When is the Statute of Limitations Period Triggered for a Construction Defect Claim in New Jersey?

After conflicting conclusions by the lower courts, the New Jersey Supreme Court recently decided whether a condo association’s lawsuits for construction defects were timely filed against a general contractor and three of its subcontractors. The trial court and appellate division came to opposite conclusions by using different commencement dates for the 6-year statute of limitations at N.J.S.A. 2A:14-1.

Construction of the building was complete in May 2002 and the owner rented units for two years. In June 2004, the owner sold the building to a developer who converted the building from a rental to condo ownership. As part of the conversion, the developer retained an engineer to inspect the common areas. In October 2004, the inspector found that the structure of the building, townhomes and parking deck appeared to be in good condition with “some spalling of concrete” and “some sporadic cracking of the concrete” in the parking deck. The report was in the condo public offering statement and master deed. Once 75% of the units were sold in July 2006, the developer transferred control of the building to the condo association. The association then retained an engineer to perform an inspection in June 2007. Numerous construction defects were found including in exterior walls, roofing, concrete flooring, plumbing, landscaping and the parking garage.

The condo association commenced lawsuits in March 2009, more than 6 years after the building was completed. The suits alleged negligence, breach of express and implied warranties of good workmanship, breach of habitability and merchantability. After discovery, the GC and subcontractors filed motions for summary judgment, arguing that the lawsuits were not commenced within the 6-year statute of limitation.

The trial court agreed, finding that the time began to run in May 2002 when the building was substantially completed, determining that the condo association had time to discover the problems within that time. The court concluded that the October 2004 report put the owners on notice of potential problems.

The appellate division reversed, finding that the statute of limitation clock did not begin to run until the condo association obtained its inspection report in June 2007, which was when they had actual notice of the defects. The appellate division rejected arguments that this would make contractors “forever liable,” violating the 10-year statue of repose for claims against construction contractors.  See N.J.S.A. 2A:14-1.1(a).

The Supreme Court disagreed with both of these approaches and concluded that a construction defect cause of action accrues at the time the building’s original or subsequent owner first knew or, through reasonable diligence, should have known of the basis for a claim. The time commences even if there are subsequent owners because a subsequent owner “stands in no better position than a prior owner in calculating the limitation period.” The Supreme Court recognized that the discovery rule applied, i.e., a cause of action will be held not to accrue until the injured party discovers, or by an exercise of reasonable diligence and intelligence should have discovered that he may have a basis for an actionable claim. However, it found that the discovery rule does not re-triggered the statute of limitations each time there is a sale; it is triggered when anyone in the chain of title first knew or should have known of the actionable claim against an identifiably party.

In this particular case, the Supreme Court found that it did not have the factual record to determine when the claim accrued. It remanded the case to the trial court to determine when all of the entities in the chain of ownership first knew, or should have known through the exercise of reasonable diligence, that it had a cause of action against each defendant.

The Supreme Court also addressed the statute of repose, which requires the filing of a lawsuit against persons who provided services in the construction of an improvement, within 10 years of the date of substantial completion of the work. In this case, the condo association’s suits were commenced within this 10 year period.

The lessons of this decision are that property buyers must be diligent in discovering not only construction defects, but if and when prior owners knew or should have known about the defects. Seller who know and do not disclose potential problems will face claims of fraudulent concealment by a subsequent owner. Hopefully, sellers will not unwittingly trigger the statute of limitations clock by turning a blind eye to construction defects that could have been discovered.

Statute of Limitations Defense Remains Available to Unlicensed Contractors

In order to minimize unlicensed contracting, the Florida Legislature and Courts have developed a variety of penalties. Nevertheless, in March of 2016, Florida’s Fifth District Court of Appeals confirmed that an unlicensed contractor is not precluded from asserting a four-year statute of limitations defense under Section 95.11(3)(c)¹. See Brock v. Garner Window & Door Sales, Inc., 2016 WL 830452 (Fla. 5th DCA Mar. 4, 2016).

