By: Doug Rees
The Texas Legislature passed two significant bills involving construction law this year as part of the 88th Regular Session of the Texas Legislature. One involved amendments to the Residential Construction Liability Act (“RCLA”) and one involved changes to the statute of repose for residential contractors.
Amendments to the RCLA
The Legislature amended Chapter 27 of the Property Code, otherwise known as the RCLA. A number of the changes “cleaned up” the statute to delete references to the old Texas Residential Construction Commission (“TRCC”). When the Legislature passed the original Texas Residential Construction Commission Act (“TRCCA”) and created the TRCC back in 2003, it amended the RCLA to incorporate many of the provisions and requirements of the TRCCA.
The TRCCA “sunsetted” on September 1, 2009 and ceased to exist. The Legislature never amended the RCLA, however, and the TRCCA provisions remained in the statute. Those provisions were meaningless and made the statute rather cumbersome to work with. The new amendments delete the references to the TRCCA and reflect a much cleaner statute.
The Legislature also made some substantive changes to the RCLA. Those changes included provisions that attempt to limit or tighten up what constitutes a construction defect under the statute, and to modify the offer of repair process to provide contractors with additional opportunities to inspect the property and more time to perform the repairs if they make an offer of repair.
The provisions addressing what now constitutes a construction defect provide that a contractor is liable only to the extent that a defective condition proximately causes actual physical damage to the residence, an actual failure or lack of capability of a building component to perform its intended function or purpose, or a verifiable danger to the safety of the occupants of the residence. The amendments further provide that a contractor is not liable for damages caused by the failure of a person, other than the contractor or subcontractor, to timely notify a contractor of a construction defect. In other words, a contractor is not liable for damages caused by the failure of the owner to timely notify the contractor of a construction defect.
The amendments also add normal “cracking” to the things for which a contractor is not responsible. The statute used to say that a contractor is not responsible for “normal shrinkage due to drying or settlement….” The amendments now provide that the contractor is not responsible for “normal cracking or normal shrinkage cracking due to drying or settlement….” This should help builders defend against claims for normal cracking due to expected movement of foundations.
The changes to the statute also attempt to beef up the causation requirements, providing that, to recover damages resulting from a construction defect, the claimant must prove that the construction defect existed at the time of the completion of the construction, alteration, or repair, in addition to proving the damages were proximately caused by the construction defect. Finally, with respect to the breach of a warranty of habitability, the statute now requires that the claimant prove that the construction defect was latent at the time the residence was completed or title was conveyed to the original purchaser, and it has rendered the residence unsuitable for its intended use as a home.
The other changes to RCLA involved the offer of repair process. The previous statute provided that, after notice, a contractor had 35 days in which to inspect the property, 45 days in which to make an offer of repair, and then 45 days in which to complete the repair if the offer of repair was accepted. The new statute maintains the 35-day period for conducting inspections, but adds a provision that allows the contractor the opportunity to conduct up to three inspections during that 35-day period.
The statute then extends the time for making an offer of repair to 60 days from the old 45-day rule. It also extends the time for completion of any accepted repairs from 45 days after the date of acceptance to 60 days after the date the contractor receives written notice of the acceptance of the settlement offer. The amendments further provide that the court or arbitration tribunal may order that an offer made by the contractor after the time prescribed can be considered timely if the contractor is prejudiced in the contractor’s opportunity to inspect or make an offer of repair because the claimant failed to provide the contractor evidence available and in the claimant’s possession, custody, or control at the time of the original notice. The evidence would depict the nature and cause of the defect and the nature and extent of repairs necessary to remedy the defect, and the evidence could include reports, photographs, videos, or other evidence, or that the claimant amended a claim to add a new alleged defect or due to events beyond the contractor’s control.
Finally, the new amendments add a section to the economic damages that are recoverable to provide for the recoverability of reasonable and necessary arbitration filing fees and the claimant’s share of the arbitrator’s compensation.
Contractor’s Statute of Repose for Residential Construction
The Legislature also amended Section 16.009 of the Texas Civil Practice & Remedies Code, which contains the statute of repose for contractors. The Leglislature kept the 10-year statute of repose for anyone who constructs or repairs an improvement to real property. The significant change is that it shortens the statute of repose for a residential contractor who provides a written warranty in accordance with the terms of the statute.
If a residential contractor provides a written warranty that complies with the statute, it shortens the statute of repose to six years after substantial completion of the improvement period. The statute provides that the express warranty must provide a minimum period of one year for workmanship and materials, two years for plumbing, electrical, heating, and air conditioning delivery systems, and six years for major structural components.
The statute defines a residence as a one-family or two-family dwelling or a townhome not more than three stories above grade plane in height with a separate means of egress or an accessory structure not more than three stories above grade plane in height. In other words, it does not apply to apartments/multi-family construction.
The amendments also shorten the extension period for a claim presented during the applicable limitations period from two years to one year. The statute still provides a two-year extension period for commercial claims or residential claims without a warranty; but, if a warranty is provided, that extension period is now only one year.
These changes mean that the longest the statute of repose on a residential claim with an express warranty that complies with the statute can be is now seven years. If the claim is presented in writing in the final year of the six-year limitations period, it is extended for a period of one year, for a total of seven years.
The standard warranty issued by many homebuilders is one year for workmanship and materials, two years for plumbing, electrical, and heating and air conditioning delivery systems, and ten (10) years for major structural components. The significant change brought about by the amendments allows a residential homebuilder to limit the ten-year structural warranty to a six-year structural warranty.
Interestingly, the new section 16.009 also defines “Contractor” as having the meaning assigned to it by Section 27.001 of the Property Code. That definition includes a risk retention group that is registered under Chapter 2201 of the Insurance Code and that insures all or any part of a contractor’s liability for the cost to repair a residence or construction defect. This new statute of repose, therefore, appears to apply to third-party warranties that are often sold by builders along with a new residence and in lieu of an express warranty from the builder itself.