earliest of the following:

• Date of final inspection by the proper public agency
• Date of recording of a valid notice of completion
• Date of use or occupation of the improvement
• One-year after cessation or termination of work on the improvement

This 10 year statute of repose applies only to latent construction defects, not to patent construction defects. Latent construction defects are defects that are not open and apparent by reasonable inspection. Simply put, a latent defect is a hidden, not obvious construction defect. Whereas a patent defect is open, obvious, readily observable or evident. An action / lawsuit relating to patent defects must be filed within 4-years of the “Substantial Completion” of the work / improvement (unless the resulting property damage occurs in the fourth year after “Substantial Completion” in which case the action / lawsuit must be filed within one year after the damage occurs and no later than five years after “Substantial Completion”).  

Simply put, understanding the complexities of California’s ten-year Statute of Repose and its application to your commercial or multifamily property is imperative. It is important to have a clear understanding of when your commercial or multifamily property was Substantially Completed.  Also, it is critical to make sure the property is adequately inspected for construction defects well in advance of the 10 year Statue of Repose deadline in order to protect the long-term viability and profitability of the property.

California’s Construction Defect Related Statute of Limitations

What is it, and Why is it  Important?

While a Statute of Repose sets a deadline to bring an action regardless of when the subject injury / harm occurred or was discovered, a Statute of Limitation is a law that puts a separate time limit on a property owner’s right to bring an action after the harm/injury occurred, was discovered, or should have been discovered by reasonable actions.  

Under California law there are a variety of specific statutes of limitation that could apply depending on the kind of case being filed, claims being made, and damages bring sought. Below is a summary of the most common time limits in California’s Construction Defect Related Statute of Limitations:

• Breach of Written Contract – four-years from the date of breach or discovery
• Breach of Oral Contract – two-years from the date of breach or discovery
• Breach of Warranty – four-years from the date of breach or discovery
• Negligence / Injury to Property / Property Damage – three-years from injury or discovery

It also should be noted that there is an Accrual and Discovery Rule applicable to many of California’s Construction Defect Related Statute of Limitations. The general rule is that the statute of limitation “clock” will begin to run as soon as appreciable harm occurs. However, the accrual of certain causes of action may be postponed until the injured party discovers or has a reasonable opportunity to discover the cause of the action or harm. 

A construction defect related example of this Discovery Rule is illustrated as follows:

An apartment building is built with construction defects in the installation of the roof. These roof defects allow rainwater to enter the cavities of the exterior wall and cause damage to wall framing. For the first four-years after “Substantial Completion,” there is no observable signs of construction defects or damage.  However, in the fifth-year staining, stucco cracking and signs of water damage are observable at the exterior wall of the property.

Under this scenario, the property owner would have 3-years from the discovery of this damage to file a negligence / property damage action/lawsuit for the roof defects and resulting damage to the wall framing and stucco. However, this discovery rule does not apply to California’s ten-year Statute of Repose.  In other words, a property owner will lose his or her right to pursue construction/design defect related litigation ten-years after substantial completion of the work/improvement regardless of when the defect or resulting property damage is discovered. 

In the example above, a failure to bring an action within the stated time frames could result in the loss of the right to bring an action, a loss of legal rights, and the loss of the ability to seek monetary damages necessary to repair the construction defects and resulting property damage. 

California construction defect law is complicated and sometimes can be very confusing. Good legal counsel and skilled representation can help property owners protect their rights and their property and provide you with the expertise and knowledge necessary to protect your property now and in the future.

Berding & Weil has recovered over $1.5 billion for its clients. Their highly experienced construction, community association, and community association, and transaction real estate attorneys have a thorough understanding of the challenging legal issues faced by homeowner associations and commercial builders and work creatively and aggressively to secure superior legal results for their clients. With offices in the Bay Area, Orange County, San Diego, and Wailuku, Hawaii, Berding & Weil can be reached at (800) 838-2090 or online https://www.berding-weil.com.