In Brock v. Garner Window & Door Sales, Inc., the homeowners experienced water intrusion through their windows and sued the contractor that installed the windows. The issue rested in the fact that the homeowners sued the window installer more than four years but less than five years after they discovered the defect. As discussed below, the homeowners asserted that the five-year statute of limitations applied to written contracts should control because the window installer was not a licensed contractor and therefore should not benefit from Section 95.11(3)(c)’s shorter statute of limitations.

The Appellants in Brock attempted to make two arguments for denying an unlicensed contractor the Section 95.11(3)(c) statute of limitations defense. First, the text of Section 95.11(3)(c) expressly includes the term “licensed contractor.” However, the Court concluded that the use of the term “licensed contractor” references when the statute begins to run, rather than the actions to which Section 95.11(3)(c) applies. Furthermore, the Court noted that the term “licensed contractor” is not used in the latent defect part of the statue; therefore, an unlicensed contractor is not precluded from invoking Section 95.11(3)(c) to an action founded on latent defects, such as the window defects in Brock.

Next, the Appellants argued that unlicensed contractors are precluded from asserting statutory defenses, citing Florida Statute Section 489.128 and Earth Trades, Inc. v. T&G Corp., 108 So. 3d 580 (Fla. 2013). The Brock court declined this argument, holding that both Section 489.128 and the Earth Trades Court do not prohibit an unlicensed contractor from asserting a statutory defense, rather they merely preclude an unlicensed contractor from enforcing a contract.

Based on the foregoing, owners should pay careful attention to the statute of limitations and all contractors should not overlook the application of section 95.11(3)(c) during the preparation of their defenses.


¹ Section 95.11(3)(c) states, “An action founded on the design, planning, or construction of an improvement to real property, with the time running from the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest; except that, when the action involves a latent defect, the time runs from the time the defect is discovered or should have been discovered with the exercise of due diligence. In any event, the action must be commenced within 10 years after the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest.”


Recent Amendments (AB 125) to NRS Chapter 40 Even the Playing Field for Builders and Contractors

On February 24, 2015, Governor Brian Sandoval signed Assembly Bill 125 (“AB 125”) into law. Dubbed the “Homeowner Protections Act of 2015,” AB 125 makes substantial changes to Nevada’s construction defect laws, particularly regarding the burdens placed on homeowners and their counsel during pre-litigation NRS Chapter 40 proceedings. The changes set forth in AB 125 are effective immediately (and in some instances, retroactively). Highlights of relevant revisions are as follows:

  • Contractual Indemnity. Contractual indemnity provisions are now void and unenforceable if they require a subcontractor to defend and indemnify a “controlling party” from liability resulting from: (1) the intentional act or omission of the controlling party; or (2) another trade’s modification of the subcontractor’s work.
  • OCIP Disclosures. Developers must now disclose certain information regarding Owner Controlled Insurance Policies in a subcontractor’s contract documents.
  • Offers of Judgment. Parties may now serve Offers of Judgment (“OOJ”) at any time after a homeowner serves his NRS Chapter 40 Notice. If the homeowner reject the OOJ and fails to obtain a more favorable judgment during trial, he will be precluded from recovering his attorneys’ fees and costs from the date of service of the OOJ to the date of entry of judgment. He may also be required to pay for the offering party’s reasonable fees and costs.
  • Definition of a Constructional Defect. AB 125 limits the definition of a constructional defect to a defect which: (1) presents an unreasonable risk of injury to a person or property; or (2) is not completed in a good and workmanlike manner and proximately causes physical damage to the residence, appurtenance, or real property to which the appurtenance is affixed.
  • NRS Chapter 40 Notices. Homeowners are now required to identify in specific detail each defect that is the subject of their claim, including its exact location. They must also describe the cause of the defect, and the nature and extent of any damage or injury resulting from the defect. Additionally, homeowners must include a signed statement verifying the existence of each defect listed in the notice. If a notice is sent by an HOA, the statement must be signed by a member of the HOA’s executive board or an officer under penalty of perjury.
  • Visual Inspections. Homeowners must be present during visual inspection of their properties, and must identify the exact location of each alleged defect verified in their NRS Chapter 40 Notice. AB 125 imposes the same requirements on experts if the NRS Chapter 40 Notice was based upon an expert opinion.
  • Homeowners’ Warranties. Before serving a NRS Chapter 40 Notice, homeowners must submit their claim under their homeowners’ warranty, and may only include claims in the NRS Chapter 40 Notice that were denied by their insurer.
  • Removal of Attorneys’ Fees. AB 125 eliminates attorneys’ fees as recoverable damages under section 40.655.
  • Changes to the Statute of Limitation. The statute of limitation for constructional defect claims is now six years after substantial completion of the improvement. Additionally, the statute of limitations tolls from the time a NRS Chapter 40 Notice is given until: (1) one year after the notice of claim; or (2) thirty days after NRS Chapter 40 mediation is concluded or waived. Statutes of limitation and repose may be tolled for longer than one year only if a claimant demonstrates “good cause.”
  • Standing of Homeowners’ Associations to Sue. Homeowners’ Associations may not bring actions in its own name or on behalf of its unit owners’ for any constructional defect unless the action pertains exclusively to common elements.

