BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
NEW CONSTRUCTION AND SB 800 (aka TITLE 7)
I. BACKGROUND: A California law, known originally as SB 800 and now generally known as Title 7 (i.e., Title 7 of the “Real or Immovable Property” portion of the Civil Code, Sections 895 – 945.5), which went into effect on January 1, 2003, made significant changes in the relationship of builders to their buyers, and to the claims which may be made by them.
II. APPLICABILITY OF THE LAW: Title 7 applies to any buyers of newly constructed homes, or to an individual unit owner of attached dwellings, sold for the first time after January 1,2003 by a “Builder” which is defined as a builder, developer, general contractor, contractor, or original seller, who, at the time of sale, was also in the business of selling residential units to the public for the property; or was in the business of building, developing, or constructing residential units for public purchase. Excluded from the definition of “Builder” are contractors, subcontractors and design professionals who are not affiliated with the “Builder” other than as the contractor or design professional on the property.
The law does not apply to condo conversions or remodels, even substantial remodeling projects. The test is what type of permit was taken out by the Builder. Was it a new construction permit? Or was it a remodel permit? If the latter, then SB 800 does not apply. So, for example if the original structure was demolished down to the foundation and the new structure was built on that existing foundation, SB 800 does not apply.
The law also applies even if the builder had retained the property or unit as a rental and then later sells it for the first time.
III. WHAT THE LAW DOES: Title 7 does essentially five things:
1. Defines Construction Defects: These are broken down into water issues, structural issues, soil issues, fire protection issues, plumbing and sewer issues, electrical issues, and, the catch-all “other areas of construction.”
Construction defects are referred to in the law as an “actionable defect,” for which a builder can be liable. The “actionable defects” section of this law lists virtually all components, systems and materials in the home, and specifies what constitutes a defect for that item which would allow the homeowner to seek redress from the builder.
For example, it states that doors “shall not allow unintended water to pass beyond, around, or through the door or its designed or actual moisture barriers, if any.” If this test is not met, the homeowner has a claim against the builder. Likewise, if roofs or windows leak, they are deemed defective.
2. Provides for a One-Year Warranty: Title 7 provides that:
“as to fit and finish items, a builder shall provide a homebuyer with a minimum one-year express written limited warranty covering the fit and finish of cabinets, mirrors, flooring, interior and exterior walls, countertops, paint finishes, and trim. . .”
But, the warranty does not apply to damage to the listed components which are caused by defects in other components.
Any fit and finish matters, which are covered by the warranty, are not subject to the provisions of the new law which define what are “actionable defects” and the procedures for resolving those disputes with the builder.
If a builder fails to provide the express warranty required by this law, the law automatically imposes a warranty for these listed items for a period of one year.
A builder MAY, but is not required to, offer greater protection or protection for longer time periods, in its express contract with the homeowner, than that set forth in the actionable defects section. However, a builder may not limit the application of the actionable defects section, or lower its protection through the express contract with the homeowner. This type of express contract constitutes an “enhanced protection agreement.”
The election of a builder to provide an enhanced protection agreement must be made in writing with the homeowner no later than the close of escrow.
3. Statutes of Limitations: It provides for the following statutes of limitation for various defects:
1. One Year Inter-unit noise transmission; irrigation and drainage.
2. Two Years Untreated wood posts, landscaping, dryer ducts.
3. Four Years Electrical, plumbing, sewer, untreated steel fences.
4. Five Years Paint, stain.
5. Ten Years Everything else.
4. Handling of Claims: This law provides a procedure for handling of construction defect claims. These procedures place detailed requirements on both sides. Builders and buyers should consult with an attorney if they feel that they have a construction defect claim. The builder may offer alternative dispute procedures which must be communicated with buyer at close of escrow. If certain criteria are met, the builder must be given a chance to correct the defect, and there are provisions for mediation at various points prior to the buyer filing a lawsuit against the builder.
