When California enacted the Right to Repair Act in 2002 (Civil Code sections 895 – 945.5), it sought to implement a 10-year statute of limitations which would bar any actions brought more than 10 years after “substantial completion.” To do this, the Legislature borrowed language from section 337.15 of the Code of Civil Procedure which, similarly, imposed a 10-year limitations period on construction defect claims following substantial completion of a project. However, the Legislature did not borrow all of the provisions in 337.15 regarding how to determine the objective date of “substantial completion.” The older statute contained 4 “triggering events,” any one of which would begin the running of the 10-year limitations period. Civil Code section 941, the new 10-year statute, explicitly adopts only one of these triggering events. Section 941(a) directs that, “Except as specifically set forth in this title, no action may be brought to recover under this title more than 10 years after substantial completion of the improvement but not later than the date of recordation of a valid notice of completion.”
A California Court of Appeal was recently tasked with determining when the new statute’s 10-year limitations period begins to run. Hensel Phelps was the general contractor on a mixed-use project in San Diego. The project included a residential condominium tower which would eventually be managed by Smart Corner Owners Association. Smart Corner was not a party to Hensel Phelps’ construction contract. A certificate of substantial completion was signed by the architect, a Hensel Phelps representative, and an owner’s representative in May 2007. The project owner recorded a notice of completion on July 10, 2007. The City of San Diego issued a certificate of occupancy on July 17, 2007. Smart Corner did not provide notice of its construction defect claim until July 6, 2017. In the trial court, Hensel Phelps sought to have the case dismissed via motion for summary judgment on the grounds that both the project owner and Hensel Phelps had conclusively determined that substantial completion had been achieved more than 10 years before Smart Corner gave notice of its defect claim.
This novel proposition by Hensel Phelps—that parties may contractually establish the date when a limitations period begins to run on another party’s cause of action—did not pass muster with the trial court, and Hensel Phelps appealed. The appellate court, noting that other states have also rejected similar contentions, denied Hensel Phelps’ petition. The court explained that the date of substantial completion is “an objective fact about the state of construction of the improvement, to be determined by the trier of fact. It is a statutory standard, not a contractual one.” In doing so, the court acknowledged that the date of substantial completion may in some instances be different for different parties in connection with the same underlying construction project. The court concluded that the plain meaning of Section 941 “compels the conclusion that a recorded notice of completion is not the only way to trigger the running of the statute,” and noted that an agreed-upon date of substantial completion may be persuasive indirect evidence, but it is not conclusive. Becausea bright-line rule establishing a date for substantial completion was found not to be supported by the statutory language or legislative history, it will be more challenging for developers and contractors to know with certainty when their potential liability for construction defects will end.