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Construction Defects

What Are Construction Defects?

A construction defect is a condition in a person's home or any other structure that reflects errors or other deficiencies in the construction process. This covers a number of potential problems, from exposed nails and peeling paint to cracked foundations and structural failure. The number of construction defect cases is on the rise as more homes are constructed to meet the demands for housing.

Four Categories of Construction Defects

Construction defects can result from four general types of construction deficiencies:

    • Deficiencies in Design: Design deficiencies result from the work of the design and engineering professionals, such as structural engineers and architects, who make errors or fail to respect the applicable building codes and professional standards. For example, a roof that is not designed in accordance with applicable building codes or engineering standards can result in water intrusion or inadequate support.
    • Deficiencies in Materials: Material deficiencies include the use of defective or improper building materials. For example, the plan may call for use of a particular grade of wood in an element of a structure, but when the time comes to build the element, that grade is not available. The contractor may substitute a different grade that results in some malfunction of the element. Or, some material required for a structure might be damaged in transit, but the damage is overlooked by the building contractor and the item installed anyways. Again, a malfunction in the element built with the defective material may result;
    • Deficiencies in Construction: Construction deficiencies result from poor workmanship during building construction. This can result in issues like cracked foundations, dry rot, electrical problems, plumbing problems, and pest infestation.
  • Deficiencies in Preparation of the Subsurface: Subsurface deficiencies occur when soil conditions are unsuitable for the structure that is built on it, making it unstable. Building on unsuitable sub surfaces may result in cracks in the foundation, walls, or floors of a structure.

Can I Recover Damages For Construction Defects?

Common lawsuits for construction defects include negligence, and breach of contract. In order to be successful in a lawsuit that involves construction defects, the assistance of professional expert testimony will be required.

A lawsuit based on breach of contract would probably be brought by the owner against the contractor and others involved in the design, planning and construction of the building project pursuant to a contract.

Two main types of damages can be awarded in a claim for breach of contract based on construction defects. The type awarded in any particular case would depend partly on the nature of the project and extent of the defect. Another factor would be whether the defect deprives the owner of use of its property or interrupts the owner's business. Construction projects may involve a simple home renovation or a huge multi-billion-dollar public works project
on the other end.

Regardless of the scale of the project, all types of construction defect damages usually fall in to one of two types:

Direct damages: Direct damages comprise the loss in value to the non-breaching party of the other party's performance caused by the error or deficiency in the breaching party's performance; With direct damages, a party injured by the breach of a construction contract may recover as direct damages either:

  • The difference between the value of the building or work as completed and the value it would have had if the work had been done as specified in the contract, or
  • The reasonable cost of correcting the defects to make the work conform to the contract.

Generally, the measure of damages for breach of a construction contract is the cost of repairing the defect. However, if the defect cannot be repaired, an alternative measure is the loss in value of the property caused by the defect. That would be the difference between the fair market value of the property with the defect and the fair market value of the property without it.

The considerations that determine which of the alternative measures of damages is used is whether:

  • The defects can be repaired without demolishing and reconstructing a substantial part of the building
  • Whether the defects could be repaired at a reasonable cost, or
  • Whether construction and completion in accordance with the contract would involve unreasonable economic waste.

Consequential Damages: The other type of damages that are common in construction defect cases are consequential damages. There is no explicit limitation on the type of damages which may be awarded as consequential, but all claimed damages must pass the rigorous test of foreseeability. One common type of consequential damages is lost profits resulting from a breach of contract as long as they are established to a reasonable degree of certainty. Consequential damages must have been reasonable and foreseeable at the time the contract was made.

Punitive damages are awarded only rarely, if the breach of contract involved such egregious wrongs as fraud or conversion.

Keep in mind that in many states, e.g. Colorado, there is a statute of repose that can bar a claim for construction defects. A statute of repose operates similarly to a statute of limitations. However, while a statute of limitations begins to run when a defect is discovered, the statute of repose begins to run upon “substantial completion” of an “improvement to real property”. Thus, the burden is on the owner of an improved property to discover defects.

