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Contractual Right to Repair in Arizona in the Absence of Laws Like California’s SB 800

Senate Bill 800, codified in California Civil Code § 895 et seq., established a mandatory process requiring homeowners alleging defective conditions in their homes to provide builders with an opportunity to repair property before the homeowners could file suit.  This provided an opportunity for contractors and owners to avoid litigation by making repairs to property, and enforced that right by precluding would-be plaintiffs from filing actions until after the opportunity to repair was spurned or the repair efforts failed. 

In Arizona, there is no law analogous to SB 800 or the related “Calderon Process,” which requires that claims made by homeowners’ associations against developers go through a 180-day pre-litigation process attempting to resolve claims before litigation can be pursued.   Arizona has the Purchaser Dwelling Act (PDA), which purports to require notice of claims and opportunities for response and negotiation between owners and homeowners.  However, the well-meaning statutory scheme is completely undermined by a provision (A.R.S. Section 12-1366) where the sales contract provides for commercially reasonable alternative dispute resolution procedures.  As can be imagined, the PDA is rendered inapplicable more often than not by this provision. 

While developers and contractors have not unilaterally deleted ADR provisions to take advantage of the PDA, they recently have attempted to impose SB 800-like limitations on claims contractually.  There is no appellate word on the acceptability of this practice, but it has been successful at the trial level.  In a recent case, multiple homeowners asserted claims against a developer regarding alleged defects in homes in a development.  The homeowners purported to comply with the notice requirements of the PDA, and the developer investigated and made offers to repair.  The homeowners rejected the offers and filed suit.  

The developer responded by filing a motion to dismiss the complaint.  It relied on the covenants, conditions and restrictions for the development, which provided that an owner’s only remedy for claims of negligent design or construction was “the right to have the Alleged Defect repaired and/or replaced by the Builder which was responsible for the construction of the improvement. … Under no circumstances will any Builder or Declarant be liable for any consequential, indirect, special, punitive or other damage.  The developer then relied on standard law for two propositions — that restrictive covenants running with the land are binding on those who take title subject to the restrictive covenants, and that contracts by real property owners relating to the property are binding except in extraordinary circumstances.   The motion was successful in spite of the claims by the homeowners that the language was void as against public policy. 

This case or one like it is bound to make its way to the Arizona Court of Appeals, but unless this line of reasoning is disproved, this is a useful way for owners and developers to limit construction defect claims.

Construction

John L. Condrey



Construction

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