5. Obligations of Buyers and Sellers: Finally, this law places obligations on both builders and buyers.
A. Buyers: Buyers are obligated to follow all reasonable maintenance obligations and schedules which were communicated in writing to them by the Builder and by the product manufacturers, as well as commonly-accepted maintenance practices. A failure by a homeowner to follow these obligations, schedules, and practices may subject the homeowner to claims by the builder or product manufacturer that they are not liable for the resulting damages.
B. Builders: Builders are obligated to provide the following to the buyers at the time of the sale:
1. Copies of all maintenance and preventative maintenance recommendations made by the builder.
2. Copies of all manufactured products maintenance, preventive maintenance, and limited warranty information.
3. Provide a minimum one-year express written limited warranty covering all the items listed in the new law, or an enhanced protection agreement.
4. Copies of all of the builder’s limited contractual warranties, if any.
5. The name and address of the Builder’s agent for service of claims.
6. The name and address of any third party with whom a Builder contracts to accept claims and act on the builder’s behalf.
7. A notice signed by seller and acknowledged by buyer (that must be recorded) of the existence of the construction defect pre-litigation and litigation procedures in Title7 of Part 2 of Division 2 of the Civil Code commencing with Section 895, and that these procedures impact the legal rights of the homeowner.
8. Copy of the new law entitled, “Requirements for Actions for Construction Defects” which is at Civil Code Section 895 – 945.5.
9. Notice as to whether the builder intends to engage in a “nonadversarial procedure” as established in Title 7 of Part 2 of Division 2 of the Civil Code commencing with Section 895, or if builder elects to use an alternative mediation/arbitration procedure, and.
10 . Instruction to buyer to provide all these documents (1-9) to any subsequent buyer.
IV. Listing Properties for Re-Sale Which Were Sold as New Construction After January 1, 2003.
1. When taking re-sale listings from sellers on homes which were sold by a builder for the first time after January 1, 2003, be sure to ask your sellers for all of the above documents which sellers received from the builder at the time they purchased the property.
2. If the seller had received these documents but cannot locate them, the builder is obligated to provide copies at a reasonable reproduction cost.
3. Then, pass these documents to the buyer of the property along with other seller disclosure documents.
4. These documents should also be passed along to subsequent buyers when these buyers turn around and sell the property.
5. If the homeowner does not have the documents identified in items 1, 2 and 4, above, or if the homeowner wants to receive copies of the builder’s plans, specifications, mass or rough grading plans, final soils reports, Bureau of Real Estate Public Reports and available engineering calculations, they can be requested from the builder, who must provide them to the homeowner, at the homeowner’s expense, within 30 days of the request.
V. Seller and Buyer Advisory: Attached is an Advisory which can be given to sellers and buyers in those transactions where SB 800/Title 7 applies. Note that this is an Advisory and is not a part of the contract.
VI. SB 800/Title 7 is a long, detailed and complex law. Builders should be referred to their attorney as to their obligations and how to comply. Homeowners of new homes, which were sold for the first time after January 1, 2003, and their subsequent buyers, should likewise be advised to consult attorneys regarding their rights in the event of a claimed defect after close of escrow.
For further information see CAR Legal Memos:
“New Home Disclosure Chart” at:
http://www.car.org/riskmanagement/disclosure-charts/newhomedischart/
“SB 800: California’s Construction Defect Law” at:
http://www.car.org/riskmanagement/qa/miscellaneous-folder/sb800-construction-defect/
DO NOT FORWARD TO SELLERS OR BUYERS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
(INSERT BROKER NAME)
ADVISORY REGARDING CALIFORNIA’S
NEW CONSTRUCTION DEFECT LAW
BACKGROUND: A California law covering new construction defects, warranties and dispute resolution, which went into effect January 1, 2003, made significant changes in the rights and duties of home builders and buyers. The law applies to the sale of new residential units on and after January 1, 2003. Persons covered under this new law include individual owners of single-family homes, individual unit owners of attached dwellings and, in the case of common interest subdivisions, any homeowners’ association. This law is variously referred to as “SB 800,” “Title 7” and the “Fix-it” law.
