California SB721 Brings Mandatory Inspections to Multi-Family Residences

By on October 26, 2017
Leave a comment

A new bill is making its way through Sacramento that would have a significant effect on owners and homeowner’s associations of multi-family residential buildings. Senate Bill (SB) 721proposes to add new sections to both the Business and Professions and Civil Codes that would require both owners and homeowner associations to conduct inspections of various building assemblies that contain load bearing components every six years to verify that those components do not pose a threat to users of the building. This bill was introduced in response to the tragic balcony collapse at an apartment building in Berkeley, California in June of 2015 that killed six people. In that incident, the balcony that collapsed had significant dry rot that was alleged to be caused by failures in the waterproofing system of the building.

SB 721 seeks to add Section 7071.20 to the Business and Professions Code, as well as Section 4776 to the Civil Code, both of which impose nearly identical inspection requirements on building owners and homeowner’s associations aimed specifically at load bearing building assemblies of the building. These inspections are to take place once every six years, with the first inspection required to take place before January 1, 2023. The inspections are to be conducted by a licensed architect, licensed civil or structural engineer, or a certified building inspector or building official. The inspectors are required to produce a written report, bearing the inspectors stamp, summarizing their findings and said reports are to become part of the owner or HOA’s permanent records.

The specific building assemblies that are included in this inspection requirement are “balconies, decks, porches, stairways, walkways, entry structures, and their supports and railings, that extend beyond exterior walls of the building and which have a walking surface that is elevated more than six feet above ground level”  as well as the “associated waterproofing elements” which include “flashings, membranes, coatings, and sealants that protect the load-bearing components of building assemblies from exposure to water and the elements.” Both code sections require the inspection of 15% of each of the building assemblies. They also require that inspections allow for “direct visual evaluation of the physical condition of the component” essentially requiring destructive testing of each of these building assemblies. The inspections are required to include an evaluation and assessment of 1) the current condition of the building assemblies, 2) expectations of future performance and projected service life, 3) recommendations of any further inspections, and 4) recommendations of any necessary repair or replacement. If any immediate repairs are recommended, a copy of the report must also be given to the local enforcement agency within 15 days of completion of the report. If an owner does not comply with the inspection requirements, or fails to make repairs, B&P Section 7071.20 requires a civil penalty of $100 a day for failure to comply. Civil Code Section 4776 allows the enforcement agency to recover enforcement costs, but does not impose a set civil penalty for homeowner’s associations.

Should SB721 pass, and all signs point to the fact that it will, this is create a significant new obligation for owners and homeowner’s associations, as well as additional potential liability for owners, homeowner associations, and the inspectors undertaking these 6-year inspections. The following are just a few of the issues that may arise from the passing of this bill:

  • Owners will need to budget for these inspections, whether that be in the form of including the costs in reserve studies for common interest developments, or simply including a budget line item for maintenance costs going forward. Owners will have to determine exactly what components of their building are covered by these code sections and estimate what the cost of destructive testing on all of those components may cost in 6 years, as well as budget for potential repairs that may be necessary.
  • While the proposed codes only require inspections at 15% of the locations of each of these assemblies, it is silent as to how those locations are chosen. Can an owner choose locations that are easy to get to (i.e. cheaper to investigate) and satisfy the requirement? What if all the locations are chosen on locations of the building that are protected from the weather? Is the owner required to do a visual survey first to determine any visible signs of problems before they chose locations that will be destructively tested? The lack of guidance as to the inspection process may prove problematic.
  • The requirement that these load bearing components be “visually inspected” means that a third-party contractor will be disturbing in place construction and potentially destroying the intended waterproofing system for that location. Many manufacturers do not allow patching of their waterproofing system, or if they do, it must be manufacturer approved so as not to void any warranties. The companies undertaking these inspections will have to go to great lengths to assure that the systems are put back in a water-tight fashion, and in a way that does not void any warranties that may exist to various products or systems in the building.
  • The inspectors themselves could face enormous liability should a problem arise after the 6-year inspection that was not picked up by the inspector. Because of this, it may prove very difficult to find qualified inspectors that are willing to do this kind of work, and more important, who can get proper insurance to cover this kind of work.
  • Because of the potential added exposure for these inspectors, it is likely that the inspectors will be extremely conservative in both their investigations as well as their recommendations, which could drive costs even higher for owners.
  • The higher the cost of inspections goes, the more likely that owners and homeowner’s associations may use the inspection as a way to justify a larger construction defect action. Because inspection costs are recoverable under the Stearman case in construction defect claims, many owners may conduct these inspections as part of a construction defect action in an effort to recover all the inspection costs and avoid paying for these expenses out of pocket.
  • While the 10-year statute of repose will shield the original contractor’s from claims, it will not protect inspectors from claims related to their inspections. For instance, if it is discovered that a balcony has severe rot because of water intrusion that is not discovered until 11 years after construction is completed, the owner may instead try and sue the inspector for failing to identify this condition during the 6-year inspection since they would be barred from pursuing claims against the original contractors.

