Legal Liabilities of Defects in Construction

Abstract

The purpose of this paper is to understand the legal liabilities in construction industry due to defects by studying different claims and defenses used in real cases. Real law case studies are cited to understand the law court and its working to give a brief understanding of such legal matters.

The most common causes of litigation and disputes in the construction industry in the world are due to defects in Construction. A specific procedure should be followed for any breach of law or contract and a law suit can be filed according to civil statute of limitations. It is common to see disagreement when it comes to identifying what a construction defect is because of the difference in viewpoints and interests of those asking the question or making the decision. Statutory definitions for the defects in construction changes from state to state. A development deformity is for the most part characterized as an imperfection in the plan, materials or the workmanship that results as a failure of a component of a building or structure and causes harm to individual or the property. Contractors primarily working on local projects are likely to be familiar with the laws and requirements in place to deal with construction defects in their area. However, for contractors who work on projects nationally, the legal environment may be less familiar.

Each state has its own requirements and building codes. In addition, some states provide contractors with the opportunity to repair a defect and potentially alter the as-built conditions before a contractor can be sued. The Florida state has defined statutes chapter 558 and chapter 95 for identification of construction defects and its legal approach for filing claims and is the guideline for other construction related problems.

Normally the construction defect cases are based on the contracts between the homeowner and developer and the contracts between the contractor and subcontractors, architects and engineers, including suppliers, involved in the project. Complains usually are towards negligence, breach of contract or warranty, strict liability and it is important to find the party responsible for the same and get the defect rectified and made correct.

Key words –claims, state laws, legal liabilities, breach of contract, negligence, Construction defects, defenses.

1. INTRODUCTION –

Construction defects are one of the pivotal aspects to look at while either renovating or Buying a new apartment. These defects include cracks in the roof, faults in M.E.P systems and other minor structural failures that can hamper the value of our Apartment. Some of these defects are noticeable by our naked eyes whereas some of these defects are only noticeable after the damages that they create. These defects are caused due to design and construction errors. According to dictionary a defect is considered as “an imperfection that impairs worth or utility” in something. Florida’s construction defect statute defines a defect as: a deficiency in, or a deficiency arising out of, the design, specifications, surveying, planning, supervision, observation of construction, or construction, repair, alteration, or remodeling of real property resulting from:

1. A failure to construct a real property in accordance with accepted standards for good construction at the time of construction.
2. A failure of the design of real property to meet the applicable professional standards of care at the time of governmental approval.
3. A violation of the applicable codes in effect at the time of construction or remodeling which gives rise to a cause of action pursuant to s. 553.84;
4. Defective material, products, or components used in the construction or remodeling;

• Construction defects approach:

Considering the above keys to successful defending defect claims include:

• determining applicable standards of care;
• identifying other parties who can assist in the investigation of the claim;
• understanding the nature of the defects and whether it arises from design, construction, or both;
• identifying potentially responsible parties;
• identifying applicable contract provisions;
• determining governing law.

Once a construction defect is identified, determining who may be at fault involves not only understanding the specific causes of the defect, but also the contractual obligations of the parties involved and the level of performance that was required of them. It also requires an examination of whether one party has assumed the obligations of another either by contract or law.

2.0 law claims –

Construction defects come under both federal and state law, though typically these claims are litigated/arbitrated under state law. While many claims and defenses are created by statute, decisional case law plays an integral role in not only defining the scope and application of these claims and defenses, but sometimes in limiting them.

1. Magnuson-Moss:

“The Magnuson-Moss Federal Trade Commission Improvement Act (“the Magnuson-Moss Act” or “Act”) provides certain remedies to “consumers” against “suppliers” and others providing express and implied warranties for breach of those warranties in connection with the sale of “consumer products” as defined by the Act. While the Magnuson-Moss Act does not create any new warranties, it allows consumers to enforce existing warranties and provides a private cause of action in state or federal court against the “supplier” or other person who gives or offers to give a written warranty or who is or may be obligated under an implied warranty. Application of the Magnuson-Moss Act to construction defects appears limited to those involving “consumer products” which are primarily for personal, familyuse and are not for resale. Further, in order to enforce an implied warranty under the Act, privity is required under Florida law. While the Magnuson-Moss Act may have some utility in the construction defect arena, such as with defective building materials, other statutory and common law remedies, discussed below, have broader application to construction defects.”.

• Uniform Commercial Code:

“In the context of the sale of “goods”, the UCC provides buyers with certain implied warranties. In a breach of implied warranty case, the plaintiff has the burden of establishing that a defect was present in the product; that it caused the injuries complained of; and that the defect existed at the time the retailer or supplier parted possession with the product. This burden may be satisfied where the product malfunctions during normal operations, based upon the legal inference that the product was defective at the time of injury and at the time it was within the control of the supplier. A breach of these implied warranties allows the buyer to recover both actual and consequential damages from the seller. However, a buyer may not recover both the purchase price and the cost to remedy the seller’s breach, as such an award would place the buyer in a better position than it would have been had the contract been fully performed.²⁴ Unlike the Magnuson-Moss Act, whose reach is limited to defective products in the personal, family or household setting, the UCC’s application is much broader”.

