A Primer on SB800 from an Expert s Viewpoint

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1 A Primer on SB800 from an Expert s Viewpoint California Civil Code 895 et seq. ( SB800 ) provides that all new residential units purchased after January 2003 (excluding condominium conversions) are subject to its standards. There are approximately 45 detailed functionality standards that prescribe the performance of building components, and if a claim is made for violation of any standard, a builder has the right to repair it. Provided the builder follows the steps outlined in the statute, litigation by the claimant for actionable defects is precluded. Cal. Civ. Code 895 et seq. Although eight years has elapsed since the enactment of SB800, interpretation of numerous issues remains unresolved due to a dearth of case law, and a misunderstanding of the application of the statute s provisions to actual construction defects encountered in the field is common. This has undercut the prompt and fair resolution of construction defect claims intended by the Legislature. Cal. Civ. Code Ch (b)(2002). Initiation of a claim and builder s response Under SB800, claims for violation of its standards must be provided to the builder by the individual home or unit owner, an association in the case of a common unit development, or their legal representatives. The claim must be described in reasonable detail sufficient to determine the nature and location, to the extent known, of the claimed violation. 910(a). The claim may also include a demand for relocation expenses and investigative costs, to which the claimant is entitled Within 14 days of receipt of the claim, the builder is required to acknowledge receipt, and if the builder opts to follow the statutory protections and request an inspection, it must be completed within another 14 days. 913, 914, 916. Initial inspections are generally performed by the builder s internal quality control staff, or outside construction experts, depending on their scope and complexity. A second inspection is also permitted, but must be completed within the following 40 days. If the builder intends to hold a subcontractor, or others, responsible for contribution, the builder must notify them with sufficient advance notice to attend inspections. 916(e). Once testing is complete, the builder has 30 days to make an offer to repair the violation, or make a cash offer acceptable to the claimant and obtain a reasonable release. Any offer to repair must be both detailed and specific, offer compensation for miscellaneous damages, set a reasonable date for completion, and provide an offer to mediate, where the claimant is amenable Nonetheless, the builder retains certain affirmative defenses, most importantly for ordinary wear and tear, claimant failure to mitigate damages or to follow the builder s recommendations for maintenance, and abuse or neglect Where a builder fails to meet any of the above requirements within the time specified, a claimant may proceed with filing of an action. Nonetheless, the standards of the statute will bobheckel@aol.com

2 continue to apply Language mandating the applicability of the standards to subsequent litigation is found throughout the statute. Timelines under SB800 for notice, repair offers, inspections, contractor election, repair authorization, and repair commencement are quite detailed. (The practitioner should also note that there are other requirements that the builder is required to meet, in addition to the general requirements noted above.) While the timeline for the builder s responses is both short and strict under the statute, extension of the mandated timeframes may be extended by mutual agreement of the parties. 930(a). In practice, where claims are complex, an extension may be necessary to determine the nature of the problem and appropriate method of repair. Thus, an extension may serve both the interests of the builder and the claimant. Further, in an opinion related to SB800, the court ruled that the claimant has the burden of establishing that the builder has not complied with its 912 response obligations and is therefore not entitled to the statute s protections. In this case, the claimants had not presented any facts to support its claim that the builder s response had been deficient. Standard Pacific v. Garlow, no. E at 7-9 (Cal. Ct. App. Dist. 4 Div. 2, filed Aug. 14, 2009.) While this is generally understood to mean that a claimant may not file an action until this burden is met, some claimant attorneys believe they may still file suit, and the builder must file a motion to stay before the burden shift occurs. Disagreements arise between claimants and builders over numerous issues of interpretation. Claims may be brought by either individual owners or homeowner associations. 895(f). Whether an association has standing to bring claims on behalf of individual owners for deficiencies within their units is frequently disputed. With respect to the issue of standing in multifamily housing, experts may be required to determine whether a claim relates to a function or component that is owned by an association or an individual unit owner, and whether commonality is present. Review of the project s CC&R s is often required. More frequently disputed is what constitutes sufficient notice to the builder, insofar as the claimant is required to describe its claim in reasonable detail sufficient to describe the nature and location, to the extent known, of the claimed violation. 910(a). Claimants are inclined to interpret the statute to indicate that a general description of a claim s nature and location is sufficient. Claimants may also focus on the to the extent known clause: homeowner claimants may have limited expertise to know the extent of a defect s nature or location, and limited resources, which should be taken into account. A general interpretation may extend to the use of extrapolation evidence projecting a quantity of defects based on the defects found in a random sampling of units. In this line of thinking, once such claims have been made, it is the builder s responsibility to undertake an investigation of the claimed violations to further determine their nature and location, so that the builder may repair them. Builders are in turn inclined to view the statutory language as requiring the claimant meet the burden of determining the nature and location of its claimed violations, so that the builder may reasonably know where to conduct its investigation and what repairs may be required. Under this view, extrapolation evidence would not be permitted, insofar as it does not provide precise

