A fixer-upper Featured

7:00pm EDT February 28, 2007

In a state such as California, where newly constructed homes are increasingly more complex and built at a rapid rate, construction defects are bound to arise from time to time. This is not to say that homebuilders are not working hard at quality control, but construction is not an exact science, and — despite a builder’s best efforts — unintentional mistakes can occur.

California homebuilders now support the new Fix It Law that applies to all homes sold in California after Jan. 1, 2003. The Fix It Law was designed to give builders a chance to fix defects before customers can file legal claims against their company, says John O’Hara, a partner at Newmeyer & Dillion LLP.

Although many states now have right-to-repair statutes, the Fix It Law was one of the first legislative schemes enacted and is the most complex, says O’Hara.

Smart Business spoke with O’Hara about the terms of the new law, the benefits of the law and the overall effectiveness of the law for homebuilders.

How does the Fix It Law benefit the home-building industry?

The major benefit is that homebuilders now have a statutory right to repair defects before homeowners may initiate a court action or arbitration proceeding. The right to repair is important for most builders, because it is consistent with their corporate philosophy to provide excellent customer service and retain homebuyers as customers for life.

Builders are in the business of building homes, not litigating construction defects. Litigation is extremely expensive; it creates uncertainty and often lasts for several years. This law allows developers to control their own destiny and focus on what they do best: building homes and serving customers.

What steps must a company take to abide by the Fix It Law, and does this law work?

The lengthy and complex Fix It Law contains numerous requirements that the builder must abide by in order to preserve the right to repair. Accordingly, any builder who wishes to invoke the right to repair must read the Fix It Law very carefully.

As a general overview, a builder must provide a copy of the Fix It Law to home-buyers, designate an agent to receive claims, provide copies of any maintenance obligations and schedules, and be prepared to access project documents, notify sub-contractors, conduct inspections and complete repairs immediately after receipt of a notice of claim.

It is probably too early to tell whether the Fix It Law will work to provide builders with a meaningful right to repair. Builders are committed to making it work, but plaintiff attorneys in California are equally committed to undermining the right to repair because it effectively cuts them out of the deal. I expect that there will be some legal battles fought over the next few years but that the California courts ultimately will interpret the Fix It Law to provide for a meaningful right to repair.

The entire Fix It Law can be found at www.newmeyeranddillion.com.

How can developers and builders avoid defect claims?

There are two basic ways to avoid defect claims. The first is to build better houses by implementing strict quality control programs during construction. Most builders have been operating quality control programs for years and continue to improve these programs while learning from their mistakes.

The second way is to implement an effective customer service program. After a home is built and sold, there must be a team in place ready to respond quickly to complaints and inquiries from buyers.

Why is it important for builders to invest in protective measures or hire a Fix It Law claims agent?

Protective measures increase customer satisfaction and reduce construction defect litigation. Increasing customer satisfaction means that the customer and the customer’s family and friends are more likely to purchase another home from the builder. Reducing construction defect litigation means that the builder is cutting litigation costs, allowing management to focus on building and reducing insurance premiums.

What steps should a builder take if presented with a claim?

Assuming that the builder’s philosophy is to invoke the right to repair and to avoid litigation, the first thing a builder should do is to make sure it has amended its documents to conform to the Fix It Law. These documents include construction contracts, purchase and sale documents, title documents, CC&Rs, homeowner manuals, construction and maintenance standards, warranties, sales and customer service procedures, and insurance requirements.

Next, the builder should establish a comprehensive response plan and be prepared to spring into action to implement the plan as soon as a Fix It Law claim is served.

JOHN O’HARA is a partner at Newmeyer and Dillion LLP. Reach him at john.ohara@ndlf.com or (949) 854-7000.