Existing law specifies the requirements for actions for construction defects. Existing law includes a statute of limitations that, except as specified, prohibits an action from being brought to recover under these provisions more than 10 years after substantial completion of the improvement but no later than the date the notice of completion is recorded. defects and includes a nonadversarial procedure for the parties to resolve the dispute. Existing law requires, as part of this nonadversarial procedure, a builder who elects to inspect a claim of unmet building standards to meet certain requirements for the inspection.

This bill would shorten the 10-year period to 5 years. require that an inspection for purposes of the above-described provisions be conducted by a person who is licensed as a contractor with a license that applies to the field and scope in which the person is conducting the inspection and issuing his or her inspection findings or report.

Existing law specifies the requirements for actions for construction defects. Existing law includes a statute of limitations that, except as specified, prohibits an action from being brought to recover under these provisions more than 10 years after substantial completion of the improvement but no later than the date the notice of completion is recorded.

This bill would shorten the 10-year period to 5 years.

 THIRD READING 

Bill No: AB 2353

Author: Frazier (D)

Amended: 5/10/18 in Assembly

Vote: 21

SENATE JUDICIARY COMMITTEE: 7-0, 7/3/18

AYES: Jackson, Moorlach, Anderson, Hertzberg, Monning, Stern, Wieckowski

ASSEMBLY FLOOR: 71-0, 5/25/18 - See last page for vote

SUBJECT: Construction defects: actions

SOURCE: California Community Builders

DIGEST:

This bill requires inspectors conducting pre-litigation inspections on residential property with alleged defects to be licensed by the Contractors State License Board (CSLB), unless the inspection requires the use of a specialized subject-matter expert.

ANALYSIS:

Existing law:

1. Provides construction defect liability standards for newly constructed housing and a pre-trial process for the resolution of disputes regarding construction defects or violations of building standards. (Civ. Code Sec. 895 et seq.)
2. Requires a claimant under this process to provide a written notice by mail to the builder, as specified, that alleges the violation and describes the claim in reasonable detail sufficient to determine the nature and location, to the extent known, of the claimed violation. (Civ. Code Sec. 910.)
3. Requires the builder to acknowledge, in writing, receipt of the notice within 14 days of receiving the claim. (Civ. Code Sec. 913.)
4. Provides that if a builder elects to inspect the claimed unmet standards, the builder must complete the initial inspection within 14 days after acknowledgement of receipt of the notice of the claim, as specified. Existing law also provides that if the builder deems a second inspection reasonably necessary, and specifies the reasons therefor in writing within three days following the initial inspection, the builder may conduct a second inspection or testing, as specified. (Civ. Code Sec. 916(a) & (c).)
5. Provides that within 30 days of the final inspection, the builder may offer in writing to repair the violation, as specified. (Civ. Code Sec. 917.) Upon receipt of the offer, the homeowner has 30 days to authorize the builder to proceed with the repair, as specified. (Civ. Code Sec. 918.) Existing law also provides that a builder may make a cash offer in lieu of repair. (Civ. Code Sec. 929(a).)
6. Provides that if a builder fails to acknowledge receipt of the notice of a claim within the time specified, elects not to use the pre-litigation process, or fails to request an inspection within the time specified, the pre-litigation process no longer applies, and the homeowner may proceed with the filing of a civil action. (Civ. Code Sec. 915.)

This bill:

1. Requires an inspection under this process to be conducted by a person who is licensed by the CSLB, and whose license applies to the field and scope in which the person is conducting the inspection and issuing inspection findings or a report.
2. Provides that the provision described immediately above does not preclude a subject matter expert in the field or scope of the inspection who is not a licensed contractor from conducting the inspection and issuing inspection findings or a report when the subject matter of the inspection requires it.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 7/27/18)

California Community Builders (source)

Associated Builders and Contractors, Inc.