•  Express warranty claims:

Warranties created by contractual obligations which the contractor sells in his contracts.  Express warranties do not always require words to be created but can derive from the conduct of the seller such as where the seller shows the buyer a blueprint or other description of the goods sold. Under Florida law, written warranties are treated like a contract between a buyer and seller and may therefore limit or foreclose available remedies.

• Statutory warranty claims:

Statutory warranties are granted by statute or exist as common law. Implied warranties come under both federal and state law. chapter 558 of Florida state law specifies the warranty claim laws.

From the case of Gables v. Silver, the Florida Supreme Court included common law implied warranties of merchantability and fitness to the sale of new homes and condominiums. As Florida joined a rapidly growing minority of states which has recognized, as an exception to the general rule of caveat emptor in sales of real estate which is an implied warranty of habitability for the sale of new homes.

• Deceptive and Unfair Trade Practices Act

“Known as Florida’s “little FTC (Federal Trade Commission) Act”, the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA” or “Act”), protects the consuming public and legitimate business enterprises from those who engage in unfair methods of competition, or unconscionable, deceptive, or unfair acts or practices in the conduct of any trade or commerce. The Act focuses on whether an act is deceptive, not whether a defendant knew that the allegedly violative conduct was occurring. FDUTPA provides a civil remedy to anyone aggrieved by a violation of the statute without regard to any other remedy or relief to which such person is entitled. While earlier versions of the statute applied only to “consumers” engaged in a “consumer transaction” the current statute applies to both private individuals and commercial interests. Thus, Florida courts have concluded that “the 1993 Amendments to FDUTPA made clear that the statute is not limited to purely “consumer transactions,” but rather apply “to any act or practice occurring ‘in the conduct of any trade or commerce’ even as between purely commercial interests.” However, a “consumer transaction” actionable under the statute may not apply to sophisticated commercial transactions between a manufacturer and distributor.  

• Condominium Act:

“Florida’s Condominium Act grants developers and purchasers of new condominiums certain implied warranties against defects in construction. The warranties provided by the developer to purchasers are broader than those provided by the contractor, subcontractors and suppliers to the developer and purchasers. While the former encompasses both fitness and merchantability for purposes or uses intended and extends to all personal and real property provided by the developer either in the unit or for use by unit owners, the latter encompasses only fitness as to the work performed or materials supplied. These warranties apply to the contractor and any lower tiered subcontractors and suppliers, but not to manufactures. To follow the statutory implied warranty of fitness, the contractor (subcontractor) must provide work and materials which conform with generally accepted standards of workmanship and performance of similar work and materials meeting requirements specified in the contract.

The warranties provided by the statute vary in duration from one to three years and, depending on the specific warranty provided, are measured from either the date of closing of the purchase or possession (whichever is earlier), completion of a building or improvement(s), or completion of all construction it should be noted that with respect to warranties provided by the developer, the warranty period is extended for one year after owners other than the developer obtain control of the association, whichever occurs last, but in no event more than five years.

For purposes of calculating the warranty period, “completion of construction” means issuance of a certificate of occupancy from the governmental authority having jurisdiction over the work (i.e., the building department), or, where such certificates or their equivalents are not issued, the building has reached substantial completion of the work according to the plans and specifications. These warranties extend not only to initial purchasers but also to successor owners.”

• Building Code Violation

“The Florida Building Code Act (“the FBC Act”) provides a private cause of action to anyone damaged as a result of a violation of the statute against the person or party who committed the violation. In other words, where construction fails to comply with the Florida Building Code, then, without any other remedies, the FBC Act provides an aggrieved party with a civil remedy against the contractor. However, liability under the FBC Act does not extend to the contractor’s qualifying agent. Furthermore, a remedy under the statute is unavailable when all required permits are obtained, the building department or other governmental agency having jurisdiction over the work approves the plans, and the construction project passes all required inspections under the code, unless the person or party (committing the violation) knew or should have known that the violation existed. Moreover, where a contractor establishes compliance with the statute by demonstrating that it obtained the required permits, the plans were approved, and the construction passed all required inspections, a party’s bare allegation that the contractor comply with the Florida Building Code, then, notwithstanding any other available remedies, the FBC Act provides an aggrieved party with a civil remedy against the contractor. However, liability under the FBC Act does not extend to the contractor’s qualifying agent. Furthermore, a remedy under the statute is unavailable when all required permits are obtained, the building department or other governmental agency having jurisdiction over the work approves the plans, and the construction project passes all required inspections under the code, unless the person or party (committing the violation) knew or should have known that the violation existed. Moreover, where a contractor establishes compliance with the statute by demonstrating that it obtained the required permits, the plans were approved, and the construction passed all required inspections, a party’s bare allegation that the contractor “knew or should have known that violations existed” is insufficient to establish a claim under the statute.”

