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Homeowner's Rights |
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What is the Residential Construction Liability Act?
What Transactions Does the RCLA Apply To? How Does the RCLA Work? What Happens If a Settlement is Not Reached? How Long Do I Have to File a Lawsuit for Construction Defects in My Home? Special Considerations for Construction Defect Claims Under the Deceptive Trade Practices Act What If the Contractor Makes Repairs, But the Repairs Do Not Cure the Defect? How Does the RCLA Affect Construction Defect Claims Under My Home Warranty Policy? Do I Need an Attorney? Conclusion APPENDIX: RCLA Timeline What Is The "Residential Construction Liability Act"? The Residential Construction Liability Act ("RCLA" or "The Act"), the full text of which is found in Chapter 27 of the Texas Property Code, is a little known statute that could have serious consequences to both home buyers and home builders in the state of Texas. In short, the RCLA sets forth specific requirements for notice and response to claims arising from construction defects in a home, and places limits on the type and amount of damages that can be awarded as a result of a lawsuit over such complaints. Builders and remodelers who avail themselves of The Act's protections can greatly limit their exposure to liability for complaints arising from construction defects in a home. Homeowners who are not aware of The Act's requirements may find themselves at a severe disadvantage when faced with a complaint against a contractor. Because the RCLA regulates the largest purchase most consumers will make, The Act is likely to be subject to considerable legal analysis which may dramatically alter the manner in which The Act is applied. Thus, the following information is provided only as an overview of the RCLA as it applies to the typical consumer, and is not intended as a substitute for the advice of an attorney. [Top] What Transactions Does The RCLA Apply To? The RCLA applies to any complaint arising between a homeowner and a contractor regarding construction defects in a residence constructed or remodeled by a contractor. The homeowner must have contracted directly with a contractor, and the complaint must concern work performed by the contractor or persons, such as subcontractors, who are under the contractor's control. Thus, remodelers and builders of new residences are not "contractors" unless they are a party to a contract with the homeowner for the construction, sale, or remodeling of a residence. Because of the way "contractor" is defined, the RCLA applies only to new residential construction and remodeling, and does not apply to "downstream" buyers of a home. The term "construction defect" is broadly defined by The Act, and includes any matter concerning the design, construction, or repair of a new residence, or any part of that residence, such as a fence or retaining wall. "Construction defect" would also include any complaint arising from the alteration or addition to an existing residence. The RCLA does not apply to commercial residential structures such as apartment complexes, but applies to units in a multi-unit structure, such as condominiums and townhomes, in which the title to individual units is transferred to the owners under an individual or cooperative basis. In 1993, the definition of "contractor" was expanded to include any properly registered "risk retention group" which insures all or any part of a contractor's liability for the cost to repair a residential construction defect. In other words, the home warranty companies such as Home Buyers Warranty (or "2-10") and Residential Warranty Company (or "RWC") can take advantage of the protections of the RCLA should they be sued for damages resulting from a construction defect. Nevertheless, there are a number of persons in a typical home purchase transaction for whom the RCLA has no application. These include a builder who is not also the seller, developers, real estate agents and brokers, real estate inspectors, manufacturers, and suppliers. Also not included are subcontractors, architects, and engineers who are not agents or employees of the contractor. [Top] How Does The RCLA Work? If you believe you have a construction defect complaint against a person with whom you have contracted for the design, construction, or repair of residence or any part of that residence, the RCLA requires that you provide notice and an opportunity to cure the defect before filing a lawsuit for damages. To qualify under The Act, the notice letter must:
After the notice letter is sent, the contractor has 35 days to inspect the defects contained in the notice letter, and 45 days to make a "reasonable" offer of settlement. The settlement offer must:
Texas courts have likewise not addressed the issue of what constitutes a "reasonable" offer of settlement. However, because homeowners are entitled to recover the "reasonable" cost of repair, an offer should include anything necessary to accomplish those repairs, such as engineering services, building permits, and materials. If the home will be rendered unlivable during the repair, the offer should also include compensation for the reasonable and necessary cost of temporary housing during the repairs. Finally, if the RCLA notice was prepared by an attorney, the offer should include reimbursement for reasonable and necessary attorney fees. Homeowners who receive a written offer of settlement by a contractor have 25 days in which to accept or reject the offer. Once an offer of repair is accepted, repairs must be completed within 45 days unless both parties agree in writing to extend the time for completion. An offer which is not accepted in 25 days is deemed rejected. If a contractor responds to the homeowner's demands with a timely, reasonable offer of repair, then the damages homeowners may obtain in a lawsuit arising from the construction defects will be limited to the following:
In addition to the limitations on the type and amount of damages, the RCLA also provides certain defenses which limit the contractor's liability to a homeowner. Specifically, a contractor is not liable for:
