In a state such as California, where newly
constructed homes are increasingly
more complex and built at a rapid rate, construction defects are bound to arise
from time to time. This is not to say that
homebuilders are not working hard at quality control, but construction is not an exact
science, and — despite a builder’s best
efforts — unintentional mistakes can occur.
California homebuilders now support the
new Fix It Law that applies to all homes
sold in California after Jan. 1, 2003. The Fix
It Law was designed to give builders a
chance to fix defects before customers can
file legal claims against their company, says
John O’Hara, a partner at Newmeyer &
Dillion LLP.
Although many states now have right-to-repair statutes, the Fix It Law was one of
the first legislative schemes enacted and is
the most complex, says O’Hara.
Smart Business spoke with O’Hara
about the terms of the new law, the benefits of the law and the overall effectiveness
of the law for homebuilders.
How does the Fix It Law benefit the home-building industry?
The major benefit is that homebuilders
now have a statutory right to repair defects
before homeowners may initiate a court
action or arbitration proceeding. The right
to repair is important for most builders,
because it is consistent with their corporate philosophy to provide excellent customer service and retain homebuyers as
customers for life.
Builders are in the business of building
homes, not litigating construction defects.
Litigation is extremely expensive; it creates
uncertainty and often lasts for several
years. This law allows developers to control their own destiny and focus on what
they do best: building homes and serving
customers.
What steps must a company take to abide by
the Fix It Law, and does this law work?
The lengthy and complex Fix It Law contains numerous requirements that the
builder must abide by in order to preserve the right to repair. Accordingly, any builder
who wishes to invoke the right to repair
must read the Fix It Law very carefully.
As a general overview, a builder must
provide a copy of the Fix It Law to home-buyers, designate an agent to receive
claims, provide copies of any maintenance
obligations and schedules, and be prepared
to access project documents, notify sub-contractors, conduct inspections and complete repairs immediately after receipt of a
notice of claim.
It is probably too early to tell whether the
Fix It Law will work to provide builders
with a meaningful right to repair. Builders
are committed to making it work, but
plaintiff attorneys in California are equally
committed to undermining the right to
repair because it effectively cuts them out
of the deal. I expect that there will be some
legal battles fought over the next few years
but that the California courts ultimately
will interpret the Fix It Law to provide for
a meaningful right to repair.
The entire Fix It Law can be found at
www.newmeyeranddillion.com.
How can developers and builders avoid
defect claims?
There are two basic ways to avoid defect claims. The first is to build better houses by
implementing strict quality control programs during construction. Most builders
have been operating quality control programs for years and continue to improve
these programs while learning from their
mistakes.
The second way is to implement an effective customer service program. After a
home is built and sold, there must be a
team in place ready to respond quickly to
complaints and inquiries from buyers.
Why is it important for builders to invest in
protective measures or hire a Fix It Law
claims agent?
Protective measures increase customer
satisfaction and reduce construction
defect litigation. Increasing customer satisfaction means that the customer and the
customer’s family and friends are more
likely to purchase another home from the
builder. Reducing construction defect litigation means that the builder is cutting litigation costs, allowing management to
focus on building and reducing insurance
premiums.
What steps should a builder take if presented
with a claim?
Assuming that the builder’s philosophy
is to invoke the right to repair and to
avoid litigation, the first thing a builder
should do is to make sure it has amended
its documents to conform to the Fix It
Law. These documents include construction contracts, purchase and sale documents, title documents, CC&Rs, homeowner manuals, construction and maintenance standards, warranties, sales and
customer service procedures, and insurance requirements.
Next, the builder should establish a
comprehensive response plan and be prepared to spring into action to implement
the plan as soon as a Fix It Law claim is
served.
JOHN O’HARA is a partner at Newmeyer and Dillion LLP. Reach
him at [email protected] or (949) 854-7000.