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New Property Owners, Beware: Possible Shortened Time to Bring Defective-Construction Claims



The Oregon Supreme Court issued a decision on February 19, 2016, affirming a decision to dismiss a homeowner's claim against a builder for defective construction.

In Shell v. Schollander Companies, Inc., 350 Or 552 (2016), defendant, a builder, began construction on a "spec" home in 1999. When the home was approximately 95 percent complete, plaintiff purchased the home from defendant. On June 22, 2000, defendant recorded a notice of completion, and the county issued a certificate of occupancy seven days later. Defendant, however, was still making repairs to the house until the sale closing date—July 12, 2000. Plaintiff subsequently commenced an action against defendant on June 25, 2010, alleging that the outside shell of the house had been negligently constructed. Defendant filed a motion arguing that plaintiff's claims were time-barred.

At issue was the applicable statute of repose. A statute of repose establishes a deadline that cuts off a right to bring an action against a party. Defendant argued that the statute of repose for negligence (found in ORS 12.115) applied, while plaintiff argued that the statute of repose for construction claims (set forth in ORS 12.135) governed.

Although both statutes provide for a ten-year statute of repose, the two repose periods begin to run from different dates. The repose period for negligence under ORS 12.115(1) runs from "the date of the act or omission complained of." The repose period for a construction claim under ORS 12.135(1)(b), however, runs from the date that construction is "substantial[ly] complet[e]." The statute defines "substantial completion" as "the date when the contractee accepts in writing the construction, alteration or repair of the improvement to real property * * * or, if there is no such written acceptance, the date of acceptance of the completed construction, alteration or repair of such improvement by the contractee." ORS 12.135(4)(b).

Defendant argued that ORS 12.135 was not applicable because (1) plaintiff did not contract with defendant to build the house and (2) the allegations related to the shell of the home, which was completed no later than June 22, 2000. Plaintiff argued that ORS 12.135 should govern because a jury could decide that the construction of the house was not substantially complete until the sale closed on July 12, 2000.

The trial court sided with defendant and dismissed plaintiff's claims. The supreme court affirmed, holding that ORS 12.135 applies only if there is a "contractee" who accepts a completed construction contract in writing, and a contractor-contractee relationship must be present. Because plaintiff did not have a construction contract with defendant, she did not get the benefit of a longer period in which to bring claims under ORS 12.135.

The takeaway from this decision is that as long as a contractor does not contract to perform construction with a buyer, the statute of repose may begin to run on a buyer's claims even while the contractor is continuing work on the structure. The decision is particularly applicable to "spec homes," or homes that a builder or developer constructs for sale to the general public upon completion rather than a specific owner.

The relevant portions of the statutes discussed in this post are included below. Click here to read the supreme court opinion.

ORS 12.115

(1) In no event shall any action for negligent injury to person or property of another be commenced more than 10 years from the date of the act or omission complained of.

(2) Nothing in this section shall be construed to extend any period of limitation otherwise established by law, including but not limited to the limitations established by ORS 12.110 [Actions for certain injuries to person not arising on contract].

ORS 12.135

(1) An action against a person by a plaintiff who is not a public body, whether in contract, tort or otherwise, arising from the person having performed the construction, alteration or repair of any improvement to real property or the supervision or inspection thereof, or from the person having furnished design, planning, surveying, architectural or engineering services for the improvement, must be commenced before the earliest of:

(a) The applicable period of limitation otherwise established by law;

(b) Ten years after substantial completion or abandonment of the construction, alteration or repair of a small commercial structure, as defined in ORS 701.005 [Definitions], a residential structure, as defined in ORS 701.005 [Definitions], or a large commercial structure, as defined in ORS 701.005 [Definitions], that is owned or maintained by a homeowners association, as defined in ORS 94.550 [Definitions for ORS 94.550 to 94.783], or that is owned or maintained by an association of unit owners, as defined in ORS 100.005 [Definitions] * * *."

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