Associated General Contractors of California

Building Owners and Managers Association

California Building Industry Association

California Business Properties Association

California Chamber of Commerce

Civil Justice Association of California

Commercial Real Estate Development Association of California

Construction Employers Association

International Council of Shopping Centers

Plumbing-Heating-Cooling Contractors Association of California

Southern California Contractors Association

Western Electrical Contractors Association

OPPOSITION: (Verified 7/27/18)

None received

ARGUMENTS IN SUPPORT: The author writes:

California is facing a dire housing crisis which is exacerbated by costs associated with construction defect lawsuits and escalating costs of obtaining insurance to protect against construction defect claims. The fact that predatory class action-like lawyers are able to mobilize and target groups of people for a full 10 years after the housing project is complete while using un-licensed inspectors increases the likelihood of capricious lawsuits. Furthermore, under existing law, a homeowner does not even need to prove any damage to his/her house when filing a claim. The housing market most impacted by construction defect litigation is the condo market. In many areas, builders cannot obtain the insurance that is necessary to protect against claims filed against a condo. As condos are an immensely affordable type of housing, the state needs to encourage their production and make it more cost-effective to do so.

A coalition of organizations that support the bill writes:

California’s construction defect laws, while heavily negotiated over a decade ago, still pose difficulties for homebuilders. This bill as amended does not upend those negotiations. Instead, AB 2353 hones in on one particular abuse of the system… namely, construction defect claims based on the assessment of untrained and unlicensed inspectors.

These inspectors can make any claims they wish and, under the SB 800 process, there is no requirement that they prove any damages in many instances. These baseless claims are responsible for countless hours and dollars in the SB 800 process—builders must sort through the claims, make repairs—even cosmetic ones, and sometimes simply settle eve if the claims are unfounded. This process not only adds cost on the construction, repair and legal fronts, but also on the insurance front. All of these additional costs contribute to skyrocketing home prices, and make the dream of ownership even more out of reach for many.

By requiring that any inspection pursuant to the SB 800 process be conducted by someone licensed by the Contractors State License Board in the field in which they are conducting an inspection, AB 2353 will help ensure that only real construction defect claims need to be dealt with and repaired.

ASSEMBLY FLOOR: 71-0, 5/25/18

AYES: Acosta, Aguiar-Curry, Baker, Berman, Bigelow, Bloom, Bonta, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Rodriguez, Rubio, Salas, Santiago, Mark Stone, Thurmond, Ting, Voepel, Weber, Wood, Rendon

NO VOTE RECORDED: Travis Allen, Arambula, Brough, Levine, Mullin, Steinorth, Waldron

Prepared by: Josh Tosney / JUD. / (916) 651-4113

8/8/18 9:49:28

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2017-2018 Regular Session

Bill No: AB 2353 (Author:Frazier)

Version: May 10, 2018

Hearing Date: July 3, 2018

Fiscal: No

Urgency: No

Consultant: JDT

SUBJECT

Construction defects: actions

DESCRIPTION

This bill would require inspectors conducting pre-litigation inspections on residential property with alleged defects to be licensed by the Contractors State License Board (CSLB), unless the inspection requires the use of a specialized subject-matter expert.

BACKGROUND

In 2002, the Legislature enacted SB 800 (Burton, Ch. 722, Stats. 2002) in response to concerns expressed by builders and insurers over the costs associated with construction defect litigation, as well as concerns expressed by homeowners and their advocates over the effects of a California Supreme Court decision that held that defects must cause actual damage to be actionable in tort. (See Aas v. Superior Court (2000) 24 Cal.4th 627.)

SB 800 established a pre-litigation procedure in which a homeowner must present a notice of claimed defects to a builder, who is given the opportunity to correct the defect. The builder may inspect the alleged defects and must complete that inspection within 14 days after acknowledging receipt of the notice of the defects. Within 30 days of the final inspection, the builder must choose one of three options:

1. make no settlement offer and allow litigation to proceed;
2. make a settlement offer; or
3. offer to repair the defects.

This bill would require an inspection under this process to be conducted by a person licensed by the CSLB, and whose license applies to the field and scope in which the person is conducting the inspection and issuing inspection findings or a report. The bill would also provide that it does not preclude a subject matter expert in the field or scope of the inspection who is not a licensed contractor from conducting the inspection and issuing inspection findings or a report when the subject matter of the inspection so requires.

CHANGES TO EXISTING LAW

Existing law provides construction defect liability standards for newly constructed housing and a pre-trial process for the resolution of disputes regarding construction defects or violations of building standards. (Civ. Code Sec. 895 et seq.)

Existing law requires a claimant under this process to provide a written notice by mail to the builder, as specified, that alleges the violation and describes the claim in reasonable detail sufficient to determine the nature and location, to the extent known, of the claimed violation. (Civ. Code Sec. 910.)

