SB800 from Start to Finish

Uncategorized Sep 23, 2018
California’s ‘Pre-Litigation’ Construction Defect Claims Process

By Jordan O’Brien

sb800 from start to finish
 
GODSHUTTER/SHUTTERSTOCK.COM

CALIFORNIA CIVIL CODE Sections 895, et seq. are commonly referred to collectively as "SB800," after the California Senate Bill number, or by builders as the "Right to Repair Act." As acknowledged in its published legislative history, SB800 was the product of extensive negotiations and lobbying between consumer protection and builders’ interest groups, among others.

To most people familiar with the SB800 process, this is readily apparent. SB800 is less of a holistic overhaul of the construction defect claims process than a hodgepodge that is often not an interlocking, comprehensive or even intelligible whole. SB800 abrogated a prior legal requirement in California that a plaintiff or claimant show damage and/or destruction of a building, improvement, component, unit, etc. in order to recover for defective construction of that building, improvement, etc. SB800 also introduced various "functionality standards" for defect claims relating to various components in place of the prior negligence-based standard applied by California courts. For instance, a claimant alleging a window, door or roof leak claim need only establish that that system "allows water to pass beyond, through or around that system or its designed or actual moisture barrier," rather than having to establish that the builder breached a duty it owed or standard of care in constructing that system. These are generally seen as positive new aspects of SB800 by consumer protection groups and lawyers who represent construction defect claimants. There are other provisions that tend to be seen as favoring more of the builders’ interests.

SB800 also introduced a series of "prelitigation procedures," which established a means by which the legislature hoped to resolve construction defect claims without resort to the California court system. The SB800 pre-litigation process is typically commenced, then, by the claimant’s service of a "pre-litigation notice" pursuant to California Civil Code Section 910 (a), which provides the claimant’s name, address and preferred method of contact, and describes the claim(s) in reasonable detail sufficient to determine the nature and location, to the extent known, of the claimed violation. This statute goes on to indicate: "That document shall have the same force and effect as a notice of commencement of a legal proceeding." This phrase refers back to California Civil Code Section 6000, a lengthy provision of 24 subparagraphs and 60 sub-subparagraphs which also governs construction defect claims made by homeowner associations against builders, developers and/or contractors, and which has its own set of procedures and "pre-litigation" requirements.

While a comprehensive discussion of Cal. Civ. Code Section 6000 is outside of the scope of this article, a homeowner’s association claim should never consider commencing an SB800 process without reference to Section 6000 – and should consult its attorneys on the interplay between these provisions before embarking on the claims process.

An association’s service of the "pre-litigation notice" (or "SB800 Notice") upon the builder commences a relatively breakneck process. A builder must serve the association (usually via the association’s attorneys) a written acknowledgement of receipt of the SB800 Notice within 14 days of receipt, and then complete initial inspection and testing of the claims within 14 days of its acknowledgement of receipt. If the builder deems a second round of inspection and/or testing necessary, that must be completed within 40 days of its initial round.

This set of rapid deadlines raises some issues. Practically, it is difficult for the builder to get experts and contractors mobilized, and for the association to arrange access (especially to unit interiors) and mobilize its experts – and not least, for these various parties to determine a date or dates of mutual availability for inspections and/or testing – on such an abbreviated timeline. Any failure by the builder to strictly comply with these timeframes may free the association to file a lawsuit; however, there are sometimes strategic reasons why the association may prefer not to file a lawsuit at its earliest opportunity. The association’s board of directors should discuss those considerations with its attorneys during this process.

And if all this was not confusing or potentially problematic enough, SB800 also includes a provision whereby a builder may substitute its own alternative "nonadversarial procedures and remedies" in lieu of this process altogether. Builders often opt for their own alternative nonadversarial procedures, which can be a labyrinthine and a trap for the unwary. Associations should carefully read their governing documents with their legal counsel to ensure that they are aware of and proceeding in compliance with all such provisions.

Within 30 days of the initial or second round of inspections/testing, the builder may offer either to repair the condition(s), or cash in lieu of repairs, along with an offer to mediate the dispute if the homeowner or association so chooses. Perhaps unsurprisingly, homeowner associations generally prefer cash in lieu of repairs. They are usually not enthusiastic about allowing a builder to perform repairs at the development when it didn’t get it right the first time, especially when the builder often uses the same subcontractors to perform the repairs as were involved in the original construction. The builder also often offers a scope of repair that is less than what the association’s experts believe is necessary to adequately repair the issue(s). An association would usually rather hire its own subcontractors, overseen by its own construction managers, to perform the scope of work that it approved with the advice of its experts. Builders (and their insurers) often prefer cash in lieu of repairs as well, as they are able to demand a release of future claims from the association in exchange for the payment – which they are barred from obtaining if they perform repairs.

This, in a nutshell, is the SB800 process from start to finish. It bears emphasizing, however, that this process often does not result in resolution of an association’s defect claims. Sometimes the builder doesn’t comply with the SB800 process at all, and the association is forced to file a lawsuit in order to obtain resolution. Sometimes the builder opts to perform some (often shoddy and incomplete) repairs that simply results in the association filing a lawsuit anyway. Sometimes the parties enter into a stipulation setting forth an expanded inspection timeline, an exchange of reports and then a meeting between the parties’ experts, and a mediation schedule. Every situation is different and should be treated as such by a homeowners association, its managers and its attorneys.

Jordan O’Brien is a partner at the law firm of Angius & Terry and has practiced in California and New York on a wide array of issues, including construction defect actions, HOA general counsel, commercial and contractual disputes, lending and banking, loss mitigation, collections, landlord/tenant, family law and environmental matters.

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