[Top] What Happens If A Settlement Is Not Reached? There are several ways that both homeowners and contractors can default under the RCLA, thereby preventing a settlement. A homeowner can default under the RCLA in one of two ways:
The determination that the settlement offer by the contractor is "reasonable" is made by the jury. Therefore, a homeowner who rejects an offer of settlement faces substantial risk that a jury may, potentially years later, find the rejection "unreasonable" and deny the homeowner all attorney's fees incurred after the contractor's offer was rejected, as well as any other damages beyond the reasonable cost of repair. Given the potentially devastating consequences to the homeowner of an "unreasonable" rejection of a settlement offer, any claimants who believe they have received an unreasonable offer of settlement should contact an attorney immediately before accepting or rejecting the offer. Bear in mind that a settlement offer not accepted within 25 days is considered rejected, thus time for consulting an attorney is of the essence! A contractor can default under the RCLA in one of three ways:
[Top] How Long Do I Have To File A Lawsuit For Construction Defects In My Home? To best preserve your rights, notice should be sent to the contractor as soon as possible after you discover a construction defect in your home. After notice is sent, you will have to wait 60 days before filing suit. The time limits for bringing a suit for construction defects is controlled by the conduct of your lawsuit claims the contractor committed. For example, claims for construction defects under the Deceptive Trade Practice Act must be brought within 2 years after the construction defects were or should have been discovered. Claims for negligence must be filed within 2 years from the date the negligence occurred, and claims for breach of contract and breach of warranty must be brought within 4 years from the date when the occurred. Frequently, construction contracts with homeowners contain provisions requiring any disputes arising from the contract to be submitted to arbitration. Except in rare cases where courts have found the agreement to arbitrate was fraudulently obtained, Texas courts will usually uphold these agreements as valid. Nevertheless, if you have reason to believe the agreement to arbitrate was not obtained with your consent, and you do not wish to submit your dispute to arbitration, then you should consult an attorney about the possibility of setting aside the agreement to arbitrate. If the agreement states that arbitration is mandatory, then you must participate in arbitration before filing suit. If the agreement says that the arbitration is binding, then the arbitration proceeding will actually take the place of any right you have for a jury to hear your case. In other words, the decision of the arbitrator will be final as to your claims and, with the exception of certain limited circumstances, can be filed by either party with a district court and will be entered as a judgment. [Top] Special Considerations For Construction Defect Claims Under The Deceptive Trade Practices Act Enacted in 1973, the Texas Deceptive Trade Practices & Consumer Protection Act ("DTPA") is perhaps the most familiar statutory remedy for persons damaged by defective products and misrepresentations in the purchase of consumer goods and services. Until the enactment of the RCLA, claims for residential construction defects were primarily presented under the provisions of the DTPA. Although homeowners faced with construction are not currently barred from bringing claims under the DTPA where provisions of the RCLA and DTPA conflict, the RCLA provisions prevail. As such, the RCLA represents the first statutory exception to the DTPA not contained explicitly within the DTPA. In general, if the contractor has complied with the RCLA by making a timely, reasonable, offer of settlement, then the DTPA action is subject to the liability defenses and the damages cap provided by the RCLA. Homeowners who believe they have a claim under the DTPA must comply with the notice provisions of both the DTPA and the RCLA before filing a suit for damages as a result of a construction defect under the DTPA. One method to minimize the waiting periods before filing suit is to combine the notice requirements of both the RCLA and DTPA into one letter. Regardless of whether the DTPA and RCLA letters are combined or not, the DTPA still provides that you must wait 60 days after the receipt of the DTPA letter to file a lawsuit claiming violations of the DTPA. For more information on the DTPA, please write for "A GUIDE TO THE DECEPTIVE TRADE PRACTICES CONSUMER PROTECTION ACT" at the address listed on the back of this publication. [Top] What If The Contractor Makes Repairs, But The Repairs Do Not Cure The Defect? Neither courts nor the RCLA provide any specific guidance for what happens when the contractor or a third party hired by the contractor performs repairs, but the repairs fail to cure the construction defect. If you as a homeowner find yourself in this position, the safest course of action is to consult an attorney. [Top] How Does The RCLA Affect Construction Defect Claims Under My Home Warranty Policy? As of 1933, the definition of a contractor was expanded to include "risk retention groups" which insure all or part of a builder's liability for construction defects. These companies, such as Home Buyers Warranty and Residential Warranty Company, should not be confused with homeowner's insurance carriers, such as State Farm or Allstate. The latter groups of insurance companies is not considered "risk retention groups" by the State Board of Insurance, and are thus not subject to the RCLA. Under typical home warranty policies, the warrantor is obligated to "step into the shoes" of the builder to satisfy certain types of claims. Usually, the warranty company is only obligated in the first two years when the builder fails to meet specific warranty obligations. In the remaining years of the policy, the warrantor's coverage is limited to "Major Structural Defects", as that term is defined by the policy. If