Legal Liabilities of Defects in Construction

Abstract

The purpose of this paper
is to understand the legal liabilities in construction industry due to defects by
studying different claims and defenses used in real cases. Real law case
studies are cited to understand the law court and its working to give a brief
understanding of such legal matters.

The most common causes of litigation
and disputes in the construction industry in the world are due to defects in Construction.
A specific procedure should be followed for any breach
of law or contract and a law suit can be filed according to civil statute of
limitations.
It is common to see disagreement when it comes to identifying what a
construction defect is because of the difference in viewpoints and interests of
those asking the question or making the decision. Statutory definitions for the
defects in construction changes from state to state.
A development deformity is for the
most part characterized as an imperfection in the plan, materials or the
workmanship that results as a failure of a component of a building or structure
and causes harm to individual or the property. Contractors primarily
working on local projects are likely to be familiar with the laws and
requirements in place to deal with construction defects in their area. However,
for contractors who work on projects nationally, the legal environment may be
less familiar.

Each state has its own
requirements and building codes. In addition, some states provide contractors
with the opportunity to repair a defect and potentially alter the as-built
conditions before a contractor can be sued. The Florida state has defined
statutes chapter 558 and chapter 95 for identification of construction defects
and its legal approach for filing claims and is the guideline for other
construction related problems.

Normally the construction
defect cases are based on the contracts between the homeowner and developer and
the contracts between the contractor and subcontractors, architects and
engineers, including suppliers, involved in the project. Complains usually are
towards negligence, breach of contract or warranty, strict liability and it is
important to find the party responsible for the same and get the defect
rectified and made correct.

Key words –claims, state
laws, legal
liabilities, breach of contract, negligence, Construction defects, defenses.

1. INTRODUCTION –

Construction defects are one
of the pivotal aspects to look at while either renovating or Buying a new
apartment. These defects include cracks in the roof, faults in M.E.P systems
and other minor structural failures that can hamper the value of our Apartment.
Some of these defects are noticeable by our naked eyes whereas some of these
defects are only noticeable after the damages that they create. These defects
are caused due to design and construction errors. According to dictionary a
defect is considered as “an imperfection that impairs worth or utility” in something.
Florida’s construction defect statute defines a defect as: a deficiency in, or
a deficiency arising out of, the design, specifications, surveying, planning,
supervision, observation of construction, or construction, repair, alteration,
or remodeling of real property resulting from:

1. A failure to
   construct a real property in accordance with accepted standards for good
   construction at the time of construction.
2. A failure of the
   design of real property to meet the applicable professional standards of
   care at the time of governmental approval.
3. A violation of the
   applicable codes in effect at the time of construction or remodeling which
   gives rise to a cause of action pursuant to s. 553.84;
4. Defective material,
   products, or components used in the construction or remodeling;

• Construction defects approach:

Considering the above keys
to successful defending defect claims include:

• determining
  applicable standards of care;
• identifying other
  parties who can assist in the investigation of the claim;
• understanding the
  nature of the defects and whether it arises from design, construction, or
  both;
• identifying
  potentially responsible parties;
• identifying
  applicable contract provisions;
• determining governing
  law.

Once a construction defect
is identified, determining who may be at fault involves not only understanding
the specific causes of the defect, but also the contractual obligations of the
parties involved and the level of performance that was required of them. It
also requires an examination of whether one party has assumed the obligations
of another either by contract or law.

2.0 law claims –

Construction defects come under both federal and state
law, though typically these claims are litigated/arbitrated under state law.
While many claims and defenses are created by statute, decisional case law
plays an integral role in not only defining the scope and application of these
claims and defenses, but sometimes in limiting them.

