THE RESIDENTIAL CONSTRUCTION LIABILITY ACT: WHERE ARE WE NOW?

1. INTRODUCTION 1
2. RESIDENTIAL CONSTRUCTION LIABILITY ACT 2
1. Application of the RCLA 2
1. SCOPE 2
2. RELATIONSHIP OF THE RCLA TO THE DTPA 2
3. PARTIES 4
2. Notice of Defects 5
1. CONTENT OF NOTICE LETTER 5
2. ACTUAL DELIVERY SHOULD NOT BE REQUIRED 5
3. NOTICE, ABATEMENT AND THE RUNNING OF LIMITATIONS 6
4. COPY OF LETTER SHOULD BE SENT TO WARRANTY INSURANCE COMPANY 6
3. Contractor's Offer of Settlement 6
1. CONTRACTOR'S OPPORTUNITY TO INSPECT DEFECTS 7
2. WRITTEN OFFER OF SETTLEMENT 7
3. CONSEQUENCES OF FAILING TO MAKE A REASONABLE OFFER 8
4. IMPOSSIBILITY OF PERFORMANCE 10
4. Response to Settlement Offer 10
1. ACCEPTANCE OF REPAIR OFFER 10
2. REJECTION OF SETTLEMENT OFFER 10
5. Limitations on Liability and Damages 10
1. AFFIRMATIVE DEFENSES 11
1. No liability for negligence of others 11
2. Mitigation of damages defense 11
3. Two exceptions for damages within industry tolerances 11
4. Reliance on government records 11
2. COMMON LAW DEFENSES STILL APPLY 11
3. DAMAGES RECOVERABLE UNDER THE RCLA 12
6. Procedural Matters 12
1. STATUTE OF LIMITATIONS CONCERNS 12
2. COUNTERCLAIMS ASSERTING CONSTRUCTION DEFECTS 12
3. CAUSATION 12
3. RECENT DEVELOPMENTS IN CASE LAW 12
1. O'Donnell v. Roger Bullivant of Texas, Inc. 12
2. Bruce v. Jim Walters Homes, Inc. 13
3. In re Kimball Hill Homes Texas, Inc. 14
4. Perry Homes v. Alwattari 15
5. Sanders v. Construction Equity, Inc. 16
4. LEGISLATIVE HISTORY OF THE RCLA 16
1. 1989 Passage of the RCLA 16
2. 1993 Amendments 16
3. 1995 Amendments 16
4. 1997 Failed Amendments 18
5. 1999 Amendments 20
6. 2001 Failed Amendments 20
5. CONCLUSION 18

Abstract

Until 1989, when the Residential Construction Liability Act, TEX. PROP. CODE, §27.001, et seq. ("RCLA") was first enacted by the Texas Legislature, residential construction litigation was handled like any other Deceptive Trade Practices - Consumer Protection Act, TEX. BUS. & COM. CODE, §17.41, et seq. ("DTPA") Since enactment of the RCLA, homeowners complaining of construction defects must go through an additional set of notice and opportunity to cure procedures before filing suit. Homeowners who do not strictly follow the RCLA can be penalized by having their lawsuits abated or their damages severely limited in a subsequent lawsuit.

The original proponents of the RCLA stated their intent in creating Chapter 27 of the Texas Property Code was to restore a fair and appropriate balance to the resolution of residential construction disputes between contractors and owners. Homebuilders and home warranty companies argued that contractors should have an opportunity to cure construction defects before being subjected to the monetary settlement provisions of the DTPA. By limiting a homeowner's damages in certain, specific circumstances, the RCLA was intended to encourage resolution of construction disputes and to protect and reward responsive contractors who timely fixed their mistakes.

Despite the avowed purpose of builder lobbyists to foster "balance" in the resolution of construction disputes, builder advocates and lobbyists have, at nearly every legislative session since the Act was passed, attempted to redesign the RCLA to further restrict homeowner rights. The laudatory words of the RCLA's proponents belie their intent to create blatant special interest legislation that would protect good and bad builders alike.

The sizable risks to both sides involved in residential construction defect cases, coupled with the mounting prevalence of arbitration, make the task of revision of the RCLA essential. Contractors and homeowners alike will be served by a critical examination of the Act's goals and a well-considered inquiry into the statutory mechanisms best suited to achieve those goals.

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