In an effort to streamline or prevent construction defect litigation and with the aim of promoting affordable housing by reducing the cost of such litigation, the California Legislature enacted SB 800 (California Civil Code section 895 et seq.) in 2002. The so-called “Fix-It Bill,” amongst other things, adds notice, repair, and mediation procedures to residential construction defect claims. It must be noted from the outset that in order for a builder to avail itself of the pre-litigation procedures provided by SB 800, it must provide notice of those procedures. To provide effective notice, a builder must record on title a notice of the SB 800 pre-litigation procedures along with a notice that those procedures impact the legal rights of the homeowner. Further, this information must also be included in the original sales documentation and must initialed and acknowledged by both the purchaser and the builder’s sales representative. Failure to provide the required notice eliminates the builder’s right to compel compliance with SB 800 procedures.
Written Notice of Claim Required
The pre-litigation procedures created by SB 800 begin with the homeowner providing written notice to the builder which describes, in reasonable detail, any alleged defects. The builder must acknowledge receipt of the homeowner’s claim within 14 days and it may then conduct an inspection within 14 more days. A second inspection by the builder may be conducted within an additional 40 days. After completion of these inspections, the builder has 30 days in which it may offer to conduct repairs or to make a cash payment in lieu of any repairs.
After receiving the builder’s offer to repair or to make payment, the homeowner then has 30 days to accept the offer, request the names of three additional contractors to conduct the repair, or to request mediation. If mediation is requested, it must occur within 15 days and, unless the homeowner agrees to pay for half of the cost of the mediation, the mediator is chosen and paid for by the builder. If the homeowner chooses to pay for half of the mediation costs, then the mediator is chosen jointly. This mediation is limited to four hours unless extended by the parties. At the end of the mediation, the homeowner and builder either agree to a resolution or the homeowner must allow the repair to be performed. The repairs must be completed as soon as is reasonably possible with every effort made to complete the repair within 120 days. Alternatively, the builder may offer a cash payment in lieu of any repair and it may obtain a reasonable release in exchange for that payment.
Hidden Cost if Homeowner Chooses Alternative Contractor
One hidden cost to builders under SB 800 involves the homeowner’s right to request the names of three alternative contractors to complete the repair work. Often, the original subcontractor is obligated to repair defects without cost to the builder. However, if the homeowner chooses an alternative contractor to complete the repair, then the builder will have to come out-of-pocket for that alternate contractor instead of obtaining the repairs from the original subcontractor without cost.
In any event, after the repair has been completed under SB 800, and if no prior mediation has taken place, then the homeowner must request mediation with the builder if they wish to bring further action. The statute of limitations to bring such further action is generally extended during the repair and mediation process until 100 days after they are completed. If a homeowner ultimately sues under SB 800, then damages are limited to the reasonable value of repairing any SB 800 violation, any damages caused by the original repairs, the cost of removing and replacing any improper repairs completed by the builder, reasonable relocation and storage expense, lost business income if the residence is used as a principal place of business licensed to be operated from the residence, reasonable investigative cost, and all other costs or fees recoverable by contract or statute.
Statutory Defenses Available
If a builder is sued under SB 800, there are a number of defenses available to it pursuant to California Civil Code section 945.5. These defenses include (a) unforeseen acts of nature such as weather and earthquakes and manmade events such as war, terrorism, or vandalism; (b) failure by the homeowner to reasonably minimize or prevent damages including failure to give timely notice of the alleged defect; (c) failure to follow builder’s or manufacturer’s recommendations or commonly accepted maintenance obligations which were provided at the time of sale; (d) ordinary wear and tear, misuse, abuse or neglect; (e) statute of limitations; (f) defects for which the builder obtained a valid release; (g) successful repairs which corrected the defect; and (h) all other available affirmative defenses.
While well intentioned, the “protections” afforded by SB 800 have been a mixed blessing for builders. These protections can lessen the burden of construction defect litigation in the right circumstances, but the cumbersome and rigid mechanism it puts in place is difficult to comply with and can often lead to wasted effort for even the most conscientious builders.
Strict Compliance Required
SB 800 requires strict compliance to both notice and time requirements. Any failure allows the homeowner to immediately bypass the SB 800 procedure and file his or her lawsuit. Because the time limits are so short and the consequences of a mistake so devastating, builders who wish to avail themselves of the pre-litigation protections of SB 800 may want to consider consulting a construction attorney immediately upon receipt of notice of an SB 800 claim.