Construction Defect Laws

A construction defect is a condition in a person’s home or any other structure that reflects errors or other deficiencies in the construction process. This covers a number of potential problems, from exposed nails and peeling paint to cracked foundations and structural failure. The number of construction defect cases is on the rise as more homes are constructed to meet the demands for housing.

Four Categories of Construction Defects

Construction defects can result from four general types of construction deficiencies:

• Deficiencies in Design: Design deficiencies result from the work of the design and engineering professionals, such as structural engineers and architects, who make errors or fail to respect the applicable building codes and professional standards. For example, a roof that is not designed in accordance with applicable building codes or engineering standards can result in water intrusion or inadequate support.
• Deficiencies in Materials: Material deficiencies include the use of defective or improper building materials. For example, the plan may call for use of a particular grade of wood in an element of a structure, but when the time comes to build the element, that grade is not available. The contractor may substitute a different grade that results in some malfunction of the element. Or, some material required for a structure might be damaged in transit, but the damage is overlooked by the building contractor and the item installed anyways. Again, a malfunction in the element built with the defective material may result;
• Deficiencies in Construction: Construction deficiencies result from poor workmanship during building construction. This can result in issues like cracked foundations, dry rot, electrical problems, plumbing problems, and pest infestation.
• Deficiencies in Preparation of the Subsurface: Subsurface deficiencies occur when soil conditions are unsuitable for the structure that is built on it, making it unstable. Building on unsuitable subsurfaces may result in cracks in the foundation, walls, or floors of a structure.

Can I Recover Damages For Construction Defects?

Common lawsuits for construction defects include negligence, and breach of contract. In order to be successful in a lawsuit that involves construction defects, the assistance of professional expert testimony will be required.

A lawsuit based on breach of contract would probably be brought by the owner against the contractor and others involved in the design, planning and construction of the building project pursuant to a contract.

Two main types of damages can be awarded in a claim for breach of contract based on construction defects. The type awarded in any particular case would depend partly on the nature of the project and extent of the defect. Another factor would be whether the defect deprives the owner of use of its property or interrupts the owner’s business. Construction projects may involve a simple home renovation or a huge multi-billion-dollar public works project
on the other end.

Regardless of the scale of the project, all types of construction defect damages usually fall in to one of two types:

Direct damages: Direct damages comprise the loss in value to the non-breaching party of the other party’s performance caused by the error or deficiency in the breaching party’s performance; With direct damages, a party injured by the breach of a construction contract may recover as direct damages either:

• The difference between the value of the building or work as completed and the value it would have had if the work had been done as specified in the contract, or
• The reasonable cost of correcting the defects to make the work conform to the contract.

Generally, the measure of damages for breach of a construction contract is the cost of repairing the defect. However, if the defect cannot be repaired, an alternative measure is the loss in value of the property caused by the defect. That would be the difference between the fair market value of the property with the defect and the fair market value of the property without it.

The considerations that determine which of the alternative measures of damages is used is whether:

• The defects can be repaired without demolishing and reconstructing a substantial part of the building
• Whether the defects could be repaired at a reasonable cost, or
• Whether construction and completion in accordance with the contract would involve unreasonable economic waste.

Consequential Damages: The other type of damages that are common in construction defect cases are consequential damages. There is no explicit limitation on the type of damages which may be awarded as consequential, but all claimed damages must pass the rigorous test of foreseeability. One common type of consequential damages is lost profits resulting from a breach of contract as long as they are established to a reasonable degree of certainty. Consequential damages must have been reasonable and foreseeable at the time the contract was made.

Punitive damages are awarded only rarely, if the breach of contract involved such egregious wrongs as fraud or conversion.

Keep in mind that in many states, e.g. Colorado, there is a statute of repose that can bar a claim for construction defects. A statute of repose operates similarly to a statute of limitations. However, while a statute of limitations begins to run when a defect is discovered, the statute of repose begins to run upon “substantial completion” of an “improvement to real property”. Thus, the burden is on the owner of an improved property to discover defects.

Defects can be patent, i.e., immediately noticeable, or latent. Latent defects may not reveal themselves for years after a project is completed. Usually a statute of repose gives a person a longer period of time to discover defects and bring a lawsuit than does a statute of limitations.

However, a statute of repose does set a limit even for latent defects. So if a person discovers defects in a structure they own that might have been caused by faulty construction, they should consult an experienced real estate lawyer promptly. Failure to do so risks losing the right to seek compensation.

If construction defects cause some kind of failure of the structure resulting in damage to other property and injury to people, the contractor may be sued for negligence. The law requires all of the parties involved in a construction project, from architects and engineers to builders, to use “reasonable care” in the construction process. Note that general contractors and developers are responsible for the negligence of their subcontractors.

If the parties involved in a construction project do not fulfill their duty of care and their failure results in damage and injury, the injured parties might have a negligence claim.

Damages for negligence are also referred to as “compensatory damages” and they are paid for actual physical injuries and property damage suffered. They are intended to return the victim to the same status they were in before they became the victim of negligence. Sometimes compensatory damages are categorized as tangible and intangible:

• Tangible losses: Tangible losses are those that are easily calculated. For example, tangible damages for personal injury include all medical expenses for treating the physical injury (including costs projected for the future) as well as lost wages both current and projected if the victim must miss work due to their injuries. Property damage is calculated either by the cost of repair or replacement. Property damage may also cover the loss of use of the property while it is being repaired or replaced, e.g., the cost of a rental car while the victim’s car is being repaired.
• Intangible losses: Intangible losses are those without a specific cost attached, such as pain and suffering, emotional distress, mental anguish, and other mental health effects suffered by the victim. The jury is typically responsible for establishing the value of intangible losses as there are no firm rules for calculating damages for pain and suffering or the infliction of emotional distress. Generally, however, the amount must be proportional to the damages awarded for the tangible losses.

Lawsuits based on a theory of strict liability or on a theory of fraud are also possible, but not very common.

Do I Need An Attorney?

If you discover that a structure you own has construction defects, you should consult with an experienced real estate lawyer as soon as possible. If you have a claim for breach of contract, it is important to prosecute it promptly after it is discovered.

Construction defect cases can be complex and require the involvement of experts with construction expertise. They can include several defendants, including engineers, architects, contractors, subcontractors, and insurance companies. An experienced real estate lawyer can give you guidance in a breach of contract case.

If you believe your home may have construction defects, contacting an real estate attorney immediately can help you protect your investment.