1. Magnuson-Moss:

“The Magnuson-Moss Federal
Trade Commission Improvement Act (“the Magnuson-Moss Act” or “Act”) provides
certain remedies to “consumers” against “suppliers” and others providing
express and implied warranties for breach of those warranties in connection with
the sale of “consumer products” as defined by the Act. While the Magnuson-Moss
Act does not create any new warranties, it allows consumers to enforce existing
warranties and provides a private cause of action in state or federal court
against the “supplier” or other person who gives or offers to give a written
warranty or who is or may be obligated under an implied warranty. Application
of the Magnuson-Moss Act to construction defects appears limited to those
involving “consumer products” which are primarily for personal, familyuse and are not for resale. Further, in
order to enforce an implied warranty under the Act, privity is required under
Florida law. While the Magnuson-Moss Act may have some utility in the
construction defect arena, such as with defective building materials, other
statutory and common law remedies, discussed below, have broader application to
construction defects.”.

• Uniform Commercial Code:

“In the context of the
sale of “goods”, the UCC provides buyers with certain implied warranties. In a
breach of implied warranty case, the plaintiff has the burden of establishing
that a defect was present in the product; that it caused the injuries
complained of; and that the defect existed at the time the retailer or supplier
parted possession with the product. This burden may be satisfied where the
product malfunctions during normal operations, based upon the legal inference
that the product was defective at the time of injury and at the time it was
within the control of the supplier. A breach of these implied warranties allows
the buyer to recover both actual and consequential damages from the seller.
However, a buyer may not recover both the purchase price and the cost to remedy
the seller’s breach, as such an award would place the buyer in a better
position than it would have been had the contract been fully performed.²⁴ Unlike the Magnuson-Moss
Act, whose reach is limited to defective products in the personal, family or
household setting, the UCC’s application is much broader”.

•  Express warranty claims:

Warranties created by contractual obligations which
the contractor sells in his contracts. 
Express warranties do not always require words to be created but can
derive from the conduct of the seller such as where the seller shows the buyer
a blueprint or other description of the goods sold. Under Florida law, written
warranties are treated like a contract between a buyer and seller and may
therefore limit or foreclose available remedies.

• Statutory warranty claims:

Statutory warranties are granted by statute or exist
as common law. Implied warranties come under both federal and state law.
chapter 558 of Florida state law specifies the warranty claim laws.

From the case of Gables v. Silver, the Florida
Supreme Court included common law implied warranties of merchantability and
fitness to the sale of new homes and condominiums. As Florida joined a rapidly
growing minority of states which has recognized, as an exception to the general
rule of caveat emptor in sales of real estate which is an implied warranty of
habitability for the sale of new homes.

• Deceptive and Unfair Trade
  Practices Act

“Known as Florida’s
“little FTC (Federal Trade Commission) Act”, the Florida Deceptive and Unfair
Trade Practices Act (“FDUTPA” or “Act”), protects the consuming public and
legitimate business enterprises from those who engage in unfair methods of
competition, or unconscionable, deceptive, or unfair acts or practices in the
conduct of any trade or commerce. The Act focuses on whether an act is
deceptive, not whether a defendant knew that the allegedly violative conduct
was occurring. FDUTPA provides a civil remedy to anyone aggrieved by a
violation of the statute without regard to any other remedy or relief to which
such person is entitled. While earlier versions of the statute applied only to
“consumers” engaged in a “consumer transaction” the current statute applies to
both private individuals and commercial interests. Thus, Florida courts have
concluded that “the 1993 Amendments to FDUTPA made clear that the statute is
not limited to purely “consumer transactions,” but rather apply “to any act or
practice occurring ‘in the conduct of any trade or commerce’ even as between
purely commercial interests.” However, a “consumer transaction” actionable
under the statute may not apply to sophisticated commercial transactions
between a manufacturer and distributor.  

• Condominium Act:

“Florida’s Condominium Act
grants developers and purchasers of new condominiums certain implied warranties
against defects in construction. The warranties provided by the developer to
purchasers are broader than those provided by the contractor, subcontractors
and suppliers to the developer and purchasers. While the former encompasses
both fitness and merchantability for purposes or uses intended and extends to
all personal and real property provided by the developer either in the unit or
for use by unit owners, the latter encompasses only fitness as to the work
performed or materials supplied. These warranties apply to the contractor and
any lower tiered subcontractors and suppliers, but not to manufactures. To follow
the statutory implied warranty of fitness, the contractor (subcontractor) must
provide work and materials which conform with generally accepted standards of
workmanship and performance of similar work and materials meeting requirements
specified in the contract.