As with any new legislation, there are more questions than answers at this point. The only thing that seems certain is that most of these questions will be answered by the courts once these inspection requirements take effect in a few years.

Filed under Mandatory Inspections

Matthew Hawk to Speak at Upcoming TeleBriefing Covering California’s Evolving Energy Efficiency Policies

By on January 20, 2016
Leave a comment

San Francisco partner Matthew Hawk will be participating in an upcoming TeleBriefing covering California’s evolving energy efficiency policies. Call in from anywhere to hear a 90 minute expert discussion on January 29th at noon Pacific.

In 2015, California was a hotbed of development for energy efficiency law & policy. The California Clean Energy & Pollution Reduction Act of 2015 (SB 350) includes provisions to double energy efficiency end use by retail customers in the state by 2030. The legislature also passed AB 802, an energy efficiency benchmarking law that will make it easier for commercial and multifamily building owners to access accurate information on the whole building’s energy performance. Additionally in 2015, the California Energy Commission released an Energy Efficiency Action Plan for Existing Buildings, and its 2016 Building Energy Efficiency Standards. Call in to hear key issues and implications for real estate attorneys, energy consumers, construction professionals, and others.

Mr. Hawk’s colleagues & clients can get $40 off the price of tuition. To unlock this discount, register as a speaker client/colleague and ask for educational credits in the state of “Cascadia.” Register today!

Filed under California Clean Energy & Pollution Reduction Act of 2015, Energy

A Beacon in the Darkness: Design Professional Liability Post Beacon

By on December 8, 2015
Leave a comment

We recently authored an article in the December edition of California Buildings News regarding analyzing the true effect on liability for design professionals in the wake of the Beacon design in California. The article can be found here. For further information, please feel free to reach out to the author.

Filed under Design Professionals, Liability

New Energy Benchmarking Law in California May Pave the Way for Future Claims

By on November 11, 2015
Leave a comment

Starting January of 2017, California will become the first state in the country to mandate annual energy benchmarking for both commercial and multi-family residential buildings. Benchmarking is the process of measuring energy use over time and is used as a way to encourage overall reduction in energy usage. AB 802, which was signed into law in October, will solve many of the problems that were encountered with the current benchmarking program, AB 1103, which has been in effect since 2007 for commercial buildings only. The main problem with AB 1103 was that for owners of commercial buildings with numerous separately metered tenants, it was very difficult to obtain accurate whole-building usage information from utilities, making true benchmarking nearly impossible. As such, the benchmarking requirements were never fully implemented while the legislature attempted to address some of these problems. AB 802 reflects those efforts, and effectively removes many of the legal and regulatory burdens on utilities and owners and will allow whole-building energy use data to be shared publicly on an annual basis.

The release of this information to the public is expected to encourage owners to make investments to make their buildings more energy efficient either during original construction or through upgrades to existing buildings. Commercial and residential buildings amount to approximately 40% of all energy consumed in the U.S. annually. Owners that have the ability to track their energy usage save on an average 2.4% annually on their energy bills according to the U.S. Environmental Protection Agency. AB 802 will also encourage energy efficiency by authorizing investor owned utilities (IOUs) to use direct financial incentives to bring buildings up to and beyond code.