Defects can be patent, i.e., immediately noticeable, or latent. Latent defects may not reveal themselves for years after a project is completed. Usually a statute of repose gives a person a longer period of time to discover defects and bring a lawsuit than does a statute of limitations.

However, a statute of repose does set a limit even for latent defects. So if a person discovers defects in a structure they own that might have been caused by faulty construction, they should consult an experienced real estate lawyer promptly. Failure to do so risks losing the right to seek compensation.

If construction defects cause some kind of failure of the structure resulting in damage to other property and injury to people, the contractor may be sued for negligence. The law requires all of the parties involved in a construction project, from architects and engineers to builders, to use “reasonable care” in the construction process. Note that general contractors and developers are responsible for the negligence of their subcontractors.

If the parties involved in a construction project do not fulfill their duty of care and their failure results in damage and injury, the injured parties might have a negligence claim.

Damages for negligence are also referred to as “compensatory damages” and they are paid for actual physical injuries and property damage suffered. They are intended to return the victim to the same status they were in before they became the victim of negligence. Sometimes compensatory damages are categorized as tangible and intangible:

  • Tangible losses: Tangible losses are those that are easily calculated. For example, tangible damages for personal injury include all medical expenses for treating the physical injury (including costs projected for the future) as well as lost wages both current and projected if the victim must miss work due to their injuries. Property damage is calculated either by the cost of repair or replacement. Property damage may also cover the loss of use of the property while it is being repaired or replaced, e.g., the cost of a rental car while the victim's car is being repaired.
  • Intangible losses: Intangible losses are those without a specific cost attached, such as pain and suffering, emotional distress, mental anguish, and other mental health effects suffered by the victim. The jury is typically responsible for establishing the value of intangible losses as there are no firm rules for calculating damages for pain and suffering or the infliction of emotional distress. Generally, however, the amount must be proportional to the damages awarded for the tangible losses.

Lawsuits based on a theory of strict liability or on a theory of fraud are also possible, but not very common.

Builder's Liability for New Home Defects

After a builder is finished constructing a new home, the builder must have the home inspected by a local government authority. They will then issue a certificate of occupancy if the home meets the minimum requirements of habitability. 

The primary purpose of a certificate of occupancy is to verify that the home was built in accordance with the local housing code. A certificate of occupancy may also be used to prove that a home is suitable for living in, but only in the sense that it satisfies the bare minimum. 

Thus, it is not surprising that even after a house has been inspected and approved for a certificate of occupancy, it does not guarantee that the house was perfectly built or that everything inside it is in working order or complete. When this type of situation arises, the buyer may be able to hold the builder liable for certain defects found in their new home. 

For instance, if you purchase a new home in the summer and discover that come winter the house is not properly insulated against rain or snow, then you may be able to get the issue fixed. This can be done by either filing a lawsuit against the builder to recover damages or by enforcing any warranties that the builder guaranteed. 

To learn more about issues concerning builder liability for new home defects or to find out whether you may be able to recover damages from a builder for a particular new home defect, you should contact a local real estate lawyer for further advice on the matter.

What If My Builder Gave Me Warranties?

As indicated in the example above, a number of construction defects may not surface until a certain period of time has passed or the outside temperature has changed. In such cases, a buyer would need to consult the handbook of warranties that they received from the builder in order to determine whether they are covered for a specific new home defect and how to go about enforcing the relevant builder warranty. 

The majority of new home builders will issue a limited warranty to a homebuyer that can be found either in the sale agreement or a separate document like a warranty handbook. Also, while many warranties may not be required by law, a buyer should still check their state laws to confirm that this general rule of thumb applies in their jurisdiction.  

Depending on the incident in question, a builder warranty period may range anywhere from one full year to possibly twenty years. Thus, if a warranty only covers a one-year period for a certain home defect and that time has passed, then the buyer may need to pay for the damages. A buyer may also need to pay for the home defect if their warranty document specifies that a particular object is the buyer's responsibility. 

