A recent case just decided in the Court of Appeal analyzed an important issue regarding the Right to Repair Act (SB800) (“Act”). In McMillin Albany LLC v. Superior Court (“McMillin”), the Court asked whether homeowners of certain new residences are required to engage in non-adversarial pre-litigation procedures and accommodate a builder’s right to attempt repairs even if the construction defect cause of action is not based upon a violation of the Act. The Court of Appeal in McMillin held that yes, there is an absolute right to repair for the builder (subject to certain exceptions and terms of the Act) even if the cause of action for construction defects does not specifically rest on violations codified under the Act. (Cal.Rptr.3d (2015) (Filed August 26, 2015)).
The Act sets forth a mandatory process to be followed if construction defects are discovered in a new residence sold on or after January 1, 2003. The Act was passed by the legislature to try and reduce the amount of litigation involving builders and homeowners by providing a framework for resolving disputes outside of the courtroom. Chapter 4 of the Act proscribes the measures which are required before a homeowner may bring a civil action against a builder for construction defects. They include giving the builder written notice of the claim, time for the builder to inspect the defects, and allowing the builder to either make an offer to repair the defects or compensate the homeowner in lieu of a repair. If the builder declines to attempt the repairs or misses any deadlines, the homeowner is released from the requirements of Chapter 4 and may proceed with a civil action against the builder.
In McMillin, the homeowners brought various actions against the builder (McMillin), including claims for strict products liability, negligence and breach of warranty, as a result of defects in the construction of the homes. McMillin moved to stay the litigation until the homeowners engaged in the statutory non-adversarial pre-litigation procedures required by the Act. The homeowners opposed the motion on the basis that they had disposed of the only cause of action which supposed a violation of the Act and therefore they were no longer required to engage in the procedures required by the Act prior to initiating litigation.
The Court in McMillin discussed the California case Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (“Liberty Mutual”), which held that the requirements of the Act only apply when a plaintiff expressly alleges a violation of the Act and do not apply if the plaintiff alleges a common law cause of action for damages caused by a construction defect in residential housing. McMillin ultimately rejects that finding in Liberty Mutual and holds that the text of the Act proscribes that the Act applies broadly to “any action seeking recovery of damages arising out of, or related to deficiencies in, the residential construction”, subject to certain specific exceptions including condominium conversions. Therefore, the Act and its requirements apply to common law tort causes of action where the construction defect has caused property damage, subject to certain express exceptions. For example, if a component of a home is not covered by the Act but a defect in such component causes damages to the home, a homeowner must first follow the pre-litigation non-adversarial procedures required by the Act before it can bring a common law action for negligence or strict liability.
In discussing their analysis, the Court in McMillin reasoned that the legislature must have intended that most construction defect claims in affected new residences would be covered by the Act. Otherwise, the Act would not be that helpful in trying to limit litigation if the homeowner could simply allege common law causes of action and bypass the requirements of the Act.
Builders and homeowners of new residences sold on or after January 1, 2003 should be aware of this groundbreaking case to ensure that, unless the issue is excluded by the Act, both parties comply with Chapter 4 of the Act before bringing a construction defect claim, regardless of whether the claim’s basis is pursuant to the Act or common law.
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.