Existing law requires the builder to acknowledge, in writing, receipt of the notice within 14 days of receiving the claim. (Civ. Code Sec. 913.)

Existing law provides that if a builder elects to inspect the claimed unmet standards, the builder must complete the initial inspection within 14 days after acknowledgement of receipt of the notice of the claim, as specified. Existing law also provides that if the builder deems a second inspection reasonably necessary, and specifies the reasons therefor in writing within three days following the initial inspection, the builder may conduct a second inspection or testing, as specified. (Civ. Code Sec. 916(a) & (c).)

Existing law provides that within 30 days of the final inspection, the builder may offer in writing to repair the violation, as specified. (Civ. Code Sec. 917.) Upon receipt of the offer, the homeowner has 30 days to authorize the builder to proceed with the repair, as specified. (Civ. Code Sec. 918.) Existing law also provides that a builder may make a cash offer in lieu of repair. (Civ. Code Sec. 929(a).)

Existing law provides that if a builder fails to acknowledge receipt of the notice of a claim within the time specified, elects not to use the pre-litigation process, or fails to request an inspection within the time specified, the pre-litigation process no longer applies, and the homeowner may proceed with the filing of a civil action. (Civ. Code Sec. 915.)

This bill would require an inspection under this process to be conducted by a person who is licensed by the CSLB, and whose license applies to the field and scope in which the person is conducting the inspection and issuing inspection findings or a report.

This bill would also provide that the provision described immediately above does not preclude a subject matter expert in the field or scope of the inspection who is not a licensed contractor from conducting the inspection and issuing inspection findings or a report when the subject matter of the inspection requires it.

COMMENT

1. Stated need for the bill

The author writes:

California is facing a dire housing crisis which is exacerbated by costs associated with construction defect lawsuits and escalating costs of obtaining insurance to protect against construction defect claims. The fact that predatory class action-like lawyers are able to mobilize and target groups of people for a full 10 years after the housing project is complete while using un-licensed inspectors increases the likelihood of capricious lawsuits. Furthermore, under existing law, a homeowner does not even need to prove any damage to his/her house when filing a claim. The housing market most impacted by construction defect litigation is the condo market. In many areas, builders cannot obtain the insurance that is necessary to protect against claims filed against a condo. As condos are an immensely affordable type of housing, the state needs to encourage their production and make it more cost-effective to do so.

2. Ensures inspections of allegations of defects are conducted by experts

Existing law establishes a pre-litigation procedure in which a homeowner must present a notice of claimed defects to a builder, who is given the opportunity to correct the defect. The builder may inspect the alleged defects and must complete that inspection within 14 days after acknowledging receipt of the notice of the defects. The builder may conduct a second inspection if the builder deems it necessary and provides the owner with a written explanation of the reasons for the second inspection. Within 30 days of the final inspection, the builder must choose one of three options:

1. make no settlement offer and allow litigation to proceed;
2. make a settlement offer; or
3. offer to repair the defects.

After acknowledging receipt of a notice of a claimed defect, if a builder elects to inspect the claimed defect, this bill would require that the inspection be conducted by a person who is licensed by the CSLB, and whose license applies to the field and scope of the issue being inspected. This requirement would help ensure that qualified individuals inspect alleged defects, potentially reducing the number of frivolous claims.

Importantly, the bill would also provide that it does not preclude a subject matter expert in the field or scope of the inspection who is not a licensed contractor from conducting the inspection and issuing inspection findings or a report when the subject matter of the inspection so requires. This would ensure that if the defect requires inspection by a highly-specialized expert whose area of expertise is not covered under licenses granted by the CSLB, such experts are not precluded by the bill’s provisions from conducting an inspection pursuant to the SB 800 process.

A coalition of organizations that support the bill writes:

California’s construction defect laws, while heavily negotiated over a decade ago, still pose difficulties for homebuilders. This bill as amended does not upend those negotiations. Instead, AB 2353 hones in on one particular abuse of the system… namely, construction defect claims based on the assessment of untrained and unlicensed inspectors.

These inspectors can make any claims they wish and, under the SB 800 process, there is no requirement that they prove any damages in many instances. These baseless claims are responsible for countless hours and dollars in the SB 800 process—builders must sort through the claims, make repairs—even cosmetic ones, and sometimes simply settle eve if the claims are unfounded. This process not only adds cost on the construction, repair and legal fronts, but also on the insurance front. All of these additional costs contribute to skyrocketing home prices, and make the dream of ownership even more out of reach for many.