The warranties provided by
the statute vary in duration from one to three years and, depending on the
specific warranty provided, are measured from either the date of closing of the
purchase or possession (whichever is earlier), completion of a building or
improvement(s), or completion of all construction it should be noted that with
respect to warranties provided by the developer, the warranty period is
extended for one year after owners other than the developer obtain control of
the association, whichever occurs last, but in no event more than five years.

For purposes of
calculating the warranty period, “completion of construction” means issuance of
a certificate of occupancy from the governmental authority having jurisdiction
over the work (i.e., the building department), or, where such certificates or
their equivalents are not issued, the building has reached substantial
completion of the work according to the plans and specifications. These
warranties extend not only to initial purchasers but also to successor owners.”

• Building Code Violation

“The Florida Building Code
Act (“the FBC Act”) provides a private cause of action to anyone damaged as a
result of a violation of the statute against the person or party who committed
the violation. In other words, where construction fails to comply with the
Florida Building Code, then, without any other remedies, the FBC Act provides
an aggrieved party with a civil remedy against the contractor. However,
liability under the FBC Act does not extend to the contractor’s qualifying
agent. Furthermore, a remedy under the statute is unavailable when all required
permits are obtained, the building department or other governmental agency
having jurisdiction over the work approves the plans, and the construction
project passes all required inspections under the code, unless the person or
party (committing the violation) knew or should have known that the violation
existed. Moreover, where a contractor establishes compliance with the statute
by demonstrating that it obtained the required permits, the plans were
approved, and the construction passed all required inspections, a party’s bare
allegation that the contractor comply with the Florida Building Code, then,
notwithstanding any other available remedies, the FBC Act provides an aggrieved
party with a civil remedy against the contractor. However, liability under the
FBC Act does not extend to the contractor’s qualifying agent. Furthermore, a
remedy under the statute is unavailable when all required permits are obtained,
the building department or other governmental agency having jurisdiction over
the work approves the plans, and the construction project passes all required
inspections under the code, unless the person or party (committing the
violation) knew or should have known that the violation existed. Moreover,
where a contractor establishes compliance with the statute by demonstrating
that it obtained the required permits, the plans were approved, and the
construction passed all required inspections, a party’s bare allegation that
the contractor “knew or should have known that violations existed” is
insufficient to establish a claim under the statute.”

3.0 LAW DEFENSES

1. THE SPEARIN DOCTRINE

According
to Spearin Doctrine, for any defects caused due to errors in design supplied by
professional /other representatives, the contractor is not responsible for it.
The Spearin Doctrine establishes that the owner agrees that the design is
correct and to be executed as in the planned to the contractor thereby
releasing him from the liabilities for the consequences of the defect.

• Statute of Frauds

This was formed to avoid
claims and frauds based on the verbal statement by the lapse of time. As noted
by the Florida Supreme Court: “The statute of frauds grew out of a purpose to
intercept the frequency and success of actions based on nothing more than loose
verbal statements or mere innuendos. To achieve this, the statute requires that
all actions based on agreements for more than one year must be a memorandum or
written statement, signed by the party to be charged. The statute should be
strictly construed to prevent the fraud it was designed to correct, and so long
as it can be made to effectuate this purpose, courts should be reluctant to
take cases from its protection.”