The California Energy Commission will begin the process of defining AB 802’s program next month.  This will include standardizing the reporting around the EPA’s building owners’ energy-use tracking tool, the Energy Star Portfolio Manager, and will ensure that state and city benchmarking programs align.

Looking down the road, once this benchmarking data is readily available, it is foreseeable that this data may be used by owners of newly constructed buildings to go back to their design and construction teams and make claims regarding energy efficiency based on how their building is performing compared to similar buildings in the same area. We have already seen owners of buildings that have been in operation for the  past 3-4 years come back to the general contractor and make complaints about overall efficiency of systems in LEED certified buildings where the actual efficiency was not meeting the designed efficiency levels required by under LEED. With more readily available information about benchmarked energy usage for various buildings, it will become easier for owners to develop a claim if they so desired. Designers and contractors in California should be aware of this potential and take precautions, particularly in their contracts, to protect themselves from these kinds of claims.

Filed under Benchmarking, Energy Usage

Berkeley Balcony Collapse Update: New, Stricter City Ordinances; State Bill Narrowly Defeated

By on July 16, 2015
Leave a comment

As expected, the response to the tragic balcony collapse in Berkeley, California that killed six people has been swift but with mixed results. On the local level, the Berkeley City Council voted Tuesday to make several immediate changes to their local building requirements. First, all new balconies must be made of corrosion-resistant materials and be ventilated to prevent the buildup of moisture. While the investigation into the cause of the collapse is still ongoing, investigators have been pointing to the lack of any venting mechanism on these balconies as a potential cause for the alleged dry rot that is believed to be the cause of the collapse. As well, the council mandated that all balconies in Berkeley be inspected within the next six months and every three years after that. No details were given as to what those inspections would entail (visual or destructive) or who would be conducting the inspections. It will be interesting to see whether the city puts the onerous on the owners or whether this will be a city-run initiative.

Meanwhile, on the state level, a bill that would require contractors to disclose past felonies or lawsuits alleging defects, negligence, or fraud to the California State License Board (SB465) died in committee by a vote of 7-3. Only 8 votes were required for the bill to leave committee and be brought to the floor of the state senate for debate. Four of the committee members abstained from voting citing their concerns that the bill was “half-baked” and that there had not been enough time given to work out the specific details with the state licensing board. Supporters of the bill believe that this defeat in committee likely means that the bill has no chance of passing this year.

While there is mounting public pressure for the legislature to do something in response to this tragedy, passing a “half-baked” bill is not the solution. While there may be some logic in reporting requirements for contractors in certain situations, some significant thought must be given into exactly how that will happen and how the CSLB will treat such reports. Simply reporting the total value of a settlement in a construction defect case does not tell the whole story as to the quality of construction or the negligence of the parties involved. Given the relative ease with which construction defect cases are filed in California and the low threshold required for making allegations of negligence and even fraud, some thought has to be given to how the claims will be treated once they are reported to the CSLB and whether the CSLB has the resources available to conduct an evaluation of each claim for purposes of determining which cases warrant any action against a given contractor. It will be interesting to see how this bill evolves over the next few months before it is brought to the floor for debate.

Filed under Architects, Construction Defect, Contractors State License Board, Defective Work or Material, Engineers

Berkeley Balcony Collapse Raises Questions About Reporting Requirements for Contractors

By on June 30, 2015
Leave a comment

In the wake of the recent balcony collapse that killed six people in Berkeley, California, questions have been raised regarding past claims made against the general contractor of that building, Segue Construction, particularly those regarding improperly waterproofed balconies at previous projects. Several news stories have discussed past lawsuits from personal injury lawyer firms and settlements involving Segue in which allegations of improperly waterproofed balconies were made on several projects in the bay area. While it is difficult to draw any conclusions as to what occurred in Berkeley from any of these past claims, the question that is now being raised in the media is whether the California State License Board (CSLB) should be tracking claims made against contractors in an effort to keep events like these from occurring in the future.

Currently, there are no reporting requirements in California for contractors who are named as defendants in construction defect litigation matters. The only construction-related entities who have reporting requirements in California are architects (settlements, arbitration awards, or civil judgments in excess of $5,000; California Business and Professions Code section 5588, et seq.) and engineers (settlements in excess of $50,000, or judgments/arbitration awards in excess of $25,000; California Business and Professions Code sections 6770, et seq, and 8776, et seq.).

