Property owner’s rights and developer protections when construction defects occur
Homebuilders use their best efforts to ensure quality construction. Sometimes, however, construction defects can turn up years later. But, what protections are afforded homebuilders so that they are not taken advantage of years later after construction has been completed?
Arizona has enacted legislation in an attempt to deal with the problem of prolonged homebuilder exposure to liability for latent construction defects. Under A.R.S. § 12-552, a homeowner has up to eight years after a project has been substantially completed to file a construction defect claim based in contract, including implied warranties. The statute begins to run, and defines a project “substantially complete,” when any of the following first occurs:
- It is first used by the owner or occupant of the improvement;
- It is first available for use after having been completed according to the contract or agreement covering the improvement, including agreed changes to the contract or agreement;
- Final inspection, if required, by the governmental body which issued the building permit for the improvement.
The statute cannot be tolled and questions often arise, if the defect is discovered during the eighth year, when one can bring a claim. Thus, the statue provides a “savings clause” that allows a claim to be made within one year after the date on which the latent defect was discovered, but in no event more than nine years after the substantial completion of the improvement. See A.R.S. § 12-552 (B).
Other questions regarding the applicability of the statute often arise when a former homeowner has knowledge of a defect and then sells the property to a new homeowner. Arizona courts have provided guidance. Under the terms of the statute, if the former owner has knowledge of the defect, the new owner is “imputed” with that knowledge and the statute runs from the date the former owner discovered the defect regardless if the new homeowner did not. See Maycock v. Asilomar Dev., Inc., 207 Ariz. 495, 88 P.3d 565 (App. 2004).
One caveat is that the statute only protects against contract-based claims. Common law indemnity claims and negligence or tort based claims are not barred by the statute. See Evans Withycombe, Inc. v. W. Innovations, Inc., 215 Ariz. 237, 159 P.3d 547 (App. 2006). Other legal protections, however, might apply to bar these claims such as the Economic Loss Doctrine. Under the doctrine a negligence claim will be barred if it is based on the same economic damages stemming from the breach of any underlying contract (e.g., sue for damages related to the repair of the home, but not personal injury damages, on both contract and negligence theories).