• Prior Material Breach:

Sometimes the breach of
the agreement in the contract is not always because of the failure to perform.
In order to be a breach, the failure to perform must not be a minor but “material”.
A provision is material where it “go(es) to the essence of the contract.” Where
a prior material breach occurs by one party, the non-breaching party is
discharged of any further obligations remaining under the contract, provided
however, that the non-breaching party must first establish performance on its
part. As the Court in Hyman v. Cohen noted: A material breach, gives to
the right to rescind the contract or to treat it as a breach of the entire
contract to the injured party—in other words, an entire/total breach—and to
maintain an action for damages for a total breach. Whenever there is a total
breach of a contract by one party to it, the other is at liberty to treat the
contract as broken and desist from any further effort on his part to perform
it. In other words, he may abandon it and recover as damages for the breach the
profits he would have received by a full performance.

• THE SLAVIN DOCTRINE

According
to Slavin doctrine, the contractor is not responsible for the defects
and losses like personal injury or property damage from defective construction
as the owner of the property finally accepted the work with knowledge of the
defect giving rise to the claim. If the defect is of patent type, then the
owner of the property will be held responsible However insufficient knowledge
of the defect or defects that are visible only after a time period do not works
in the favor of contractor and the contractor might be held responsible for the
defect. As one court has described, “The Slavin doctrine considers the
respective liability of an owner and contractor, after the owner has resumed
possession of the construction, for injuries to a third person for negligence
of the contractor in the construction of the improvement.”

• The Economic Loss Doctrine

Doctrine
considers all the losses which are financial in nature and involve loss of
capital. Under this doctrine, the plaintiff must plead something in addition to
a purely economic loss for their claim to stand. However, in recent years, the
Florida Supreme Court has found this doctrine to apply strictly to product
liability, which may have a significant impact on its future application.

4.0 Florida law
limitations:

1. Right to Cure

Florida state has ‘right
to cure’ statutes, which states that the project owner/ homeowner, must first
notify the construction professional of the defects and allow them the
opportunity to repair the defect before filing a lawsuit. For Florida state a
60 day wait period following the 558 notice is to follow and this time is to be
given to the party to repair or cure the damages.

• Statute of Repose

Even if the defect is not
found in the stated time period of ten years for construction defects, statute
of repose limits the duration to file a suit. In Florida, any defect in
property should fall under the time period of both the statute of limitations
and statute of repose after the possession and discovery of defect. This period
is also stated in the Florida state law chapter 95 section 03.

• Statutes of limitations

Every state has its own
procedure to resolve the disputes between designers, contractors, and
subcontractors. Claims like breach of warranty, tort claims and contract
disputes will determine the amount of time one has to file a lawsuit and this
deadline is known as statute of limitations. Florida statute of limitations
says a period of four years needs to be considered for filing a law suit.
Chapter 95 of Florida state law describes the limits for different claims and
cases in detail.

“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. Completion of the contract means the later of the
date of final performance of all the contracted services or the date that final
payment for such services becomes due without regard to the date final payment
is made.”

5.0 TYPES OF DEFECTS:

Construction defects usually
include any deficiency in the planning, design, inspection, supervision,
construction or observation of construction to any new home or building, where
there is a failure to construct the building in a reasonably workmanlike manner
and/or the structure fails to perform in the manner that is reasonably intended
by the buyer. Some of the most common and high-cost construction defects
include:

• Mechanical
• Electrical
• Expansive soils
• Structural integrity – concrete,
  masonry & division, carpentry, unstable foundations
• Water intrusion (often resulting
  in toxic mold)
• Thermal and moisture protection
• Finishes

Generally, courts
categorize defects in one of four categories: 

1. Construction Defects –

Inferior workmanship can
create a series of problems eve if the design and material are proper. For
instance, the failure to install proper ventilation may result in extra
moisture and mold growth.

• Subsurface Defects –

 These defects are related to the actual ground
on which the project is built, it becomes a defect if builders fail to account
for shifting soil or steep hillsides.

•  Material Defects –

Poorly designed or
manufactured materials can cause major problems, such as leaky windows or
deteriorated flashing. The use of inferior building materials can cause
significant problems, such as windows that leak or fail to function adequately
even when properly installed. Common manufacturer problems with building
materials can include deteriorating flashing, building paper, waterproofing
membranes, asphalt roofing shingles, particle board, inferior drywall and other
wall products used in wet and/or damp areas, such as bathrooms and laundry
rooms. Building materials may be defective or damaged, leading to failure
despite proper design and construction.

