Construction Defect Claims and the Often Misunderstood Application of Express and Implied Warranties

excavators-800996_1920A claim for breach of construction warranty must be filed within the time allowed by the applicable statutes of limitation or repose.  Most jurisdictions, including Massachusetts, allow parties to modify that period by agreement.  The agreement must be particular and leave no question as to the intent of the parties to alter the period of limitations for breach of warranty claims.  A poorly drafted or ambiguous provision is likely to be construed as a separate promise by a contractor to return and address defective workmanship, in addition to other warranty obligations.  The owner and contractor equally benefit from clarity in understanding their respective rights and obligations when it comes to warranty requirements.

The statute of limitations for a breach of express warranty claim is generally determined by the statute of limitations for breach of contract.  The time of accrual of the statute of limitations will vary depending on the state.  For example, some states’ statutes of limitations accrue at substantial completion, while others accrue upon discovery of the disputed defect.  A breach of implied warranty claim is generally regarded as a claim sounding in negligence, and is therefore subject to state statutes of limitations for negligence.  In most jurisdictions, including Massachusetts, this means that implied warranty claims must be brought within three years of the time that the claim was discovered or reasonably should have been discovered.

For breach of warranty claims involving the sale of goods, the UCC provides a four-year statute of limitations.  The UCC allows parties to reduce the period to no less than one year, but the period may not be extended.  Subject to certain exceptions, UCC warranties, express or implied, commence upon the tender of the goods, without regard to whether the tender was of conforming or conforming goods.  This is a drastic limitation because the breach is deemed to occur at the tender of delivery and not when the defect is discovered.  This concept excludes claims for latent defects and claims under warranties that are by their nature explicitly extend to future performance.

Regardless of the time of discovery of the breach of warranty, a statute of repose may well prevent an untimely claim.  In Massachusetts, M.G.L. c. 260, § 2B contains a six-year statute of repose in which time any action of tort for damages arising out of any deficiency or neglect in the design, planning construction or general administration of an improvement to real property.  Unlike a statute of limitations, a statute of repose is inflexible, regardless of the date of discovery.

Contract language is paramount and will in most instances, dictate the extent of warranty obligations.  The relevant language in the American Institute of Architects (AIA) A201 General Conditions of the Contract for Construction, commonly referred to as the “quality standard,” reads as follows:

A claim for breach of construction warranty must be filed within the time allowed by the applicable statutes of limitation or repose.  Most jurisdictions, including Massachusetts, allow parties to modify that period by agreement.  The agreement must be particular and leave no question as to the intent of the parties to alter the period of limitations for breach of warranty claims.  A poorly drafted or ambiguous provision is likely to be construed as a separate promise by a contractor to return and address defective workmanship, in addition to other warranty obligations.  The owner and contractor equally benefit from clarity in understanding their respective rights and obligations when it comes to warranty requirements.

The statute of limitations for a breach of express warranty claim is generally determined by the statute of limitations for breach of contract.  The time of accrual of the statute of limitations will vary depending on the state.  For example, some states’ statutes of limitations accrue at substantial completion, while others accrue upon discovery of the disputed defect.  A breach of implied warranty claim is generally regarded as a claim sounding in negligence, and is therefore subject to state statutes of limitations for negligence.  In most jurisdictions, including Massachusetts, this means that implied warranty claims must be brought within three years of the time that the claim was discovered or reasonably should have been discovered.

For breach of warranty claims involving the sale of goods, the UCC provides a four-year statute of limitations.  The UCC allows parties to reduce the period to no less than one year, but the period may not be extended.  Subject to certain exceptions, UCC warranties, express or implied, commence upon the tender of the goods, without regard to whether the tender was of conforming or conforming goods.  This is a drastic limitation because the breach is deemed to occur at the tender of delivery and not when the defect is discovered.  This concept excludes claims for latent defects and claims under warranties that are by their nature explicitly extend to future performance.