By requiring that any inspection pursuant to the SB 800 process be conducted by someone licensed by the Contractors State License Board in the field in which they are conducting an inspection, AB 2353 will help ensure that only real construction defect claims need to be dealt with and repaired.

Support: Associated Builders and Contractors, Inc.; Associated General Contractors of California; Building Owners and Managers Association; California Building Industry Association; California Business Properties Association; California Chamber of Commerce; Civil Justice Association of California; Commercial Real Estate Development Association of California; Construction Employers Association; International Council of Shopping Centers; Plumbing-Heating-Cooling Contractors Association of California; Southern California Contractors Association; Western Electrical Contractors Association

Opposition: None Known

HISTORY

Source: California Community Builders

Related Pending Legislation: None Known

Prior Legislation: SB 800 (Burton, Ch. 722, Stats. 2002). See Background.

Prior Vote:

Assembly Floor (Ayes 71, Noes 0)

Assembly Judiciary Committee (Ayes 10, Noes 0)

**************

ASSEMBLY THIRD READING

ATR Bill Id:AB 2353

Author:(Frazier)

As Amended Ver:May 10, 2018

Majority vote

SUMMARY: Ensures that inspectors conducting pre-litigation inspections on residential property at which a construction defect is alleged are licensed by the Contractor's State Licensing Board, unless the inspection requires the use of a subject-matter expert. Specifically, this bill:

1. Provides that a pre-litigation inspection conducted pursuant to pre-litigation procedures of residential construction defects laws must be conducted by at least one person licensed by the Contractor's State Licensing Board with a license that applies to the field and scope in which the person is conducting the inspection and issuing inspection findings or a report.
2. Provides that, nothing in the bill would preclude a subject matter expert in the field and scope of the inspection who is not licensed pursuant to the Contractor's State License Law from conducting the inspection and issuing inspection findings or a report when the subject matter of the inspection requires such expertise.

EXISTING LAW:

1. Provides that in an action seeking recovery of damages arising out of, or related to deficiencies in, the residential construction, design, specifications, surveying, planning, supervision, testing, or observation of construction, the claimant's claims or causes of action shall be limited to violations of established standards for the following:
   1. Water issues, including leaks;
   2. Structural issues;
   3. Soil issues;
   4. Fire protection issues;
   5. Plumbing and sewer issues;
   6. Electrical system issues; and
   7. Other general construction issues including sidewalks and hardways, stucco and exterior finishes, and products manufactured by third parties. (Civil Code Section (CIV) 896.)
2. Provides the statute of limitations for deficiencies is the following:
   1. For plumbing and sewer systems no action may be brought for a violation more than four years after close of escrow (CIV 896(e));
   2. For electrical systems no action may be brought for a violation more than four years from the close of escrow (CIV 896(f));
   3. For exterior pathways, driveways, hardscape, sidewalls, sidewalks, and patios installed by the original builder no action may be brought for a violation more than four years from the close of escrow (Code of Civil Procedure Section (CCP) 896(g)(1));
   4. For inter-unit noise transmission standards no action may be brought for a violation more than one year from the original occupancy of the adjacent unit (CCP 896(g)(6));
   5. For irrigation systems and drainage no action may be brought for a violation more than one year from the close of escrow (CIV 896(g)(7));
   6. For wood posts no action may be brought for a violation more than two years from the close of escrow (CIV 896(g)(8));
   7. For steel fences and adjacent components no action may be brought for a violation more than four years from the close of escrow (CIV 896(g)(9));
   8. For paints and stains no action may be brought for a violation more than five years from the close of escrow (CIV 896(g)(10));
   9. For landscaping systems no action may be brought for a violation more than two years from the close of escrow (CIV 896(g)(12)); and
   10. For dryer ducts no action may be brought for a violation more than two years from the close of escrow (CIV 896(g)(14)).
3. Provides that prior to filing an action for economic or property damages related to the standards provided in 1), a claimant must provide a second inspection or testing reasonably necessary, and specifies the reasons therefor in writing within three days following the initial inspection, the builder may conduct a second inspection or testing. A second inspection or testing shall be completed within 4 ide written notice via certified mail, overnight mail, or personal delivery to the builder and shall describe the claim in reasonable detail sufficient to determine the nature and location, to the extent known, of the claimed violation. (CIV 910.)
4. Provides that within 30 days of a written request by a claimant or their legal representative, the builder shall provide copies of all relevant plans, specifications, mass or rough grading plans, final soils reports, Bureau of Real Estate public reports, and available engineering calculations, that pertain to a homeowner's residence specifically or as part of a larger development tract. (CIV 912.)
5. Requires a builder or their representative to acknowledge, in writing, receipt of the notice of the claim within 14 days after receipt of the notice of the claim. (CIV 913.)
6. Establishes a non-adversarial procedure for remedying a defect of the standard provided in 1), including the right to inspect and repair potential defects alleged by the claimant. (CIV 914.)
7. Provides that if a builder elects to inspect the claimed unmet standards, the builder shall complete the initial inspection and testing within 14 days after acknowledgment of receipt of the notice of the claim, at a mutually convenient date and time and requires the builder, upon request, to allow the inspections to be observed and electronically recorded, video recorded, or photographed by the claimant or the claimant's legal representative. (CIV 916(a).)
8. Provides that if a builder deems a second inspection or testing reasonably necessary, and specifies the reasons in writing within three days following the initial inspection, the builder may conduct a second inspection or testing. A second inspection or testing shall be completed within 40 days of the initial inspection or testing. All requirements concerning the initial inspection or testing shall also apply to the second inspection or testing. (CIV 916(c).)
9. Provides that, within 30 days of the initial or, if requested, second inspection or testing, the builder may offer in writing to repair the violation. (CIV 917.)
10. Provides that no action to recover economic or property damages for a construction defect at a residential property may be brought more than 10 years after substantial completion of the improvement but not later than the date of recordation of a valid notice of completion, unless otherwise provided by 2) above. (CIV 941.)
11. Provides that the provisions, standards, and rights discussed in 1) through 10) apply to all original purchasers and their successors-in-interest and that specified homeowners associations shall be considered to be original purchasers and shall have standing to enforce the provisions, standards, rights, and obligations discussed in 1) through 10). (CIV 945.)

