The reality and complexity of residential construction defect litigation was a much debated subject at the turn of the millenium. In late 2002, SB 800 was signed into law adding a new Title 7 to the California Civil Code ("Title 7"). Title 7 is often referred to as the "Right to Repair Law" because it establishes a dispute resolution process between a homebuilder and a homeowner which includes a right of the homebuilder to attempt to repair any failure of a new home to meet the performance standards established by Title 7. These performance standards were intended to apply to every component and function of a home and the failure of a home to satisfy a performance standard provides the homeowner with an opportunity to file a claim to commence a prelitigation dispute resolution process. If the prelitigation dispute resolution process does not result in a satisfactory repair or agreement, then the dispute may proceed to litigation or arbitration.
Title 7 includes several requirements which a homebuilder must satisfy in order to preserve its right to repair and its right to attempt to resolve a claim through the prelitigation dispute resolution procedure. Title 7 also permits a homebuilder to create an alternative prelitigation dispute resolution procedure which replaces the procedure set forth in Title 7 if certain requirements are satsified. The law requires a homebuilder to record certain documents and to provide certain notices and documents to its purchasers. It also provides homeowners with certain rights and protections, some of which require a homebuilder to preserve plans, specifications and reports. Many of these requierments impact (a) purchase contracts and disclosures, (b) policies and practices relating to homeowner warranties, customer service and dispute resolution, (c) subcontracts, indemnities, insurance and construction specifications, (d) material specifications, (e) manufacturer's representations, (f) installation specifications and procedures, and (g) CC&Rs and other recorded documents.
Title 7 Documents
Since Title 7 was enacted, maintenance manuals have become a standard document. In projects with homeowners associations, two maintenance manuals are often prepared by the homebuilder, one for the buyer and one for the homeowners association. Other standard documents created in direct response to the requirements of Title 7 include a "Master Dispute Declaration" (see "Master Dispute Declaration") and "Individual Dispute Resolution Agreements" (see "Individual Dispute Resolution Agreement"). These two documents provide buyers with notices, disclosures, information and procedures required or encouraged by Title 7.
While homebuilder Warranties (that is, limited warranties) were popular when Title 7 was enacted, Title 7 eliminated many of the purposes of homebuilder Warranties. Now if a homebuilder provides a buyer with a Builder Warranty, several complex issues arise concerning the relationship between the home builder Warranty and Title 7. However, Title 7 does require that homebuilders provide a one year Fit & Finish Warranty document.
Title 7 also applies to homeowners associations ("Associations"). Similar procedures and documentation should also be put into place for Associations, especially those Associations that maintain residential structures (for example, in condominium developments).
Understanding Title 7
There are two basic components to Title 7, both of which were briefly mentioned above. One basic component deals with construction performance standards ("Performance Standards") and the other deals with a statutory pre-litigation procedure for handling buyer claims under Title 7 ("Pre-litigation Procedures"). Each of these components is mandatory unless the homebuilder elects to "opt out" and provide acceptable alternatives. A homebuilder must make decisions regarding each of these components. A homebuilder may "opt out" of either or both of these components, provided that the homebuilder complies with the "opt out" procedures set forth in Title 7.
The following two sections describe these two basic components of Title 7. Or, you may proceed to the Procedural Requirements area for further overview.
Despite being enacted almost 20 years ago, Title 7 is still too new to know how many of its provisions will be interpreted. Many of its provisions are so ambiguous and uncertain that they are practically unintelligible. Until the California courts provide sufficient guidance, these ambiguities cannot be clearly addressed.
The existence of ambiguities, and the difficulty of implementing a program to comply with Title 7 do not justify a failure to fully comply. Any program developed to implement Title 7 must be regularly updated as the courts interpret Title 7 and the legislature modifies it. Given the significant ambiguities in Title 7, it is likely the legislature will continue to periodically fiddle with Title 7. In addition, as the courts begin to issue more opinions which interpret Title 7, it is likely that some surprising interpretations will become legal precedent, modifying the way homebuilders will need to implement Title 7. For many reasons, any implementation program is very likely to require regular updating.