Building blocks: Construction defects 101

The complexity, statute-of-limitation issues and high cost may explain why defect cases have become such a specialty

2014 March

Few areas of law have the potential to be as problematic for those who lack specific experience in its practice as construction-defect law. There is more to successfully navigating a construction-defect case than simply taking the builder to court based on the complaints of homeowners or tenants. Beginning a construction-defect case without the proper preparation will invariably lead to confusion, frustration and unnecessary expenditure of time and money. It is essential to understand the statutes governing this area of law before filing a lawsuit, and to ask for help from more experienced construction-defect attorneys if necessary.

Construction defects 101

Construction defects occur when a home or dwelling has not been designed or constructed in a reasonably workmanlike manner. Although some defects may seem benign, they can lead to enormous problems down the road, necessitating expensive, time-consuming and disruptive repairs, or even rendering the building completely uninhabitable.

There are two different types of construction defects: Patent and latent. Patent construction defects are problems that can be plainly seen and identified, such as a leaky roof, cracked stucco, or issues with the building’s plumbing or electrical systems. Far more insidious are latent construction defects, which are hidden from the untrained eye. Latent defects may include damage to a home’s foundation or water from unseen leaks hiding within its walls. Both patent and latent defects are subject to their own individual statutes regarding the timeframe in which homeowners have to bring lawsuits against builders before they are legally prohibited from doing so.

Water intrusion, the number one issue

The most common type of construction defect cited in lawsuits is water intrusion, in which water infiltrates the building’s structure via windows, doors or perforations in the building’s roof. This is usually due to the use of poor building materials or a failure on the part of the builder to utilize a proper waterproofing membrane. Water intrusion can quickly escalate from a minor problem to a crisis threatening the integrity of the entire structure.

The second most common type of defect is soil movement, which is a particular problem for homes situated on slopes or poorly compacted fill. Soil movement can be attributed to poor planning or construction errors, such as a shoddy foundation lacking in proper reinforcement. In any event, soil movement, like water intrusion, could ultimately destroy a home’s value, and the homeowner may not realize there’s a problem until it is too late.

The all-important statutes of limitation

In California, construction-defect cases are subject to very specific statutes of limitation. This leaves a relatively small window of time in which property owners are able to pursue legal action against builders for faulty construction. For patent defects, the statutory period is four years from the time of construction, and for latent defects, ten years.

Why is the number of construction-defect cases rising?

Construction-defect cases in California are expected to rise in the coming years due to several factors. First, the housing construction boom of the mid-2000s means many homes that were newly built in the last decade are now nearing the end of the statute for filing cases involving latent defects. Since many of these defects take years to surface, homeowners may only now be realizing the extent of resulting structural damage to their homes, and as a result, their window of opportunity is starting to close.

Another contributing factor is the urban renewal currently underway in downtown Los Angeles and other urban areas across the state. The trend is for older buildings to be rehabbed and renovated and then sold as “luxury” housing, including condominiums and lofts; however, renovations present builders with the opportunity to implement shortcuts. The result is faulty construction. All too frequently, buildings are outfitted with modern updates and amenities, but the builder fails to adequately integrate the new to the old building components. This can lead to failures with plumbing, roof and structural components, to name a few.

Finally, while property sellers are required to disclose all known defects to potential buyers before a sale, those who purchased repossessed or foreclosed properties during the recent economic downturn may not have been forewarned of such defects, since banks are exempt from this disclosure requirement.

Pre-litigation requirements in construction-defect cases

Construction-defect cases should be approached differently depending on several factors, including whether or not there is a Homeowner’s Association (HOA) involved. There is one set of rules for a single home constructed by a builder and yet another set of rules for groups of homes or condominiums that have common areas and are governed by an HOA.