3 locations of projected defects only quantities within a statistical margin of error - making it impossible for the builder to repair the violations without a burdensome investigation of every possible location. (Extrapolation under an accepted statistical methodology may be suitable for developing a builder s cash offer, in lieu of repair.) Moreover, from the builder s perspective, where an expert is retained by the claimants to locate defects, the threshold for to the extent known would be significantly higher than for the homeowner, who would presumably lack equivalent skill in locating and determining the nature of defects, as noted. It remains to be seen whether the finding of the court in Standard Pacific that the homeowner s obligation to follow the pre-litigation procedures is the norm under the Fix-it law and the homeowner must bear the burden of showing that he or she need not follow those procedures impacts which party bears the 910 pre-litigation burden for investigating the nature and location of a defect sufficient to make an appropriate repair. Standard Pacific, at 7. The claimant s response to the builder s offer to repair The claimant also has obligations under SB800, beyond the notice requirements. Upon receiving an offer to repair from the builder, the claimant has 30 days to authorize the builder to proceed with the repair. Alternatively, the claimant may request consideration of an additional three contractors to perform the repairs, and permit them an additional inspection If issues remain unresolved, mediation may be requested. Typically, unresolved issues may include the method of repair that the contractor proposes and its scope or location. However, if mediation fails to resolve the dispute, the claimant is required to allow the repair to be performed It should be noted that if the builder fails to complete the repairs within the timeframe specified, or performs an inadequate repair, the claimant may file an action (The builder may only obtain a release for a cash offer, as noted above.) The claimant need only demonstrate that the home does not meet the statute s applicable standard causation or damages need not be shown Recoverable damages include not only the cost of repair, but reasonable investigative costs for established violations of the standards In addition, subsequently discovered claims may also be administered separately, allowing the claimant to bring additional claims Application of the standards for actionable defects As indicated, there are approximately 45 detailed functionality standards that prescribe the function and performance of building components. See generally 896 et seq. These are intended to be the only causes of action available to the claimant for construction defects. 896, 897. Claims for violation of express contract terms, fraud, and personal injury are not covered by this statute. 943(a). Nonetheless, claims are often made for defects outside the prescribed standards, or for negligence or implied warranty, as would have been permissible prior to the enactment of SB800. These might typically include violations of the prevailing standard of care for construction, code violations, or design defects, not covered by the statute.

4 Another distinguishing characteristic of SB800 is the reduction of the ten year statute of limitation for certain construction defects For example, claims related to plumbing and electrical systems are limited to four years from the close of escrow. 896(e), 896(f). Claims related to fit and finish, or manufactured products are restricted to one year. 900, 896(g)(3). (Under 900, fit and finish claims may alternatively be subject to the builder s warranty.) In practice, individual owners may not make their claims within a year, or discover defects within the shortened statute of limitations for particular defects. It is certainly conceivable that an electrical or plumbing system may fail after four years. Not surprisingly, in order to get beyond the shortened statutes of limitation, claims are often made for water intrusion, soils or structural issues with ten year statutes of limitation, despite the unlikelihood that the issues rise to these levels. With respect to the functionality standards themselves, some are quite precise and others leave room for considerable interpretation. Many require the input of experts to determine whether a violation has occurred. Covered functions include protection from water intrusion, fire, soils related issues, structural safety, and public health hazards. Building components that are subject to the standards include plumbing and electrical systems, roofing, exterior building envelopes, roofing, and manufactured products, among others. Precise standards include those for windows and doors, for example, which prohibit unintended water to pass beyond, around, or through [the window or door] or its designed or actual moisture barriers.... Depending on the system, this may include without limitation, internal barriers within the systems themselves...windows, window assemblies, framing, substrate, flashings, and trim, if any. See 896(a)(1), 896(a)(2). (Experts generally understand this language, but it is anyone s guess what intended water passing through a door might be!) Other standards have a precision bordering on the obvious: Roofing materials shall be installed so as to avoid materials falling from the roof. 896(g)(11). More vague are standards that require a building component to not materially impair the use of the structure by its inhabitants, cause unreasonable risk of fire, or contain significant defects. See 896(f), 896(d), 896(g)(2). The determination of whether a component presents an unreasonable risk of fire (if there is a reasonable risk of fire), or is significant may best be left to experts. While the standards are intended to address every component of the structure, to the extent that a component is not addressed by the standards, it shall be actionable if it causes damage Not surprisingly, determination of damage to components will also generally require the use of experts. It should be noted that precise standards often are more stringent than prevailing standards of care in the industry or the building code. Vague standards are often less stringent. Regardless of whether a standard is vague or precise, the practitioner should be aware that they differ in some respects from the standard of care in the construction industry, the building code, or other familiar tort claims in construction defect practice that may have been applicable prior to the enactment of SB800. These differences will usually require the input of an expert to

5 distinguish. Because claimants have the right, per 944, to recover reasonable investigative costs for each established violation and these costs can be considerable where experts have performed invasive testing distinguishing between defects that are SB800 violations, or fall outside its parameters, is critical. Finally, as noted, express contractual terms are not covered by SB800. Consequently, failure to provide certain architectural features or a high-end level of quality in construction will generally fall outside SB800, unless the failure to provide these results in a prescribed violation of a standard, or damage to the structure. Conclusion Clearly, where each party has legal representation and has retained construction experts, disagreements may arise over the application of the standards to alleged defects and the appropriate repairs. Costs of repair prepared by cost estimators for both parties will often be exchanged, and vary widely from each other. The mediation process contemplated by statute may work to resolve these differences, as well as differences in notice requirements and the appropriateness of the builder s proposed repairs for violations of the standards. While the builder has a right to repair should mediation fail, per 919, in practice there would appear to be no means for this to occur without the cooperation of the claimant. Because cash settlements offer the advantage of a release which repair work does not some builders may follow this course. 926, 929(b). Builders may of course make repairs not required by the statute in order to facilitate resolution of claims. Outside parties i.e., insurance carriers may influence the resolution, too, having less interest in undertaking repairs. Ultimately, a court, rather than a mediator, may decide unresolved issues. Nonetheless, where both the claimant and builder work through the SB800 process in good faith, the legislative intent of providing a prompt and fair resolution of construction defect claims, in lieu of litigation, may be realized. Robert Heckel is an architect and attorney practicing in California as a forensic architect and expert witness, often advising on the application of SB800.