The real question is whether reporting requirements for all contractors will have the desired effect of reducing defective construction on future projects. Unlike design professionals whose design, if defective, could be used/repeated on multiple, future projects, contractors are generally faced with an entirely new set of circumstances on each new project. From location, to design drawings, to the subcontractors utilized to perform the work, to the materials used and/or specified, each project presents an entirely new set of facts to work within. For general contractors in particular, who more often than not do not self-perform any of the work on a given project, the question is whether a reporting requirement will have the desired effect of deterring defective workmanship when they are not the party actually performing the work.

For the subcontractors who actually perform the work, it’s possible that a reporting requirement may be justified, particularly if a given subcontractor is shown to have a history of defective workmanship. From a practical standpoint, however, one issue will be exactly what each subcontractor is required to report. Unlike design professionals, most contractors do not have a consent clause in their insurance policies, and therefore the insurance carrier defending the claim can resolve the case anyway it sees fit, which may mean paying more money to resolve a case to avoid the uncertainties of trial. As well, there may be numerous non-defect related components to a given settlement such as contractual defense and indemnity obligations as well as the potential threat of joint and several liability with other joint tortfeasors who may have no assets and no insurance. As such, the amount a subcontractor pays to resolve a case may have little correlation to the overall quality of their work. Given the complexity of any potential contractor reporting requirement, for such a requirement to be effective and not negatively impact the building industry, significant resources would need to be added to CLSB to allow the degree of investigation that would be necessary to assure that contractors are treated fairly.

The question has also been posed regarding how confidentiality provisions that appear in many settlement agreements in construction defect cases may affect potential reporting requirements for contractors where the terms of the settlement are to remain confidential. In light of the tragedy that occurred in Berkeley, the media has questioned whether the legislature should ban such confidentiality provisions under to the guise of a greater public safety concern. However, unlike in the narrow situations where the legislature has taken such a drastic step (i.e. medical device claims), it is the rarest of circumstances where construction defects result in significant personal injury, and therefore the public safety argument may not be as strong. In the event the legislature or CSLB does take action to require reporting requirements for contractors, however, a simple carve out in the confidentiality provision allowing the contractor to report only the information required may still allow for the use of such provisions.

Given the international attention the Berkeley balcony collapse has received, the debate is just beginning on this subject and it is likely that the state legislature will have the final say on whether reporting requirements will be extended to contractors.

Filed under Architects, Construction Defect, Contractors State License Board, Defective Work or Material, Engineers

The Significance of Reporting Judgments

By on June 9, 2015
Leave a comment

Contractors beware! Pursuant to the recent findings of the California Court of Appeal in Pacific Caisson & Shoring, Inc. v. Bernards Bros Inc., in the event there is a judgment imposed on a contractor, the contractor must notify the Contractors’ State Licensing Board within 90 days of the judgment as to any unsatisfied portion of the judgment or face an automatic suspension of the contractor’s license pursuant to Business & Professions Code 7071.17. Further, as a condition to continual maintenance of the license, a contractor must file a bond with the CSLB sufficient to guarantee payment of any unsatisfied judgments. Keep in mind that Business & Professions Code 7071.17 is broadly interpreted by the CSLB to mean that if the judgment relates in any way to your construction business, it is considered “construction related” and thus, even a stipulated judgment for failure to pay pension and other benefits (which is considered a failure to pay wages to employees) would fall into the reporting requirement of Business & Professions Code 7071. This is a type of judgment that the CSLB considers “substantially related to the construction activities of a licensee.”