This new law applies to any newly-built home, or any newly-built unit in a condominium or common interest development built by a “Builder.” “Builder” is defined as a builder, developer, general contractor, contractor, or original seller, who, at the time of sale, was also in the business of selling residential units to the public for the property; or was in the business of building, developing, or constructing residential units for public purchase. Excluded from the definition of “Builder” are contractors, sub-contractors and design professionals who are not affiliated with the “Builder” other than as the contractor or design professional on the property.
WHAT THE LAW DOES: This long and complex legislation has many components, but essentially does five things:
1) It defines what constitutes construction and design defects. These are broken down into water issues, structural issues, soil issues, fire protection issues, plumbing and sewer issues, electrical issues, and other areas of construction.
2) It requires a builder to provide a minimum limited one-year warranty as to fit and finish of cabinets, mirrors, flooring, interior and exterior walls, countertops, paint finishes and trim. This limited warranty applies whether or not it is actually granted by the builder to the buyer. A builder can provide a longer or more inclusive warranty, but it cannot be less than the above.
3) It establishes statutes of limitation of varying lengths for buyers to make claims for defects, as follows (Note: Only an attorney can determine whether a particular statute of limitations will apply to any specific claim):
· One Year Inter-unit noise transmission; irrigation and drainage
· Two Years Untreated wood posts, landscaping, dryer ducts
· Four Years Electrical, plumbing, sewer, untreated steel fences,
exterior pathways, driveways, sidewalks, patios
· Five Years Paint, stain
· Ten Years Everything else
4) It provides a procedure for handling of construction defect claims. These procedures place detailed requirements on both sides. A builder may offer alternative dispute procedures which must be communicated to the buyer at close of escrow.
5) Finally, the new law places obligations on both builders and buyers, as follows:
Buyer’s Obligations: Buyers are obligated to follow all reasonable maintenance obligations and schedules which were communicated in writing to them by the builder and product manufacturers, as well as commonly-accepted maintenance practices. Buyers must also follow certain specified prelitigation procedures for any claims against the Builder.
Builder’s Obligations: Builders are obligated to provide the following to buyers at the time of sale:
a) Copies of all maintenance and preventative maintenance recommendations by the builder.
b) Copies of all manufactured product maintenance, preventive maintenance, and limited warranty information.
c) A minimum one-year express written limited warranty covering all the items listed in the new law and, if adopted, an enhanced protection agreement.
d) Copies of all of the builder’s limited contractual warranties, if any.
e) The name and address of the builder’s agent for notice of claims, and the name and address of any third party with whom a builder contracts to accept claims and act on the builder’s behalf.
f) A notice signed by the seller, and recorded on title, regarding the existence of the construction defect pre-litigation and litigation procedures spelled out in the new law, as well as the fact that these procedures impact the buyer’s legal rights. This shall be initialed and acknowledged by buyer and builder’s agent.
g) A copy of this new law (which starts at Civil Code Section 895).
h) Notice as to whether the builder intends to engage in an Alternative Non-adversarial Contractual Provisions as established in this new law to resolve claims, or if the builder elects to use an alternative mediation/arbitration procedure.
i) Instruction to the buyer to provide all of the above documents to any subsequent buyer
NOTE: This is a brief summary of a long and complex set of laws and may not be relied upon as legal advice by any individual nor for any specific fact situation. Builders must consult with their attorney as to their obligations and how to comply with the law. Homeowners of new residential properties, which were sold for the first time after January 1, 2003, and subsequent purchasers of those properties, should likewise consult their own attorney regarding warranties, and their rights in the event of a claimed defect after close of escrow.
The undersigned Sellers or Buyers acknowledge receipt of this Advisory:
___________________________________ _______________, 201_
Seller
___________________________________ _______________, 201_
Seller
___________________________________ _______________, 201_
Buyer
___________________________________ _______________, 201_
Buyer