A New Wrinkle In Time To Claim Construction Defects

A few years back I wrote a DJC article advising parties contracting for construction to contractually specify their own particular statute of limitation and/or repose periods on claims in response to Oregon’s ever evolving and multi-tiered law on the subject. The February 2016 Oregon Supreme Court ruling in Schell v. The Schollander Companies, Inc., 358 Or. 552 (2016) recently served up another instance of differing time limits on construction defect claims of which both buyers and builders must be aware.

The Oregon Revised Statutes (“ORS”) contain a number of significant time limits, known as statutes of limitations and statutes of repose, governing the filing construction claims on private projects. A statute of limitations sets the time limit that legal proceedings may be initiated after damage or an event, usually running from either the occurrence of the event or the discovery of the damage. A statute of repose restricts the time within which a lawsuit may be filed regardless of when the injury occurred or was discovered, running instead typically from when a particular event occurred, such as the construction of a building. Significantly, as the Plaintiff homeowner discovered in the Schollander case, failing to file a lawsuit within the applicable statute of limitations or repose can result in the complete waiver of your claim.

The Schollander case took up the issue of which of two statutes of repose applied to claims of negligent construction stemming from the purchase and sale agreement for an existing “spec” home, one built in anticipation of sale to the public but typically without the eventual owner’s input. While both of the statutes at issue provided for a ten-year repose period, each contained a different accrual period to start that ten year clock. ORS 12.115(1), governing actions for negligent injury to property, starts its clock on “the date of the act or omission complained of.” ORS 12.135(1)(b), entitled “Action for damages from construction, alteration or repair of improvement to real property,” does not commence its ten year clock on claims until the date of “substantial completion” of a project. The problem among the competing statutes is that the act complained of, e.g., negligently installed windows, typically occurs months before the substantial completion of the overall project. In such instance, which ten-year period applies?

In Schollander, the Plaintiff homeowner contracted with the Defendant spec builder in May 2000 to purchase the home. The contract also called for some changes to the home’s interior systems. Once the builder completed the additional work, the sale closed on July 12, 2000.

In July 2010, less than ten years after the sale closed but more than ten years after the homeowner entered into the purchase and sale agreement, the homeowner filed a claim against the builder for defective construction of exterior elements of her house, including the windows, siding, water resistant barrier, and flashing (importantly, the interior work done under the parties’ contract was not at issue).

The builder sought summary judgment from the Court that the 10-year statute of repose in ORS 12.115(1) barred the homeowner’s lawsuit because the acts or omissions complained of, i.e., the construction of the windows and other envelope systems, occurred more than 10 years prior to filing suit. The homeowner responded that the builder was relying on the wrong statute and that ORS 12.135(1)(b) applied to allow claims within 10 years of “substantial completion” of construction, which she contended occurred once the builder completed all work and the sale closed.

The Oregon Supreme Court upheld the lower rulings dismissing the homeowner’s claims as waived under ORS 12.115. The Court keyed on the definition of “substantial completion” in ORS 12.135(4)(b) to determine that statute’s later accrual period did not apply to a spec home sale because the homeowner was not a “contractee” party to a construction agreement capable of accepting the construction and starting the limitations period to run. The Court reasoned, “if there is no contract to construct, alter, or repair an improvement to real property and thus no “contractee” whose acceptance will trigger the period of repose, ORS 12.135(1)(b) does not apply” and “the more general period of repose set out in ORS 12.115 will govern.” The Court further offered that since a spec home theoretically might go unsold for years, starting the time limitations period on the ultimate sale, rather than the act complained of, could unacceptably broaden the applicable period.

So where does this decision leave us in a time of expanding development? If you’re the builder, it may be prudent on your projects to track when each trade completes its individual work. And if you’re the buyer or owner of a spec home, be aware that the time clock(s) on claims could be running from substantially earlier than your purchase date, and even then on multiple tracks depending on when each trade completes its work. Finally, if this decision is found to apply to all purchases of real property wherein the buyer is not a “contractee” under ORS 12.135, its reach could be significant and extensive. The best advice remains the oldest – if you want something done right, do it yourself. Consider adding your own time limits on claims to any contract for greater certainty. Setting time limits on claims can help manage risk and promote collaboration rather than adversity amongst the contracting parties. Conversely, leaving claims up to the “default” statutory rules of limitation and repose risks a procedural waiver of rights and subjects you to the law of unintended consequences. Protect your rights, and consider specifying time limits on claims at the time of contracting.

"A New Wrinkle In Time To Claim Construction Defects" was originally published in the Daily Journal of Commerce on Apr. 29, 2016.