While the full implications of AB 125 will not be known until it is put into practice, it is clear that the law creates new obligations for almost every party involved in a constructional defect lawsuit. It is essential that companies review AB 125 carefully to determine the impact on their business practices. To discuss how this law will impact your construction practice, please contact Robert E. Schumacher at rschumacher@gordonrees.com.

For a complete text of all revisions, click here.

For a comparative analysis of the new and old versions of NRS Chapter 40, click here.

Claims for Breach of Express Indemnity Clause in Construction Contracts Subject to 10-Year Statute of Limitations in Illinois

In 15th Place Condominium Association v. South Campus Development Team LLC, the Appellate Court for the First District of Illinois held that a claim for breach of an express indemnity clause within a construction agreement was subject to the 10-year statute of limitations for written contracts instead of the four-year statute of limitations for construction claims.  In 15th Place, the South Campus Development Team, a developer of two condominium towers, contracted with Linn-Mathes, Inc. to work as a general contractor.  The contract between them included an express indemnity clause.  After the condominium project was completed in 2004, the developer turned over control of the project to 15th Place Condominium Association.

In 2008, the association sued the developer for breach of the implied warranty of fitness and habitability, breach of fiduciary duty, and negligence, alleging that it had discovered latent design and construction defects in the condominium towers.  In 2011, the developer filed a third-party complaint against the general contractor alleging breach of express indemnity.  The general contractor prevailed on its motion to dismiss, arguing that the developer’s breach of express indemnity claim was filed more than four years after substantial completion of the condominium project, and thus was barred by the four-year statute of limitations for construction-related claims.

The developer appealed and on June 26, the Illinois Appellate Court reversed the trial court’s decision. The appellate court relied on the Illinois Supreme Court’s ruling in Travelers Casualty & Surety Co. v. Bowman, which reasoned that when determining whether to apply the four-year statute of limitations for construction matters or the 10-year statute of limitations for written contracts, a court should analyze “the nature of the plaintiff’s injury rather than the nature of the facts from which the claim arises,” focusing on whether the plaintiff’s claim relates to the construction activity or to the underlying contract.

The general contractor attempted to distinguish Travelers because it dealt with construction bonds and not with construction contracts with indemnity clauses, thus arguing that the 10-year statute of limitations for written contracts was inapplicable.  The appellate court in 15th Place rejected this argument, concluding that the nature of the developer’s express indemnity claim against the general contractor related to the failure to indemnify rather than to a construction-related activity.  Therefore, the court found that the express indemnity claim must be governed by the 10-year statute of limitations applicable to written contracts, resulting in the claim not being time-barred.

The recent 15th Place decision should serve to put general contractors and developers throughout Illinois on notice that claims for breach of express indemnity clauses — and their exposure to same — go well beyond the typical four-year statute for construction claims.