Homebuilders: Good News About Your Alternative Nonadversarial Prelitigation Contractual Provision
The recent ruling in Baeza v. Superior Court upheld the alternative nonadversarial prelitigation contractual provision utilized by one homebuilder.
California Senate Bill 800 (“Right to Repair” or “Fix It” law; Civil Code sec. 895, et. seq.) became effective Jan. 1, 2003. Among other things, it provided for a pre-litigation process to allow developers to settle potential construction defect lawsuits by offering to repair the claimed defects, mediating the disputes, and/or making a cash offer to buy back the residence. (Civ. Code sec. 910, et seq.)
As an alternative to that method, that law permits a seller-builder to include an alternative pre-litigation procedure in its sales contracts with buyers, subject to certain specified conditions. (Civ. Code sec. 914.)
On December 14, 2011, in the case of Baeza v. Superior Court, the court ruled that Castle & Cooke’s alternative procedure passed statutory muster. The homeowners contended that C&C’s failure to provide certain disclosures and documents (required by Civil Code sec. 912) eliminated any need to engage in any nonadversarial prelitigation procedures, statutory or contractual. The court disagreed, ruling that C&C’s opting out of the statutory scheme in favor of an alternative process that necessarily included certain disclosures was enforceable. The court further ruled that C&C’s attempt to limit damages, which the homeowners contended also voided the alternative procedure, was severable and did not eliminate the requirement to comply with the alternative prelitigation process set forth in the sales contracts.
Homebuilders are well-advised to include alternative nonadversarial prelitigation provisions in their sales contracts. Just be sure they comply with SB 800.
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