Regardless of the time of discovery of the breach of warranty, a statute of repose may well prevent an untimely claim.  In Massachusetts, M.G.L. c. 260, § 2B contains a six-year statute of repose in which time any action of tort for damages arising out of any deficiency or neglect in the design, planning construction or general administration of an improvement to real property.  Unlike a statute of limitations, a statute of repose is inflexible, regardless of the date of discovery.

Contract language is paramount and will in most instances, dictate the extent of warranty obligations.  The relevant language in the American Institute of Architects (AIA) A201 General Conditions of the Contract for Construction, commonly referred to as the “quality standard,” reads as follows:

§3.5 WARRANTY

The Contractor warrants to the Owner and Architect that materials and equipment furnished under the Contract will be of good quality and new unless the Contract Documents require or permit otherwise. The Contractor further warrants that the Work will conform to the requirements of the Contract Documents and will be free from defects, except for those inherent in the quality of the Work the Contract Documents require or permit. Work, materials, or equipment not conforming to these requirements may be considered defective. The Contractor’s warranty excludes remedy for damage or defect caused by abuse, alterations to the Work not executed by the Contractor, improper or insufficient maintenance, improper operation, or normal wear and tear and normal usage. If required by the Architect, the Contractor shall furnish satisfactory evidence as to the kind and quality of materials and equipment.

The contractor therefore warrants (1) that materials and equipment used by the contractor will be new and of good quality unless otherwise required; (2) the work will be free from defects other than those inherent in the work as specified; and (3) the work will conform to the requirements of the contract documents.  This is a relatively unremarkable, vanilla promise on the part of the contractor.  Notably, there is no time limitation.

The A201 also contains a one-year “call-back period,” which reads as follows:

§12.2.2.1 In addition to the Contractor’s obligations under Section 3.5, if, within one year after the date of Substantial Completion of the Work or designated portion thereof or after the date for commencement of warranties established under Section 9.9.1, or by terms of an applicable special warranty required by the Contract Documents, any of the Work is found to be not in accordance with the requirements of the Contract Documents, the Contractor shall correct it promptly after receipt of written notice from the Owner to do so unless the Owner has previously given the Contractor a written acceptance of such condition.

This language is generally construed by the courts as a separate promise by the contractor to return and address defects when properly notified by the owner, for a one-year period following substantial completion.  Therefore, it does not represent or constitute a one-year contractual warranty period.

A contractor wishing to eliminate warranty obligations beyond a designated, contractual period must clearly state as much in its written contract with the owner.  The written term must explicitly state the intent of the parties is to limit all warranty obligations, express or implied, except for that which is specifically contained in the subject clause.  Any language that falls short of this standard may well fail to accomplish the type and extent of limitation intended or expected by the contractor.

In this author’s experience, most contractual warranties fall short of this standard, and therefore most contractors operate under a false sense of security that their warranty obligations are so limited.  In fact, these obligations can extend for several years out, depending on the nature of the defect and how and when the defect is ultimately discovered.  As a result, the contractor (and the surety) may well be exposed to extended liability until the state statute of limitations or statute of repose has run.  The risk to the contractor is substantial.  Large-scale construction defect claims often lay hidden in the weeds for years before the true extent of the damage manifests.  When the risk does occur, years have passed making investigatory and analysis functions more difficult and sometimes impossible, if witnesses have died, companies have folded, or landscapes have changed.  Front-end due diligence and contract preparedness will go a long way towards mitigating against this risk.

About David Fine

David is an partner in the firm's Litigation Group and is chair of the Construction Law Group. David serves as litigation counsel for contractors, subcontractors, suppliers and other business concerns within the construction industry. He regularly advises his clients on matters such as contract drafting and dispute resolution, surety bond claims, mechanics liens and bid protests. David works closely with a number of local and regional trade organizations, and he often lectures and writes about topics pertinent to the construction industry.
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