Statutes of Limitations: Title 7 creates its own statutes of limitations for construction defects. These new limitations range from 1 to 10 years. It is ironic that the HVAC must last as long as the manufacturer represents it will, but the electrical service to it need only last 4 years. Similarly, plumbing may fail in 4 years but paint needs to last for 5 years. Any failure of a component to perform in compliance with any applicable Performance Standard may give rise to a proper claim by a homeowner.
Opting Out: If the Builder elects to "opt out" of the Pre-litigation Procedure (California Civil Code Section 914(a)) or the Performance Standards (California Civil Code Section 903), the Builder must notify the buyer, in writing. This notice must be given at the point of sale (i.e., when the purchase agreement is executed) in order to "opt out" of Title 7's Pre-litigation Procedure and before close of escrow to "opt out" of Title 7's Performance Standards. We believe the better practice is to give both notices at the point of sale. Remember that "opting out" really means replacing the statutory program with a Builder-prepared program (either an Enhanced Protection Agreement to replace the statutory Performance Standards or alternative nonbinding dispute resolution procedures to replace the statutory Pre-litigation Procedures). A Builder-prepared Enhanced Protection Agreement must provide protections which are "greater than, or equal to" the Performance Standards. Title 7 does not provide any new minimum standards for Builder-prepared alternative nonbinding dispute resolution procedures. However, homeowners have successfully challenged some builder prepared procedures finding that they were not reasonable or otherwise enforceable.
Recordation of Documents: Title 7 requires that a notice be recorded which discloses the existence of Title 7 procedures and that those procedures impact the legal rights of homeowners. While Title 7 does not expressly require that any other document be recorded, it is advisable to consider recording certain other notices and documents. If a Builder establishes an Enhanced Protection Agreement, the Builder should record the Agreement, or at the very least, notice of the Agreement. If an Enhanced Protection Agreement is not recorded, then resale purchasers may have no knowledge of the Agreement and might claim they have the right to enforce the statutory Performance Standards against the Builder. Homeowner maintenance requirements should also be recorded. Otherwise, resale purchasers might not have notice of those requirements and the Builder might not be entitled to use the homeowner's failure to perform such maintenance as a defense. (Nevertheless, the homeowner is required to perform "commonly accepted maintenance standards," whatever those standards are determined to be.) The recording of Notices of Completion is now more important than ever because it can begin the running of the applicable statutes of limitations.
Notices/Disclosures: Copies of Title 7 must be provided to Buyers and Buyers must be asked to acknowledge receipt of those copies. Builders must also instruct their Buyers that when they resell their residence they are required to provide the (resale) buyer with copies of all of the documents the Builder provided in conjunction with the original sale.
Maintenance of Documents: The statutory Pre-litigation Procedures require Builders to provide documents upon demand to a homeowner who makes a claim under Title 7. These documents include plans, specifications and architectural drawings. This demand may come years after construction of the residence is completed. Builders will need to establish a library and a retrieval system to store and readily access these documents.
Proof of Damage: The Buyer need not prove any damage in order to recover for some deficiencies in meeting the Performance Standards (primarily life and safety violations). Thus, Title 7 erodes some of the victory Builders achieved with the California Supreme Court decision in Aas v. Superior Court (William Lyon Company), 24 Cal.4th 627 (2000). To recover for certain deficiencies under Title 7, the Buyer need now only demonstrate that the applicable Performance Standard has not been met. Indeed, this change in law may be the most detrimental change to Builders resulting from Title 7.
Right to Repair: While the Builder has the right to repair, the Buyer may request that it be permitted to choose from three alternative contractors (California Civil Code Section 918). The Builder provides the names of the alternatives.
Failure to Comply: If a Builder fails to comply with any of the Pre-litigation Procedures, including the requirements of providing documents and notices, the Builder will not be entitled to any of the protections provided by the Pre-litigation Procedures. Buyers may then go straight to litigation, be it Superior Court, arbitration or judicial reference (California Civil Code Section 912(i)).