FISCAL EFFECT: None

COMMENTS: Existing construction defect law provides builders with a right to repair defects that result in damage to property. As a part of that process, the builder has a right to inspect the alleged defect, and repair any problems before a homeowner or homeowners association can file a lawsuit. This bill would ensure that all pre-inspection work is conducted by a licensed contractor or a subject-matter expert with specialized knowledge in the area of the alleged defect, for example a licensed geologist or structural engineer.

Existing law provides no guidelines on who may conduct a pre-litigation inspection, and thus the existing law permits maintenance workers, and other unqualified persons, or non-licensed contractors to conduct inspections. The author contends that inspections conducted by persons lacking the proper training and licensing to analyze potential construction related issues results in inspection reports that improperly identify the cause of harm to a property and drives up the rate of unnecessary construction defect litigation.

Accordingly, this bill seeks to ensure that pre-litigation inspections produce accurate results that will avoid unnecessary construction defect litigation. While it is unclear how many parties currently use unqualified inspectors, especially if the parties believe that the inspector may later be needed to testify as an expert witness during adjudication, this bill should nonetheless improve the quality of inspections being conducted pursuant to existing law.

Analysis Prepared by: Nicholas Liedtke / JUD. / (916) 319-2334 FN: 0002898

Date of Hearing: May 8, 2018

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

ABPCA Bill Id:AB 2353

Author:(Frazier) – As Introduced Ver:February 13, 2018

As Proposed to be Amended

SUBJECT: Construction defects: pre-litigation inspections

KEY ISSUE: SHOULD INSPECTORS CONDUCTING PRE-LITIGATION INSPECTIONS PURSUANT TO AN ALLEGED CONSTRUCTION DEFECT BE REQUIRED TO BE LICENSED BY THE CONTRACTOR’S STATE LICENSING BOARD, UNLESS THE INSPECTION NECESSITATES THE USE OF A SUBJECT-MATTER EXPERT?

SYNOPSIS

This bill, as proposed to be amended, seeks to reduce the quantity of construction defect litigation by ensuring that pre-litigation inspections of alleged construction defects are performed by a contractor licensed by the Contractor's State Licensing Board, or, if necessary, a qualified subject matter expert. The author contends that eliminating unqualified inspectors will reduce litigation, thereby lowering builder’s insurance and legal costs, which the author hopes will provide more capital for builders and contractors to use in constructing more of the affordable housing units that California desperately needs.

