The reality and complexity of residential construction defect litigation was a much debated subject at the turn of the millenium. In late 2002, SB 800 was signed into law adding a new Title 7 to the California Civil Code ("Title 7"), effective January 1, 2003. In October 2002, we wrote that in the near term Title 7 would prove to be a nightmare as Builders struggled to implement its provisions by its effective date. Builders spent long hours trying to determine what Title 7 meant, developing a strategy to implement Title 7 and reviewing and revising every aspect of their construction and sales documentation, from contracts with contractors and suppliers, to manufactured product disclosures, warranties, and sales and walk-through documentation provided to buyers. Significant effort and thought and innumerable hours were devoted to creating new documentation to implement Title 7. Over a decade has passed. It is still hard to justify the time and effort spent if we try to measure it from the view of increased buyer protection, increased builder protection, improvement in the quality of construction of new residences, increased availability of insurance to builders and subcontractors, or even all of these factors combined.
Who won? So far, only professional consultants are ahead.
Buyers now leave the sales office with significantly more paper than they did before Title 7 was enacted. Part of this documentation usually includes at least one detailed maintenance manual which explains to the buyer how to maintain their residence. A few builders were providing buyers with maintenance manuals before Title 7 was adopted. Since its adoption, however, maintenance manuals have become a standard document. In projects with homeowners associations, buyers will often receive two maintenance manuals, one for the buyer and one for the homeowners association. Buyers will also find that a significant quantity of documents have been recorded against the buyer's property. Some of those documents have names that had no meaning in 2002, such as "Master Dispute Declaration" (see "Master Dispute Declaration") or "Individual Dispute Resolution Agreement" (see "Individual Dispute Resolution Agreement"). These two documents provide buyers with notices, disclosures, information and procedures required or encouraged by Title 7.
It is still unclear whether Title 7 was good for builders, good for homeowners, good for both or not good for either.
Title 7 has impacted virtually every aspect of residential construction and the sale of new residences, requiring changes to: (a) purchase contracts and disclosures, (b) policies and practices relating to homeowner warranties, customer service and dispute resolution, (c) subcontracts, indemnities, insurance and construction specifications, (d) material specifications, (e) manufacturer's representations, (f) installation specifications and procedures, and (g) CC&Rs and other recorded documents.
While Builder Warranties (that is, limited warranties) were popular when Title 7 was enacted, Title 7 eliminated many of the purposes of Builder Warranties. Now if a builder provides a buyer with a Builder Warranty, several complex issues arise concerning the relationship between the Builder Warranty and Title 7. However, Title 7 does require that builders provide a one year Fit & Finish Warranty.
Title 7 also applies to homeowners associations ("Associations"). Similar procedures and documentation should also be put into place for Associations, especially those Associations that maintain residential structures (for example, in condominium developments).
There are two basic components to Title 7. One deals with construction performance standards ("Performance Standards") and the other deals with a statutory pre-litigation procedure for handling buyer claims under Title 7 ("Pre-litigation Procedures"). Each of these components is mandatory unless the Builder elects to "opt out" and provide acceptable alternatives. A Builder must make decisions regarding each of these components. A Builder may "opt out" of either or both of these components, provided that the Builder complies with the "opt out" procedures set forth in Title 7.
The following two sections describe these two basic components of Title 7. Or, you may proceed to the Procedural Requirements area for further overview.
Despite being enacted in 2002, Title 7 is still too new to know how many of its provisions will be interpreted. Many of its provisions are so ambiguous and uncertain that they are practically unintelligible. Until the California courts provide guidance, these ambiguities cannot be clearly addressed.
The existence of ambiguities, and the difficulty of implementing a program to comply with Title 7 do not justify a failure to fully comply. Any program developed to implement Title 7 must be regularly updated as the courts interpret Title 7 and the legislature modifies it. Given the significant ambiguities in Title 7, it is likely the legislature will continue to periodically fiddle with Title 7. In addition, as the courts begin to issue opinions which interpret Title 7, it is likely that some surprising interpretations will become legal precedent, modifying the way Builders will need to implement Title 7. For many reasons, any implementation program is very likely to require regular updating.