In Pacific Caisson & Shoring Inc. v. Bernards Bros Inc., the California Court of Appeal confirmed that failure to report judgments to the CSLB will in fact result in a suspended license. Pacific filed suit against Bernards for compensation for work it performed on a project to build a medical center for Ventura County. Bernards raised an affirmative defense that Pacific was not properly licensed at all times during the project, and cross-complained against Pacific to seek reimbursement for the money owed. During the project, the CSLB suspended Pacific’s license as a sanction for its failure to notify the CSLB that a judgment had been entered against it. The trial court found that Pacific failed to substantially comply with the requirement that contractors be licensed while performing work under Business & Professions Code 7031. Pacific appealed contending that the judgment was not “substantially related” to its construction activities within the meaning of Business & Professions Code 7071.17, thus Pacific’s license should not have been suspended. The Court of Appeal disagreed and held that the judgment falls precisely within the ambit of section 7071.17, affirming judgment against Pacific.

In short, and when in doubt, report any judgments related to the business promptly to the CSLB to avoid suspension. Failing to do so could be costly. Moreover, it could serve as a basis for the hiring entity to later seek reimbursement for money paid on a project.

Filed under Business & Professions Code 7071.17, Contractor, Contractors State License Board

Gordon & Rees Partners to Speak at ICC Construction Arbitration Conference

By on May 27, 2015
Leave a comment

Gordon & Rees partners, Ronan McHugh and Akin Alcitepe will be speaking at a seminar on International Construction Arbitration on June 12, 2015 in Istanbul, Turkey. The seminar will be sponsored by the ICC International Court of Arbitration and will provide insight on the prevention and prosecution of construction disputes in international arbitration and how to best utilize experts in both contexts.

McHugh will be discussing the importance of insurance on construction projects on the first panel which will focus on the prevention of construction disputes. Alcitepe will moderate the discussion on the second panel where the topic will be the prosecution of international construction disputes.

To read more about and register for the seminar, click here.

Filed under Construction Disputes, Insurance, International Construction Arbitration

Gordon & Rees to Present a One Day Legal Conference in New York City

By , and on January 6, 2015
Leave a comment

On Jan. 22, Gordon & Rees will present a one day legal conference in New York City, addressing 10 different areas of law.  This first annual Gordon & Rees Legal Education Conference will go forward in downtown Manhattan, at the Convene Conference Center, 32 Old Slip, NY.  During the conference, Gordon & Rees construction attorneys Amy Darby, Ernie Isola, and Matt Hawk will present a one hour panel discussion entitled “Risky Business – Shifting the Risk in Construction Contracts.”  The panel will discuss risk shifting devices such as additional insured endorsements, defense and indemnity obligations, and limitation of liability clauses.  This program will focus on the effectiveness of those tools in light of emerging anti-indemnity statutes and new endorsements of general liability insurance. The panelists will discuss the newest trends and case law affecting these risk-shifting methods, how they are being applied and the practical implications of contractual and policy language. Using actual case studies and experience of the Gordon & Rees panelists, the program will provide an in-depth review of the challenges facing those seeking to shift the risk along with insight from the insurance industry regarding how additional insured policies are being interpreted. Finally, the program will deliver strategies for how to effectively shift the risk of liability on construction projects, as well as how to avoid pitfalls in the drafting of construction contracts.

Guests are invited to register for the full-day schedule or individual programs. The day will include a continental breakfast and lunch with keynote speakers Mercedes Colwin, managing partner of the firm’s New York office, and Wm. David Cornwell, Sr., a partner in our Atlanta office with the Sports, Media, and Entertainment Group.  The day will conclude with a hosted cocktail reception. Space is limited, so register today.

Filed under Uncategorized

Insurer Has No Duty to Defend Subcontractor That Installed Defective Tie Hooks

By on July 11, 2014

Gordon & Rees partner Arthur Schwartz and associate Steven R. Inouye recently wrote an Insurance Law Update that analyzes a California Court of Appeal decision that should be of interest to various construction-related entities, including owners, contractors and subcontractors.

In Regional Steel Corp. v. Liberty Surplus Ins. Corp., the court held that the insurer did not have a duty to defend a steel subcontractor because its installation of defective tie hooks did not constitute “property damage” under a commercial general liability (CGL) policy, even though the surrounding concrete needed to be demolished when the tie hooks were removed.

To read the article – “Building Code Violations Requiring Removal of Nonhazardous Materials Do Not Constitute ‘Property Damage’ Under CGL Policy” – click here.

Filed under Commercial General Liability (CGL) Policy, Defective Work or Material, Duty to Defend

← Older posts