This unique approach to tackling California’s affordable housing crisis touches on an area of construction defect law that was the result of a compromise forged after months of contentious negotiations nearly 15 years ago which produced California’s existing residential property construction defect statutes. Due to the delicate balance struck during those negotiations, reforms to the existing statutory structure have been exceedingly rare. Nonetheless, as proposed to be amended, this bill appears to strike a sufficient balance such that the stakeholders can accept this bill’s reforms to ensure that pre-litigation inspections are conducted by qualified experts. Although most parties have indicated to Committee staff that the amendments are likely to remove opposition, the author will want to continue to work on any changes necessary to ensure that the bill’s intent is carried out properly.

SUMMARY: Ensures that inspectors conducting pre-litigation inspections on residential property at which a construction defect is alleged are licensed by the Contractor's State Licensing Board, unless the inspection requires the use of a subject-matter expert. Specifically, this bill:

1. Provides that a pre-litigation inspection conducted pursuant to pre-litigation procedures of residential construction defects laws must be conducted by at least one person licensed by the Contractor’s State Licensing Board with a license that applies to the field and scope in which the person is conducting the inspection and issuing inspection findings or a report.
2. Provides that, nothing in 1) precludes subject matter experts in the field and scope of the inspection who are not licensed pursuant to the Contractor’s State License Law from conducting the inspection and issuing inspection findings or a report when the subject matter of the inspection requires it.

EXISTING LAW:

1. Provides that in an action seeking recovery of damages arising out of, or related to deficiencies in, the residential construction, design, specifications, surveying, planning, supervision, testing, or observation of construction, the claimant’s claims or causes of action shall be limited to violations of established standards for the following:
   1. Water issues, including leaks;
   2. Structural issues;
   3. Soil issues;
   4. Fire protection issues;
   5. Plumbing and sewer issues;
   6. Electrical system issues; and
   7. Other general construction issues including sidewalks and hardways, stucco and exterior finishes, and products manufactured by third parties. (Civil Code Section 896.)
2. Provides the statute of limitations for deficiencies is the following:
   1. For plumbing and sewer systems no action may be brought for a violation more than four years after close of escrow (Civil Code Section 896 (e));
   2. For electrical systems no action may be brought for a violation more than four years from the close of escrow (Civil Code Section 896 (f));
   3. For exterior pathways, driveways, hardscape, sidewalls, sidewalks, and patios installed by the original builder no action may be brought for a violation more than four years from the close of escrow (Code of Civil Procedure Section 896 (g)(1));
   4. For inter-unit noise transmission standards no action may be brought for a violation more than one year from the original occupancy of the adjacent unit (Code of Civil Procedure Section 896 (g)(6));
   5. For irrigation systems and drainage no action may be brought for a violation more than one year from the close of escrow (Civil Code Section 896 (g)(7));
   6. For wood posts no action may be brought for a violation more than two years from the close of escrow (Civil Code Section 896 (g)(8));
   7. For steel fences and adjacent components no action may be brought for a violation more than four years from the close of escrow (Civil Code Section 896 (g)(9));
   8. For paints and stains no action may be brought for a violation more than five years from the close of escrow (Civil Code Section 896 (g)(10));
   9. For landscaping systems no action may be brought for a violation more than two years from the close of escrow (Civil Code Section 896 (g)(12)); and
   10. For dryer ducts no action may be brought for a violation more than two years from the close of escrow (Civil Code Section 896 (g)(14)).
3. Provides that prior to filing an action for economic or property damages related to the standards provided in 1), a claimant must provide written notice via certified mail, overnight mail, or personal delivery to the builder and shall describe the claim in reasonable detail sufficient to determine the nature and location, to the extent known, of the claimed violation. (Civil Code Section 910.)
4. Provides that within 30 days of a written request by a claimant or their legal representative, the builder shall provide copies of all relevant plans, specifications, mass or rough grading plans, final soils reports, Bureau of Real Estate public reports, and available engineering calculations, that pertain to a homeowner’s residence specifically or as part of a larger development tract. (Civil Code Section 912.)
5. Requires a builder or their representative to acknowledge, in writing, receipt of the notice of the claim within 14 days after receipt of the notice of the claim. (Civil Code Section 913.)
6. Establishes a non-adversarial procedure for remedying a defect of the standard provided in 1), including the right to inspect and repair potential defects alleged by the claimant. (Civil Code Section 914.)
7. Provides that if a builder elects to inspect the claimed unmet standards, the builder shall complete the initial inspection and testing within 14 days after acknowledgment of receipt of the notice of the claim, at a mutually convenient date and time and requires the builder, upon request, to allow the inspections to be observed and electronically recorded, video recorded, or photographed by the claimant or the claimant’s legal representative. (Civil Code Section 916 (a).)
8. Provides that if a builder deems a second inspection or testing reasonably necessary, and specifies the reasons in writing within three days following the initial inspection, the builder may conduct a second inspection or testing. A second inspection or testing shall be completed within 40 days of the initial inspection or testing. All requirements concerning the initial inspection or testing shall also apply to the second inspection or testing. (Civil Code Section 916 (c).)
9. Provides that, within 30 days of the initial or, if requested, second inspection or testing, the builder may offer in writing to repair the violation. (Civil Code Section 917.)
10. Provides that no action to recover economic or property damages for a construction defect at a residential property may be brought more than 10 years after substantial completion of the improvement but not later than the date of recordation of a valid notice of completion, unless otherwise provided by 2). (Civil Code Section 941.)
11. Provides that the provisions, standards, and rights discussed in 1) through 10) apply to all original purchasers and their successors-in-interest and that specified homeowners associations shall be considered to be original purchasers and shall have standing to enforce the provisions, standards, rights, and obligations discussed in 1) through 10). (Civil Code Section 945.)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: This bill seeks to improve the professional qualifications of the persons conducting inspections of residential property prior to formal litigation surrounding alleged construction defects. The author believes that existing law permits maintenance workers and other unqualified persons or non-licensed contractors to conduct inspections and that these unlicensed inspectors result in an increased likelihood of construction defect litigation.

