THE TEN-YEAR STATUTE OF REPOSE

Developers, general contractors, subcontractors and their insurers have relied upon Code of Civil Procedure section 337.15, commonly known as the Statute of Repose, for years to alleviate the threat of construction defect lawsuits from going on forever. The statute reads, “No action may be brought to recover damages from any person, or the surety of a person, who develops real property or performs or furnishes the design, specifications, surveying, planning, supervision, testing, or observation of construction or construction of an improvement to real property more than 10 years after substantial completion of the development or improvement . . . .” The statute goes on to read that the “10-year period specified . . . shall commence upon substantial completion of the improvement, but not later than the date of one of the following, whichever first occurs: 1) The date of final inspection by the applicable public agency; 2) The date of recordation of a valid notice of completion; 3) the date of use or occupation of the improvement; or 4) One year after termination or cessation of work on the improvement. It is important to note that substantial completion can occur as a result of other events before any of the other four backup dates found in the statute occur.

LATENT V. PATENT DEFECTS

The statute of limitations for “patent defects” or those defects that are “open and obvious to reasonable inspections” is found in Code of Civil Procedure section 337.1. It provides that any action brought as a result of a patent defect must be brought within four years of the substantial completion of the improvement. The statute does not run from the discovery of the defect itself. It is similar to the Statute of Repose as it protects a specific class of individuals (i.e. construction contractors) from indefinite liability exposure in order to promote construction.

In most cases involving construction defects, once the harm implicit in a tortious injury to the property itself is complete (i.e. the roof is installed incorrectly), the cause of action accrues and the plaintiff must pursue his remedy within the statutory time period unless forestalled by the “discovery rule” as the court succinctly explained in CAMSI IV v. Hunter Technology Corp., 230 Cal.App.3d 1525 (1991). Further, section 337.15 addresses “latent defects” or those construction defects that are not apparent by “reasonable inspections.” Ordinary statutes of limitations such as Code of Civil Procedure sections 337 (four years for breach of contract and breach of implied warranties) and 338(b) (three years for property damage due to negligence) begin to run for latent defects when the plaintiff suspects or reasonably should suspect the factual basis for a claim. According to California law, the plaintiff has a suspicion when he has notice or information of circumstances to put a reasonable person on inquiry (i.e. there is damage). Thus, the statutes of limitations begin to run when the defect manifests itself by causing harm and not the discovery of the defect itself. The plaintiff then has three or four years from the discovery of the harm to file his complaint.

If the complaint shows on its face that it is barred by the traditional statutes of limitations, then plaintiff must rely on the discovery rule and “must specifically plead [in his complaint] facts which show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence. Mere conclusory assertions that delay in discovery was reasonable are insufficient and will not enable the complaint to withstand general demurrer. Arguments that discovery-rule issues are necessarily factual and cannot be resolved on demurrer have been rejected.” (CAMSI at 1536.) Assuming plaintiff is able to sufficiently plead the discovery rule and get over the hurdle of ordinary statutes of limitations of three and four years for the latent defect, he must nonetheless pursue his remedies and file a complaint before the “absolute” bar of the Ten-Year Statute of Repose.

DO REPAIRS OR PROMISES TO REPAIR TOLL THE STATUTE OF REPOSE?

In the past, the courts have held that repairs or promises to repair did not toll section 337.15 and that ten years was the outside limit for an action against a contractor or subcontractor. FNB Mortgage Corp. v. Pacific Gen. Group, 76 Cal.App.4th 1116 (1999). On June 8, 2001, Lantzy v. Centex Homes, 89 Cal.App.4th 1059 (2001) was handed down which has taken the contrary view. It held that section 337.15 was tolled by repairs and that equitable estoppel, usually raised after a defendant promises to repair the defect, was an available defense to the Statute of Repose. The Lantzy court looked to prior cases such as Cascade Gardens Homeowners Ass’n v. McKellar & Assoc., 194 Cal.App.3d 1252 (1987) and Mack v. Comstock Assocs., 225 Cal.App.2d 583 (1964) which have held that attempts to repair the defect tolled “ordinary” statute of limitations (i.e. sections 337 and 338) and applied that reasoning to toll the Statute of Repose. On the other hand, the FNB court held that the Statute of Repose was not an ordinary statute of limitations and thus it could not add language that ran afoul of its statutory purpose, which was to act as an outside limitations period. The FNB court did not rule on whether promises to repair or equitable estoppel would toll the statute because it was not at issue in the case, but it did suggest that equitable estoppel would not toll the statute as well.

AN UNCERTAIN FUTURE FOR STATUTES OF LIMITATIONS IN CONSTRUCTION DEFECT LAWSUITS

Whether the Ten-Year Statute of Repose can be tolled or not is now an open question, but there are also several other questions that are now raised. Will the tolling of the underlying complaint toll the time for filing of a cross-complaint? Does the time for repair simply toll section 337.15, or does it trigger a shorter period of limitations under 337 or 338? Does simply pleading repairs toll the statute or must an actual time period be pleaded to establish proper tolling? Finally, is a mere promise to repair sufficient to extend the limitations period which would effectively render sections 337 and 338 superfluous since plaintiff will simply allege that he relied on promises to repair for years?

Several facts remain clear, however, despite the conflicting rulings. First, the Statute of Repose can only be extended, if at all, for claims related to the property actually repaired. It is not tolled as to causes of action for other losses and/or consequential damages under Mack. Second, the Statute of Repose is not extended if the repairs are carried out by third parties and not the contractor or subcontractor defendant as plaintiff has not relied upon the defendant’s promise or repair. Arguably, any repair would trigger one of the shorter statutes of limitations based upon the discovery of the defect.

Whether or not contractors, subcontractors or insurers can rely upon the Ten-Year Statute of Repose as an outside limit for being sued in a construction defect lawsuit is now up in the air. The California Supreme Court or the California Legislature can only answer that question, hopefully sooner rather than later.