When there is an HOA involved, the property defects may be governed by the Calderon Act (Civ. Code, § 1375 et seq.), a set of rules that applies to construction-defect cases for multi-residential buildings or communities with a central association. The Calderon Act, which has been in play for nearly 20 years, sets forth a specific process for construction defects, including rules for pre-litigation, mediation and litigation. If you are handling a case governed by the Calderon Act, you may not file a lawsuit until you fulfill your pre-litigation obligations under the code.

Single-family-home defect cases that do not involve an HOA are governed by the Right to Repair Act (Civ.Code, § 900). Like Calderon, the Right to Repair Act also involves a pre-litigation process where homeowners must provide written notice of the defects to the builder, allowing developers the opportunity to assess the property and attempt repairs as they see fit before construction defect litigation may proceed. If the builder fails to comply with any of the pre-litigation procedures, the homeowner is then free to file suit, but ultimately this pre-litigation procedure is an unavoidable step in the process of mounting a construction-defect case. Attorneys must familiarize themselves with these rules, deadlines and statutes in order to protect the interests of their client and see that the developer is held accountable.

Common pitfalls in construction-defect case

Once you have overcome the pre-litigation hurdles and a lawsuit for defects has been filed, you may find that effectively litigating the case can still be a dauntingly difficult prospect. One of the most common mistakes attorneys make is not focusing on the value of their experts’ opinions. With construction defects, your case is only as strong as your experts and their testimony. Homeowner complaints are generally not enough to win a case, particularly when defects involve technical building standards. It is therefore vital to utilize credible experts with professional opinions based on real-world construction experience to validate defect claims. Selecting an expert is not easy, and the best expert-attorney relationships are nurtured over time. Attorneys without established ties to trustworthy construction professional experts may wish to seek referrals from professional organizations or from colleagues with experience in this practice area and established relationships with expert witnesses.

Insurance coverage issues are another common roadblock that many litigators encounter on the road to winning a construction-defect case. Failing to grasp coverage issues means attorneys may not know how the damages are going to be paid for. Not understanding concepts like resulting damage and the cause-and-effect relationship between defective building components and physical injury to tangible property can negatively impact the outcome of the case for settlement or judgment collection purposes.

Attorneys must also make sure they are suing the right people or entities. The major players are typically the developer, the builder/general contractor, a few of the key subcontractors. Using these potential defendants as a starting point, as opposed to suing every single subcontractor on the project, will help conserve resources and control the litigation. At your earliest opportunity, conduct thorough discovery so that specifically targeted litigation tactics can be used. Find out as much about your opponent as you can. The difference between taking-on a well-known developer versus a spec builder who has only constructed a handful of homes is considerable. The better you understand your opponents, the more likely you will be able to successfully resolve the case for your clients.

Many construction-defect cases become mired in costs that the attorney failed to anticipate and has agreed to advance. Resolution of construction-defect cases is almost never swift and they tend to be very expensive. Funding construction-defect cases usually does not fall to the plaintiff, so any lawyer looking to move into this practice area would do well to have a war chest of funds to draw from in order to pay experts, conduct discovery, assess the property and address all of the various expenses associated with the case, including expert depositions. Attorneys should understand that they will likely be working on a contingency basis, and should consider whether or not the potential payout is greater than the costs they will incur. It hardly makes sense to spend $500,000 on a case with a potential win of only $1 million, so be honest about your financial commitments and accept cases accordingly.

Strength In numbers

For those lawyers who do choose to take on these cases and forge bravely into the labyrinth of construction-defect law, remember there is no shame in asking for help from attorneys who focus on this practice area. Joint ventures can be beneficial and can considerably lessen the burden of a complex case. Options include simply asking colleagues for friendly advice, or approaching other attorneys outright to suggest a joint-venture relationship in which the two firms collaborate on the case to see it through from filing to resolution.

In summary, the best strategy for handling these cases includes familiarizing yourself with the statutory requirements, conducting thorough due diligence upfront, honestly assessing whether your firm can handle the case financially, choosing the best experts and seeking guidance from other attorneys whenever necessary. With a strong foundation of preparation and collaboration in place, you can successfully navigate a construction-defect case.