Existing law provides builders with a right to repair defects that result in damage to property. As a part of that process, the builder has a right to inspect the alleged defect, and as proposed to be amended, this bill would ensure that during the pre-litigation inspection process, all inspection work is conducted by a licensed contractor or a subject-matter expert with specialized knowledge in the area of the alleged defect, for example a licensed geologist or structural engineer.

Author’s Statement. The author asserts that when unqualified parties conduct inspections of potentially defective construction of residential properties, the inspection results may not be adequate. These inadequate findings thereby result in greater occurrences of construction defect litigation. The author seeks to reduce the amount of construction defect litigation with the hope that such a reduction would lead to a corresponding reduction in insurance and legal costs for builders, which may then spur increased construction of affordable housing, particularly condominiums. While this premise is reasonable, the existing evidence on the correlation between a reduction in legal fees or insurance premiums and a subsequent increase in the construction of affordable housing is mostly anecdotal. In support of this measure the author states:

California is facing a dire housing crisis which is exacerbated by costs associated with construction defect lawsuits and escalating costs of obtaining insurance to protect against construction defect claims. The fact that predatory class action-like lawyers are able to mobilize and target groups of people for a full 10 years after the housing project is complete while using un-licensed inspectors increases the likelihood of capricious lawsuits. Furthermore, under existing law, a homeowner does not even need to prove any damage to his/her house when filing a claim. The housing market most impacted by construction defect litigation is the condo market. In many areas, builders cannot obtain the insurance that is necessary to protect against claims filed against a condo. As condos are an immensely affordable type of housing, the state needs to encourage their production and make it more cost-effective to do so.

The existing framework for most residential construction defects was the result of extensive debate and compromise. The existing statutory scheme for resolving most residential construction defect related disputes was the result of extensive, and contentious, negotiations between homeowners, legal groups, builders, and insurance organizations. The compromise these groups reached was codified in 2002 by SB 800 (Burton, Chap. 722, Stats. 2002) and is now reflected in Civil Code Sections 895 through 945.5. That statutory scheme created a defined list of minimum building standards for residential construction and provided that the failure to meet the standard was a defect. The existing law provides a claimant 10 years to file most claims, with numerous specific statutes of limitation provided for individual types of defects. Most notably, the existing law also provides builders with the right to inspect and repair the alleged defects in a non-adversarial process, with the goal of reducing potential litigation.

