Construction Defects & Middle Market Housing

For construction of multifamily, attached housing of 2 or more units, the act creates the multifamily construction incentive program (program). A builder may chose to participate in the program by:

• Providing a warranty that covers any defect and damage at no cost to the homeowner for specified periods;
• Having a third-party inspection performed on the property; and
• Recording a notice of election to participate in the program in the real property records before the property is offered for sale.

For construction defect claims brought for the construction of housing for which the builder is a participant in the program, the act:

• Requires a claimant to file a certificate of review with the complaint, if the complaint is against an architect or engineer;
• Limits actions to claims that have resulted in: Actual damage to real or personal property; actual loss of the use of real or personal property; actual bodily injury or wrongful death; an unreasonable reduction in the capability of, or an actual failure of, a building component to perform an intended function or purpose; or an unreasonable risk of bodily injury or death to, or a threat to the life, health, or safety of, the occupants of the residential property; and
• Requires that a construction professional must send or deliver to the claimant an offer to settle the claim or a written response that identifies the standards that apply to the claim and explains why the defect does not require repair.

For all construction defect claims, the act:

• Establishes a claimant's duty to mitigate an alleged construction defect and specifies how a claimant may satisfy this duty and the consequences to a claimant that fails to satisfy this duty;
• Requires a construction professional who is the defendant in a construction defect action to submit specified information to the claimant;
• Prohibits an insurer from cancelling, denying, or reducing coverage based on any claim for benefits covered by an existing liability insurance policy issued to a construction professional based on the construction professional's offer to repair or settle a construction defect claim;
• Tolls the statute of limitations or repose during a claimant's mitigation of an alleged construction defect;
• Increases the percentage of owners that an executive board of a unit owners' association (executive board) must obtain approval from before initiating a construction defect claim on behalf of the owners from a majority to 65%; and
• Requires an executive board that is successful in a construction defect claim or settlement to first use the net monetary damages or net proceeds received as a result of the claim to repair the construction defect.

The act requires a local government to establish a fast-track approval process for an application for for-sale multifamily condominium projects in order to qualify for assistance from the state affordable housing fund.

(Note: This summary applies to this bill as enacted.)