Home Construction Defect Case Prelitigation Procedure Under California Civil Code Section 914 Backfires on Homebuilder Drafting Its Own Contract Provision

Posted in: Alternative Dispute Resolution, Construction Law, Real Estate Law by Steven Vartabedian on

In 2002, hoping to reduce construction litigation and the impact on housing costs, the California Legislature enacted Civil Code sections 895-945.5 that included a nonadversarial prelitigation procedure requiring home purchasers, who believe their home may be defective, to give the builder notice of the claimed defects and an opportunity to investigate and repair the defects prior to the homeowner being allowed to bring a lawsuit. Section 914, subdivision (a), allows the builder to provide in the home purchase contract an alternative procedure to that provided by statute so long as the alternative procedure is “fair and enforceable.”

In Anders v. Superior Court (filed February 7, 2011) 2011 DJDAR 2137, the homeowner petitioners, owners of 54 homes built by real party Meritage Homes, filed their lawsuit for alleged defects without exhausting the prelitigation procedure. Meritage moved in the trial court to require the procedure it had prescribed in its home sale contracts. The Stanislaus County trial court found the particular procedure set out in the contracts unconscionable and unenforceable; however the court found it appropriate to require the homeowners to comply with the statutory prelitigation procedures. The homeowners petitioned the California Court of Appeal, Fifth Appellate District, to be relieved of this prelitigation requirement claiming the unenforceability of the builder’s contractual procedure exempted them from having to comply with the statutory procedure. The appellate court agreed with the homeowners, with the exception of two homeowners whose contractual provision contained an election to use the statutory procedure.

The Court of Appeal points to the plain language of the statute that stated the builder’s election was binding regardless of the success or unenforceability of the builders own contractual provision; that the builder waives the statutory provision by so electing. The trial court tried to take a practical approach, in the appellate court’s view, by thinking the statutory procedure “would not harm them (the homeowners) and might be beneficial.” But the problem with that thought, as is correctly noted by the appellate court, is the statute absolutely precludes such recourse.

In my view, the appellate court also correctly denies even considering Meritage’s request that it should alternatively prevail because the trial court erred in finding the contract provision unconscionable; it only filed an opposition to the writ of mandate thus no such challenge was before the court. I do find it interesting however that the notice- of-defect procedure itself in the contract, as quoted in opinion, seems entirely innocuous as parroting the statutory procedure. Rather, it appears that the finding of unconscionability may have resulted from linking the contractual resolution process with binding contractual arbitration and/or the builder’s stated right to record these provisions to bind successors of the present homeowners. (See my discussion of Villa Vicenza.) Wearing my mediator hat at the law firm of Dowling, Aaron and Keeler, I cannot help but feel discouraged by the seeming negative view that appears to be emerging concerning binding arbitration–that clauses requiring such are becoming disfavored in some corners.

In any event, homebuilders and their attorneys should learn a lesson from this: do not endanger any help you might get from this beneficial statutory scheme by trying to insert your own contractual provisions that might waive your statutory rights. Sometimes less lawyering is more.

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