Call For A Consultation 855-997-7522
People shaking hands in office
Logo Icon Sophisticated Parties Can Contractually Shorten Statute of Limitations for Construction Defect Claims

The accruing and running of a statute of limitations is a critical consideration for parties in construction litigation. When the parties seek to change the statutory statutes of limitation at the outset of a contract, a party must be cognizant of the terms of the contract when considering whether and when to pursue a claim for construction defect damages. A party who forgets the contract provisions concerning the accrual and running of the statute of limitations may find that his claim is time barred even though it would be timely under the statutory scheme.

Indeed, the First Appellate District of the California Court of Appeal recent held that parties can agree within the terms of a contract to limit the statute of limitations period for construction defect claims and the date or time at which such claims accrue. In Brisbane Lodging L.P. v. Webcor Builders, Inc. (2013) 216 Cal. App. 4th 1249, plaintiff had contracted with Webcor to design and construct a hotel. The parties used the 1997 American Institute of Architects ("AIA") Standard Form of Agreement and the 1997 edition of the AIA A-201 General Conditions for the major portion of their contracting documents.

Section of the AIA A-201 General Conditions provides in pertinent part:

As to acts or failures to act occurring prior to the relevant date of substantial completion, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than such date of substantial completion.

Substantial completion for the project occurred on July 31, 2000. Subsequently, in 2005, plaintiff discovered defects in the construction of the project, primarily a broken sewer line. Plaintiff sued Webcor in May 2008 for the alleged construction defects.

Webcor moved for summary judgment contending that plaintiff's action was time-barred by the application of Section and California Code of Civil Procedure Sections 337 and 338. Plaintiff argued that its suit was timely based upon the delayed discovery rule and that Section violated California public policy and was therefore unenforceable. The trial court found that Section was valid and enforceable and, therefore, granted Webcor's motion for summary judgment.

On appeal, the First Appellate District affirmed the trial court's ruling. The appellate court noted that Section was enforceable and that sophisticated parties had the right to contractually limit the delayed discovery rule for construction defect litigation. The court's decision emphasized the parties' equality in bargaining positions, the parties' use of counsel during the contract negotiations, the lack of a special relationship between the parties, and the parties' prior experience in such transactions. The court further noted that Section had been enforced by courts in many other jurisdictions.

The appellate court rejected plaintiff's argument that Section violated California public policy. The court noted that the public policy favoring the delayed discovery rule applied to situations in which the parties had unequal bargaining positions or were not sophisticated in contracting.

Given the ruling in Brisbane Lodging, parties should carefully consider whether they wish to agree to a shortening of applicable statutes of limitations and a limiting of the delayed discovery rule with respect to the construction defects. The Brisbane Lodging decision also emphasizes that parties should closely examine pre-printed form contracts to verify the provisions contained within the form contract and to determine if all of those provisions are necessary and desirable.

Finally, we note that the 2007 edition of AIA A-201 revised Section so that the parties do not contractually limit their right to sue on construction defects which might be discovered long after the contractual limitations period has elapsed. Rather, Section of the 2007 edition of AIA A-201 provides that the claims shall commence "within the time period specified by applicable law, but in any case not more than 10 years after the date of Substantial Completion of the work."