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Construction Defects Statute of Ultimate Repose

New Considerations With Respect to Statute of Ultimate Repose

Zachary Walker
June 6, 2013

Two recent Oregon Appellate Court decisions, Sunset Presbyterian Church v. Brockamp & Jaeger, Inc., and PIH Beaverton, LLC v. Superone, Inc., provide guidance and create new considerations with respect to the statute of ultimate repose associated with the construction, alteration, or repair of real property.  As a general matter, the ultimate statue of repose, ORS 12.135, bars claims of construction defect asserted ten years after “substantial completion.”

I.  The Importance of Competent Drafting of Agreements Relating to Construction

As an initial matter, Sunset Presbyterian highlights the importance of clear drafting of contractual agreements (e.g. whether the parties are purchasers, general contractors, or subcontractors).  Contractual agreements can include “accrual” provisions, which detail the time applicable statute of limitations for certain causes of action begin, and such agreements can define what event constitutes “substantial completion.”  However, competent drafting is vital, as the Sunset Presbyterian court ultimately determined that the general contractor did not factually evidence plaintiff was time barred under the agreed upon accrual provision – a ruling which is likely both the result of needless complexity in the agreement and client confusion about the parameters of each contractual provision.

II. Substantial Completion Can be Evidenced in Two Ways

Substantial completion per ORS 12.135 initiates the ten year time period for claims of construction defect and its legal definition has two definitions, thereby allowing two separate ways substantial completion may be evidenced.

Under the first definition, the repose period begins when the property owner manifests acceptance in writing that the real property has reached the state for which it may be used for the owner’s contemplated purpose.  The PIH Beaverton court determined that under this first definition, substantial completion can be established absent physical completion of the project so long as an owner acceptance is evidenced in writing.

In contrast, the second definition requires nothing less than actual physical completion, which is most readily evidenced by a discontinuance of construction after owner occupation and/or owner absorption of property maintenance related duties.  For example, absent other evidence establishing the cessation of construction or owner absorption of maintenance duties, the filing of a mechanics lien is insufficient to establish the date of substantial completion. 

III. Further Limits on The Ultimate Statute of Repose

Generally speaking, general contractors facing claims of construction defect have two broad mechanisms for defense – asserting the repose period has lapsed and deflecting liability onto appropriate subcontractors. 

The PIH Beaverton ruling changes these broad mechanisms, as the court determined that the statute of ultimate repose in the construction defect context, unlike those applicable to other areas of law, applies to any cause of action that arise out of specified construction related activities, which is otherwise known as the time of performance.  Thus, a general contractor’s assertions of contractual and common-law indemnity against appropriate subcontractors are similarly barred if brought after the applicable repose period.  As a result, a general contractor may succeed in establishing an owner’s claims of defect are barred, while similarly barring itself from a right to indemnity against subcontractors. 

IV. Conclusion

As a result of these two recent appellate court decisions, construction defect third-party practice requires new considerations.  Defense attorneys representing general contractors are provided practical guidance on how to establish the date of substantial completion.  Conversely, general contractors who successfully assert a claimant’s allegations of defects are barred by the ten year repose period must also account for the fact that downstream claims of indemnity would be similarly precluded. 

The content of this article is intended to provide general information and as a guide to the subject matter only. Please contact an Advise & Consult, Inc. expert for advice on your specific circumstances.

SOURCE: www.salmigillaspy.com

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