In general, builder warranties will usually cover home objects, such as windows, roofing, various mechanical issues, and/or some home appliances. However, a builder warranty will not cover every item that is associated with a new home. Some common examples of home defects that builder warranties will not typically cover include the following: 

  • Standard home wear and tear issues; 
  • Damages caused by the buyer, other inhabitants, or house guests;
  • Normal decay of construction materials that are foreseeable or correspond with construction industry standards; 
  • Damages caused by acts of God (e.g., floods, storms, earthquakes, etc.) or outside parties like vandals, animals, or rioters;
  • Defects caused by other contractors who were hired to repair or improve the property;
  • Certain home or consumer appliances (e.g., dishwashers); and/or
  • Expenses that resulted from having to temporarily live elsewhere while the home was being repaired. 

How Do I Enforce My Warranty?

It is important to note that just because a builder guaranteed a new buyer certain home defect warranties, it does not mean that the builder will honor their promises. Before a new homebuyer initiates any legal actions, they must notify the builder about the defects in question and give the buyer a reasonable amount of time to remedy the issue. 

A new homebuyer should also review the terms of the builder's warranty. Again, such warranty provisions may be found in the terms of the buyer's sale agreement, a separate document like a warranty handbook, or within state or local construction statutes. These provisions will dictate what defects a buyer may have agreed to cover, the period to file a claim, and other various procedural requirements that the buyer may need to follow.

Although most warranty provisions will require a new homebuyer to notify the builder in writing, a homebuyer should always submit a claim in writing no matter what a warranty provision states. In the event that a dispute arises about lack of notification, the written letter can be used as proof that the buyer was put on notice and there will be documented evidence of the home defect in question. 

However, if a homebuyer is not able to locate the builder, then it may be in their best interest to contact a local real estate lawyer as soon as possible. Not only will a lawyer have more tools to use to help them locate the builder, but a lawyer will also know what to do to ensure that the period to claim a warranty does not run out before the builder makes the necessary repairs. At the very least, a lawyer will know how to preserve an unexpired warranty.

What If My Builder Sold Me the Property “As Is”?

“As is” is a phrase that is primarily used when discussing various warranty law issues. Basically, when an item is sold “as is”, the phrase will release the seller from liability. However, even if a homebuyer purchased their new home from a builder “as is”, most properties are generally sold with certain built-in or implied warranties.

For example, the majority of homes are sold with an implied warranty that guarantees the property is suitable for living in and is equipped with specific requirements, such as water lines, connections to a power supply, and sewage systems. 

Additionally, obtaining a certificate of occupancy can be used to help to prove that these conditions existed before the buyer officially purchased the property in question. Thus, there are some situations wherein the builder may not be able to assert “as is” as a legally enforceable defense against a homebuyer's warranty claim.

How can an attorney help me?

If you discover that a structure you own has construction defects, you should consult with an experienced real estate lawyer as soon as possible. If you have a claim for breach of contract, it is important to prosecute it promptly after it is discovered. Construction defect cases can be complex and require the involvement of experts with construction expertise. They can include several defendants, including engineers, architects, contractors, subcontractors, and insurance companies. An experienced real estate lawyer can give you guidance in a breach of contract case. If you believe your home may have construction defects, contacting an real estate attorney immediately can help you protect your investment.

Disputes concerning warranty law issues and lawsuits involving builder liability for new home defects can be complicated matters. The results of such cases are often dependent on specific state and local building laws as well as general contract law principles. Thus, if you need help with an issue regarding warranty laws or are involved in a dispute over a claim for builder liability associated with new home defects, then it may be in your best interest to hire a local real estate lawyer for further assistance. An experienced real estate lawyer will be able to determine whether or not you have a viable claim for damages and can discuss the types of remedies you could potentially recover if you file a lawsuit. If you decide to take legal action against a builder, your lawyer can also help you file a lawsuit and provide representation in court. Alternatively, if you need assistance with enforcing a warranty provision and complying with the proper procedural requirements, your lawyer will be able to assist you with this process as well.

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