3.0 LAW DEFENSES

1. THE SPEARIN DOCTRINE

According to Spearin Doctrine, for any defects caused due to errors in design supplied by professional /other representatives, the contractor is not responsible for it. The Spearin Doctrine establishes that the owner agrees that the design is correct and to be executed as in the planned to the contractor thereby releasing him from the liabilities for the consequences of the defect.

• Statute of Frauds

This was formed to avoid claims and frauds based on the verbal statement by the lapse of time. As noted by the Florida Supreme Court: “The statute of frauds grew out of a purpose to intercept the frequency and success of actions based on nothing more than loose verbal statements or mere innuendos. To achieve this, the statute requires that all actions based on agreements for more than one year must be a memorandum or written statement, signed by the party to be charged. The statute should be strictly construed to prevent the fraud it was designed to correct, and so long as it can be made to effectuate this purpose, courts should be reluctant to take cases from its protection.”

• Prior Material Breach:

Sometimes the breach of the agreement in the contract is not always because of the failure to perform. In order to be a breach, the failure to perform must not be a minor but “material”. A provision is material where it “go(es) to the essence of the contract.” Where a prior material breach occurs by one party, the non-breaching party is discharged of any further obligations remaining under the contract, provided however, that the non-breaching party must first establish performance on its part. As the Court in Hyman v. Cohen noted: A material breach, gives to the right to rescind the contract or to treat it as a breach of the entire contract to the injured party—in other words, an entire/total breach—and to maintain an action for damages for a total breach. Whenever there is a total breach of a contract by one party to it, the other is at liberty to treat the contract as broken and desist from any further effort on his part to perform it. In other words, he may abandon it and recover as damages for the breach the profits he would have received by a full performance.

• THE SLAVIN DOCTRINE

According to Slavin doctrine, the contractor is not responsible for the defects and losses like personal injury or property damage from defective construction as the owner of the property finally accepted the work with knowledge of the defect giving rise to the claim. If the defect is of patent type, then the owner of the property will be held responsible However insufficient knowledge of the defect or defects that are visible only after a time period do not works in the favor of contractor and the contractor might be held responsible for the defect. As one court has described, “The Slavin doctrine considers the respective liability of an owner and contractor, after the owner has resumed possession of the construction, for injuries to a third person for negligence of the contractor in the construction of the improvement.”

• The Economic Loss Doctrine

Doctrine considers all the losses which are financial in nature and involve loss of capital. Under this doctrine, the plaintiff must plead something in addition to a purely economic loss for their claim to stand. However, in recent years, the Florida Supreme Court has found this doctrine to apply strictly to product liability, which may have a significant impact on its future application.

4.0 Florida law limitations:

1. Right to Cure

Florida state has ‘right to cure’ statutes, which states that the project owner/ homeowner, must first notify the construction professional of the defects and allow them the opportunity to repair the defect before filing a lawsuit. For Florida state a 60 day wait period following the 558 notice is to follow and this time is to be given to the party to repair or cure the damages.

• Statute of Repose

Even if the defect is not found in the stated time period of ten years for construction defects, statute of repose limits the duration to file a suit. In Florida, any defect in property should fall under the time period of both the statute of limitations and statute of repose after the possession and discovery of defect. This period is also stated in the Florida state law chapter 95 section 03.

• Statutes of limitations

Every state has its own procedure to resolve the disputes between designers, contractors, and subcontractors. Claims like breach of warranty, tort claims and contract disputes will determine the amount of time one has to file a lawsuit and this deadline is known as statute of limitations. Florida statute of limitations says a period of four years needs to be considered for filing a law suit. Chapter 95 of Florida state law describes the limits for different claims and cases in detail.

“An action founded on the design, planning, or construction of an improvement to real property, with the time running from the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest; except that, when the action involves a latent defect, the time runs from the time the defect is discovered or should have been discovered with the exercise of due diligence. In any event, the action must be commenced within 10 years after the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest. Completion of the contract means the later of the date of final performance of all the contracted services or the date that final payment for such services becomes due without regard to the date final payment is made.”

