The California Court of Appeal has upheld a provision in a construction contract by which the builder effectively shaved six years off the limitations period in which the owner could bring a construction defect lawsuit.
In Brisbane Lodging L.P. v. Webcor Builders, Inc., 2013 DJDAR 7127 (June 3, 2013), the owner-developer entered into a design-build agreement with Webcor Builders to build a 210-unit Radisson hotel. These two “sophisticated” parties agreed that all claims arising out of the work would accrue from the date of completion of the project as opposed to discovery of a defect. In this way, they effectively waived the delayed discovery rule and set the limitations clock in motion on a date certain.
In Brisbane, the owner discovered sewer line problems more than four years after the hotel was completed. Eight years after completion of the project, but still within four years of discovering the problem, the owner sued the builder for construction defect damages. Absent the parties’ contract terms, the owner’s claim would have been timely under both California’s ten-year statute of repose for latent defects and the four-year statute of limitations period for known or discovered defects. But as the Court of Appeal explained, there is no reason why sophisticated parties who are on equal footing should not be allowed to strike their own bargains and to “structure risk-shifting as they see fit without judicial intervention.” The Court found there was no public policy forbidding the parties’ agreement.
Brisbane teaches us that sometimes, you do get what you bargained for! Sophisticated parties like a developer or general contractor have great freedom to structure their contract as they see fit and may, for example, specify when the statute of limitations clock begins to run for certain claims. Builders naturally will want to impose a shorter limitations period than allowed under the Code of Civil Procedure in order to minimize their future exposure, while property owners will want to preserve the longest limitations period allowed under the law.
For more information or assistance, contact construction defect attorney Darren Johnson in Foley & Mansfield’s Los Angeles office at 213-283-2141 or e-mail email@example.com.