• Design Defects –

 These are problems caused by architectural / Engineering
designs that were not properly executed or else didn’t perform as expected.
Typical design deficiencies relate to building outside of the specified code.
Roofs are an example of a typical design defect that result in water
penetration, intrusion, poor drainage, or inadequate structural support.

6.0 Liability for Construction
Defects –

When someone is faced with
a construction defect, the first step is to determine whether it is a defect in
design, materials, construction, or subsurface. It might seem hard to find the
responsible party at first, particularly since so many parties are involved in
a single project. Then client and his attorney will want to determine the
appropriate cause of action. Allegations typically include one or more of the
following:

• Breach of Contract

Breach of contract is when a contractor is unable to
follow the contract guidelines and specifications for example if the flooring
was required to be of a certain company and style and the contractor uses a
different one in the construction, the owner can file a notice or a claim to
remodify the problem.  Usually When such
claims are made, courts often invoke the doctrine of substantial performance,
which typically requires the builder to pay the contract price with the
deduction for the reduced market value of the home/unit caused by the failure
of the builder to strictly comply with the plans and specifications.

• Negligence

The most common allegation
when assigning fault for a construction defect is that of negligence. The law
imposes the obligation upon the developer/general contractor/ subcontractor to
work out the sensible degree of care, aptitude,
and information that is customarily utilized by such
building professionals. The obligation of care covers all
who may foreseeably be harmed by the construction defects including
the owner. Engineers and general contractors are responsible for
the carelessness of their subcontractors.

• Breach of Warranty

The purchase documentation between the developer and
the owner often sets forth warranties regarding the condition of the property,
additionally courts have held that there are certain implied warranties with
respect to a home. For example, if the exterior walls disintegrate after the
first rainfall, it may be considered a breach of warranty even if the
documentation did not specifically mention the exterior walls.

• Fraud & Negligent Misrepresentation

Fraud allegation is when the developer promises the
quality of construction by showing false statements or advertisements. It must
be shown that the developer has not followed the design plans and
specifications as promised.

• Strict Liability

In most jurisdictions, the implied warranty of
habitability imposes strict liability on the general contractor. The theory of
strict liability against a general contractor evolved from products liability
law. In a strict liability case the plaintiff does not have to prove the
general contractor or developer was negligent in the construction of the home.
They do have to prove the defendant was involved in the mass production of
housing, a defect in the house exists, damages were proximately caused by the
defect, and the defendant caused or created the defect.

7.0 Conclusion-

This paper contains a brief overview of laws concerning various
legal topics and litigation. This paper provides a simple synopsis of current
law and is not intended to explore lengthy analysis of legal issues furthermore
it can be used to understand the basics of construction defects and how they can
be dealt with in the state of Florida. The paper defines the defects in the
construction by law and has information on the defenses and their claims which
can be used in a lawsuit. This topic can help contractors, other professionals,
and owners to work in the industry according to law and gain reputation for
their work. 

References-

• Florida Construction Defect Litigation, 2016 by GARY L. BROWN
• http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0000-    0099/0095/0095.html
• Fla. Stat. § 718, et seq.
• Fla. Stat., § 553.70, et seq. also Fla. Stat. § 553.84.
• See Fla. Stat. §§ 672.714, 672.715, also refer case study-http://www.lawjournalpress.com/citationservice/CitationServices.aspx?citation=Marcus v. Anderson/Gore Homes, Inc.
• See Fla. Stat. § 501.202(2).
• Discussed in § 1-5:1 supra. ¹⁸⁶United States v. Spearing, 248 U.S. 132(1918).
•  See Fla. Stat. § 725.01; see also Fla. Stat. § 672.201
• https://www.uslaw.org/files/Compendiums2016/Construction16/Construction_Compendium_Florida_2016.pdf
• Chapter 95 http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0000-0099/0095/0095.html