5.0 TYPES OF DEFECTS:

Construction defects usually include any deficiency in the planning, design, inspection, supervision, construction or observation of construction to any new home or building, where there is a failure to construct the building in a reasonably workmanlike manner and/or the structure fails to perform in the manner that is reasonably intended by the buyer. Some of the most common and high-cost construction defects include:

• Mechanical
• Electrical
• Expansive soils
• Structural integrity – concrete, masonry & division, carpentry, unstable foundations
• Water intrusion (often resulting in toxic mold)
• Thermal and moisture protection
• Finishes

Generally, courts categorize defects in one of four categories: 

1. Construction Defects –

Inferior workmanship can create a series of problems eve if the design and material are proper. For instance, the failure to install proper ventilation may result in extra moisture and mold growth.

• Subsurface Defects –

 These defects are related to the actual ground on which the project is built, it becomes a defect if builders fail to account for shifting soil or steep hillsides.

•  Material Defects –

Poorly designed or manufactured materials can cause major problems, such as leaky windows or deteriorated flashing. The use of inferior building materials can cause significant problems, such as windows that leak or fail to function adequately even when properly installed. Common manufacturer problems with building materials can include deteriorating flashing, building paper, waterproofing membranes, asphalt roofing shingles, particle board, inferior drywall and other wall products used in wet and/or damp areas, such as bathrooms and laundry rooms. Building materials may be defective or damaged, leading to failure despite proper design and construction.

• Design Defects –

 These are problems caused by architectural / Engineering designs that were not properly executed or else didn’t perform as expected. Typical design deficiencies relate to building outside of the specified code. Roofs are an example of a typical design defect that result in water penetration, intrusion, poor drainage, or inadequate structural support.

6.0 Liability for Construction Defects –

When someone is faced with a construction defect, the first step is to determine whether it is a defect in design, materials, construction, or subsurface. It might seem hard to find the responsible party at first, particularly since so many parties are involved in a single project. Then client and his attorney will want to determine the appropriate cause of action. Allegations typically include one or more of the following:

• Breach of Contract

Breach of contract is when a contractor is unable to follow the contract guidelines and specifications for example if the flooring was required to be of a certain company and style and the contractor uses a different one in the construction, the owner can file a notice or a claim to remodify the problem.  Usually When such claims are made, courts often invoke the doctrine of substantial performance, which typically requires the builder to pay the contract price with the deduction for the reduced market value of the home/unit caused by the failure of the builder to strictly comply with the plans and specifications.

• Negligence

The most common allegation when assigning fault for a construction defect is that of negligence. The law imposes the obligation upon the developer/general contractor/ subcontractor to work out the sensible degree of care, aptitude, and information that is customarily utilized by such building professionals. The obligation of care covers all who may foreseeably be harmed by the construction defects including the owner. Engineers and general contractors are responsible for the carelessness of their subcontractors.

• Breach of Warranty

The purchase documentation between the developer and the owner often sets forth warranties regarding the condition of the property, additionally courts have held that there are certain implied warranties with respect to a home. For example, if the exterior walls disintegrate after the first rainfall, it may be considered a breach of warranty even if the documentation did not specifically mention the exterior walls.

• Fraud & Negligent Misrepresentation

Fraud allegation is when the developer promises the quality of construction by showing false statements or advertisements. It must be shown that the developer has not followed the design plans and specifications as promised.

• Strict Liability

In most jurisdictions, the implied warranty of habitability imposes strict liability on the general contractor. The theory of strict liability against a general contractor evolved from products liability law. In a strict liability case the plaintiff does not have to prove the general contractor or developer was negligent in the construction of the home. They do have to prove the defendant was involved in the mass production of housing, a defect in the house exists, damages were proximately caused by the defect, and the defendant caused or created the defect.

7.0 Conclusion-

This paper contains a brief overview of laws concerning various legal topics and litigation. This paper provides a simple synopsis of current law and is not intended to explore lengthy analysis of legal issues furthermore it can be used to understand the basics of construction defects and how they can be dealt with in the state of Florida. The paper defines the defects in the construction by law and has information on the defenses and their claims which can be used in a lawsuit. This topic can help contractors, other professionals, and owners to work in the industry according to law and gain reputation for their work. 

References-

• Florida Construction Defect Litigation, 2016 by GARY L. BROWN
• http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0000-    0099/0095/0095.html
• Fla. Stat. § 718, et seq.
• Fla. Stat., § 553.70, et seq. also Fla. Stat. § 553.84.
• See Fla. Stat. §§ 672.714, 672.715, also refer case study-http://www.lawjournalpress.com/citationservice/CitationServices.aspx?citation=Marcus v. Anderson/Gore Homes, Inc.
• See Fla. Stat. § 501.202(2).
• Discussed in § 1-5:1 supra. ¹⁸⁶United States v. Spearing, 248 U.S. 132(1918).
•  See Fla. Stat. § 725.01; see also Fla. Stat. § 672.201
• https://www.uslaw.org/files/Compendiums2016/Construction16/Construction_Compendium_Florida_2016.pdf
• Chapter 95 http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0000-0099/0095/0095.html