Lawyers can be as fond of their acronyms as they are of their Latin. Percepio? The statute of limitations, or “SOL” as we attorneys sometimes refer to them, is one example. The statute of limitations, or SOL, for latent defects is 10 years in California.
Or at least, it could be, after a recent decision by the California Court of Appeals.
In June, the California Court of Appeals for the First District held for the first time ever that California’s 10-year statute of limitations for latent defects can be shortened if parties contractually agree to a shorter limitations period.
In Brisbane Lodging, L.P. v. Webcor Builders, Inc., Case No. A132555 (June 3, 2013), a developer who tried to argue that California’s 10-year statute of limitations for latent defects couldn’t, or more accurately shouldn't, be limited – despite a provision in its construction contract providing for a shorter limitations period – found to its chagrin that SOL can mean more than just the statute of limitations.
The case involved the design and construction of a 210-room Radisson Hotel. The contract, an AIA A201 Standard Form of Agreement Between Owner and Contractor (Cost Plus Fee) (AIA A201), provided in Article 220.127.116.11.1 that:
As to acts or failures to act occurring prior to the relevant date of Substantial Completion, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than such date of Substantial Completion . . . .
The project was substantially completed on July 31, 2000. In early 2005, the developer, Brisbane Lodging, L.P. (Brisbane), discovered a sewer line break. Although repairs were attempted by the contractor, Webcor Builders, Inc. (Webcor), the problems continued, and Brisbane later filed suit against Webcor in May 2008.
The Trial Court Decision
In the trial court, Webcor successfully argued that under Article 18.104.22.168.1. of the AIA A201, the statute of limitations began to run on the date of “substantial completion” which was July 31, 2000, that Brisbane failed to file its lawsuit within four years of that date, and instead filed its lawsuit almost eight years later in May 2008.
The Court of Appeals Decision
On appeal, Brisbane argued that under the “delayed discovery rule,” the statute of limitations did not begin to run until it “discovered” the defect, that it did not discover the defect until 2005, and that it filed its lawsuit three years later, within four years of discovering the defect. Brisbane further argued that the court should find the shorter limitations period provided under Article 22.214.171.124.1 to be void because California has a 10-year statute of limitations for latent defects.
The Court of Appeals disagreed. While recognizing that under the delayed discovery rule a cause of action does not begin until the “plaintiff either (1) actually discovered his injury and its negligent cause or (2) could have discovered [the] injury and cause through the exercise of reasonable diligence,” the Court held that because “sophisticated parties should be allowed to strike their own bargains” that the shorter limitations period in the contract was enforceable.
In addition, the Court held that the provision was not void as a matter of public policy. “[W]e disagree with Brisbane’s position that public policy supports an iron-clad, universal rule that in all cases involving latent defects, the applicable statute of limitations cannot begin to run until the defects were or should have been discovered, notwithstanding a contractual agreement to the contrary.”
What This Means To You
Although the California Courts of Appeal have previously upheld contractual provisions which have shortened otherwise applicable statute of limitations, insurance contracts being one example, this is the first reported case in California that enforced such a provision in a construction contract.
Furthermore, although the case involved a specific provision of the AIA A201 – Article 126.96.36.199.1 – which has been changed in the current version of the AIA A201 (2007) – what is clear is that California courts will now enforce shorter limitations periods in construction contracts, at least between sophisticated parties.
What remains unclear, is whether California courts will limit the Brisbane decision to cases involving latent defects, and whether California courts will apply the Brisbane decision to contractual provisions which not only specify an earlier “trigger” date for commencement of statutes of limitation (for example, substantial completion vs. discovery, as in Brisbane), but shorter statute of limitations in and of themselves (for example, 4 years vs. 10 years for latent defects).