As a part of the right to repair process, a claimant must provide the builder with notice of their intent to file a defect claim. These notices are typically based on inspections or findings commissioned by the homeowner after they discover a potential issue. Upon receiving notice from a claimant, the builder is entitled to inspect the alleged defect up to two times, should the builder believe such inspections are necessary. These inspections are designed to enable the builder to ascertain the scope and validity of the alleged defect, and to enable the builder to offer to repair the property prior to the commencement of litigation. In general, the 2002 compromise agreement has provided a helpful framework for adjudicating construction defect claims.

Proposed amendments seek to ensure that property inspections are conducted by properly trained experts. The author contends that inspections of potential construction defects are frequently conducted by persons lacking the proper training and licensing to properly analyze potential construction related issues. To remedy this issue, as proposed to be amended, this bill would require pre-litigation inspections to be conducted by a contractor licensed by the Contractor's State Licensing Board, or a subject matter expert if the nature of the alleged defect requires the utilization of such expertise.

In proposing these amendments, the author seeks to ensure that pre-litigation inspections produce accurate results that will avoid unnecessary construction defect litigation. While it is unclear how many parties currently use unqualified inspectors, especially if the parties believe that the inspector may later be needed to testify as an expert witness during adjudication, this bill should nonetheless improve the quality of inspections being conducted pursuant to existing law.

Construction defects, condo development, and affordable housing. This bill is sponsored by the California Community Builders, who argue that condominiums provide a legitimate means to deploy a large numbers of housing units that can be purchased at reasonable prices. Beyond affordability, in order to achieve the land use planning objectives necessary to meet California’s climate change goals, limiting urban sprawl will be critical. One avenue for limiting sprawl includes building multi-story condominium complexes in urbanized areas, thereby limiting California’s historic tendency to convert open space lands into tract housing developments. To the extent that this bill assists in promoting smart growth and affordable housing this bill aligns well with existing state policies.

However, looking outside of California, recent state measures seeking to limit the ability for condominium owners or homeowner associations to seek redress for construction defects do not necessarily lower construction costs, and yet succeed in limiting residents ability to recover costs for remedying defects. Following the enactment of construction defect reform in Colorado in 2017, the Denver Post noted that the measure was likely to have mixed results. It was suggested that in Colorado, much like in California, “labor shortages and local building impact fees charged by cities and towns,” are equally detrimental to new development. (Aguilar, John. Measure to Spur Condo Construction Finally Passes, but It's Not "a Magic Bullet." The Denver Post. 4 May 2017.) While this bill, as proposed to be amended, makes a common sense, and relatively minor, modification to existing law, future measures to limit homeowners’ ability to recover for defects in the name of affordable housing should be careful to avoid shifting costs onto the buyers of affordable housing.

Ongoing discussions may further refine measure. This bill, as proposed to be amended, reflects a tacit understanding between some of the parties to the 2002 agreement. The author states that the amendments are intended to encompass all inspections in the run-up to litigation involving construction defect. Several stakeholders are still reviewing the full scope of the applicability of these amendments. Accordingly, the author should continue to work with stakeholders to ensure that the bill reflects a workable set of improvements to the existing pre-litigation process involving construction defects.

REGISTERED SUPPORT / OPPOSITION:

Support (bill as in print)

California Community Builders (sponsor)

Associated Builders and Contractors, Inc. - Northern California Chapter

Associated Builders and Contractors, Inc. - San Diego, Southern California, Central California Chapters

Associated General Contractors of California

Building Owners and Managers Association

California Building Industry Association

California Business Properties Association

California Chamber of Commerce

California Legislative Conference of the Plumbing Heating, and Piping Industry

California Professional Association of Specialty Contractors

Civil Justice Association of California

Commercial Real Estate Development Association of California

Construction Employers Association

International Council of Shopping Centers

National Electrical Contractors Association, California Chapters

Northern California Allied Trades

Plumbing-Heating-Cooling Contractors Association of California

Southern California Contractors Association

Union Roofing Contractors Association

United Contractors

Wall and Ceiling Alliance

Western Electrical Contractors Association

Western Wall and Ceiling Contractors Association

Opposition (bill as in print)

Community Associations Institute of California

Consumer Attorneys of California

Housing and Economic Rights Advocates

Analysis Prepared by: Nicholas Liedtke / JUD. / (916) 319-2334