your builder is backed by a warrantor, the recommended course of action is to send the warranty company a certified copy of the RCLA notice sent to the builder. Because the warranty company is included in the definition of a "contractor", the warrantor is required to follow the same procedure outlined previously for making an offer of settlement. In response to a notice letter, some warranty companies will provide forms for homeowners to itemize their damages. Although these forms may be required by the warrantor before performing warranty work, they are not necessary to invoke the 45-day answer period under the RCLA. Rather, any form of notice sent to the warrantor by certified mail return receipt requested which sets forth the defects in reasonable detail is sufficient to start the RCLA clock. Nevertheless, if your warranty company asks you to fill out a claim form, you should do so promptly to preserve any rights you may have under the policy. [Top] Do I Need An Attorney? Depending on the nature of the defect, the first, best use of your money may be to seek the expert assistance of an engineer, architect, residential inspector, contractor and/or another appropriate expert to determine the nature of the problem and the scope of damages to your home. The opinions of an expert will better ensure that your demand letter contains the level of specificity required under the RCLA, and has the added benefit of providing a benchmark which the repairs proposed by the contractor can be measured against. Additionally, an expert investigation of your home may reveal further damage not readily discernible to the average homeowner. The Act does not require the homeowner to hire independent experts, nor does it state that the homeowner has the burden of determining the cause of the defect and/or a plan of repair. However, when the damage to the home is severe, homeowners who do not obtain independent consultation may find themselves at a distinct disadvantage when faced with evaluating the contractor's offer of settlement. In most cases, homeowners can and should attempt to work out their differences with the contractor before consulting with an attorney. Consider, however, that once the notice letter is sent, the homeowner must permit the contractor to inspect and repair the home. Given that this process could take as much as ninety days, homeowners who are representing themselves should send the RCLA notice letter as soon as they have sufficient information to describe the construction defect in reasonable detail. As long as the homeowner's RCLA letter satisfies the statutory requirement of "reasonable detail" and is sent by certified mail, return receipt requested, it should be sufficient to trigger the contractor's duty to respond in a timely fashion. Another reason for providing notice under the RCLA early in a dispute with a contractor is that the parties can always agree to extent any of the time periods mandated by the RCLA. For instance, if a contractor agrees to undertake extensive and lengthy repairs, the homeowner and contractor may agree to extend the 45-day period for completion of repairs. To be valid under the RCLA, all agreements to extend the statutory time periods must be in writing. Finally, putting a contractor on notice soon after the construction defect is discovered will prevent the problem of contractors getting "too many bites of the apple". This situation arises when a homeowner allows the contractor numerous opportunities to repair but fails to give notice as required by the RCLA. Eventually, the homeowner becomes frustrated by the constant disruption of repair work, and seeks the advice of an attorney. Unfortunately, because the technical notice requirements of the RCLA were not adhered to, the attorney will have no alternative but to advise the client to send the RCLA notice letter and permit the contractor yet another opportunity to make repairs. If the contractor finally complies, the homeowner will have no recourse for the months of disruption caused by the chronic disrepair of the home. Residential construction defects can range from simple "finish-out" items to complete structural failure. Usually the nature and extent of the damages will control whether homeowners can adequately prosecute their own claims, or whether expert legal and technical assistance should be retained. If you do have an attorney assisting you in investigating your damages and preparing the RCLA notice letter, the RCLA permits recovery of those fees. In fact, it has been argued that a "reasonable" offer of settlement should include compensation for the homeowner's reasonable and necessary attorney fees, if any, incurred as of the date the offer is accepted or rejected. Regardless of the type of construction defects in your home, if a dispute with your contractor reaches the point where you wish to reject an offer of settlement or institute legal proceedings, the Texas Young Lawyers Association strongly recommends that you consult an attorney. Although you always have the right to represent yourself in a lawsuit to recover damages to your home, most consumers will find themselves at a severe disadvantage in a dispute against an experienced contractor. [Top] Conclusion If both homeowners and contractors comply in good faith under the provisions of the RCLA, The Act could be a valuable tool to settle residential construction defect claims without necessity of litigation. However, if you believe that a contractor has not complied in good faith with the procedures set forth in the RCLA, then do not hesitate to seek legal consultation. The law firm of McCreary & Stockford, L.P. at 972-377-8181 may be able to help. [Top] Appendix: RCLA Timeline Day Action Taken 1 Homeowner sends notice by certified mail, return receipt requested specifying the defects in reasonable detail. 35 Deadline for contractor to inspect defects, if desired. 45 Deadline for contractor to make written settlement offer. * Date settlement offer is received + 25 days = Deadline for acceptance of offer. * Date settlement acceptance is received + 45 days = Deadline for completion of repairs. 61 Suit may be filed. [Top] |