AIA Form Construction Contract Terms May Limit Time for Suits by Owners Against Prime Contractors for Construction Defects
Generally, and with certain exceptions, Statutes of Limitation for suits for construction defects in California are three years from the date the defect was discovered, or should have been discovered by the property owner, with an outside limit on the time to file suit of ten (10) years from substantial completion of the project. Code Civil Procedure § 337.15.
The “discovery “of the defects causes the Statute of Limitations to “Accrue” or begin running, but suit usually must be filed within the Limitations period and within the ten (10) year Statute of Repose in California.
Statutes of Limitations for breach of contract by the contractor in California are either two or four years from the date of the breach of contract depending on whether the contract is oral or verbal, or is in writing.
However, where there is a direct contract between the property owner and the general contractor, all these statutory dead lines can be shortened (or extended) by the terms of their contract.
One example of such a contract provision is in paragraph 13.7 of AIA form A201, General Conditions of the Contract for Construction, which is incorporated by reference into most AIA form Construction Contracts, as well as many other types of construction contracts.
Section 13.7.1 provides that as to all actions occurring before “Substantial Completion” of the project, any claim for defect etc “shall be deemed to have accrued... no later than such date of “Substantial Completion”
“Substantial Completion” typically means that the project is for enough complete for the owner to begin occupying or using the area upon which work was performed.
Thus, because almost all defective construction work would have been done before Substantial Completion, that event starts the running of all Statutes of Limitations for Construction Defects.
The California Court of Appeal in San Francisco recently upheld this application of section 13.7.1 of A 201 in the Brisbane Lodging v. Webcor Builders case in 2013.
There, the construction work was “Substantially Complete” in 2000, but the plumbing problems were not discovered until 2005 - 2007. Repairs were made in 2005 but failed, Brisbane filed suit in 2008, within three years of discovery, and within the Statute of Limitations.
However, the Court of Appeals upheld the dismissal of the complaint by the trial court, based on section13.7.1 of A201, as it provided the three year Statute of Limitations begun to accrue in 2000, per the terms of the Contract, regardless of when the defects or problems were actually discovered.
The Court noted also that both parties to the contracts were sophisticated, and should have been aware of the terms.
Contracts other than the AIA form contracts often contain similar provisions, as often do many other construction contracts.
However, absent some further limiting language in the Construction contract, this provision would not limit the statutory time for suits against subcontractors or suppliers for negligence, such as the plumbing subcontractor which installed the allegedly defective plumbing in the Webcor case.
Therefore, parties to construction contracts should carefully read their terms before signing and also when problems arise, or have legal counsel do so, so they are fully aware of their rights, liabilities, and any applicable deadlines.