2005-02-11

MINNESOTA COURTS AND LEGISLATURE CLARIFY CONSTRUCTION DEFECT LAWS

Last year, a major construction defect case was decided by the Minnesota Supreme Court.  In addition, the Minnesota Legislature enacted a new statute of repose, clarifying divergent Court decisions on the issue.  The Court decision and new statute provide clarification to property owners, construction contractors, attorneys and judges. 

The Vlahos Decision

Last summer, the Minnesota Supreme Court decided the Vlahos v. R&I Construction of Bloomington, Inc., 676 N.W.2d 672 (Minn. 2004).  The Vlahos decision provides that the two year statute of limitations for statutory warranty claims does not begin to run until the builder actually breaches the warranty.  In order to have breached the warranty, the builder must be unable to, or refuse to, remedy the problem asserted by the homeowner.  The case specifically states that “we hold that the applicable statute of limitations, Minnesota Statutes Sec. 541.051, subd. 4, begins to run when the homeowner discovers, or should have discovered, the builder’s refusal or inability to ensure the home is free from major construction defects.” 

The basic facts of the Vlahos case are as follows:

In 1999, the Vlahoses purchased a lakefront home from the Rovicks, which had been constructed in 1990 by R&I Construction of Bloomington, Inc. (“R&I”).  During the Rovicks’ occupancy and possession of the home, they experienced water and moisture related problems with the home.  Prior to closing, the Vlahoses hired a building inspector and negotiated a $20,000 credit for repair of noted water infiltration issues.  During an extensive remodeling project undertaken by the Vlahoses in April 2000, they discovered significant additional water damage to the home.  The additional water damage was discovered behind walls and involved the decay of interior floor trusses, ceiling trusses and other load-bearing supports throughout the residence.  The Vlahoses contacted R&I to make repairs.  R&I refused to repair any of the damages and the Vlahoses commenced suit.

In their lawsuit, the Vlahoses denied any awareness of the extent of damage to the home prior to the remodeling project.  In May 2000, the Vlahoses provided both oral and written notice of the problems and their claims to R&I.  They gave R&I an opportunity to repair and/or pay for the repair of the damage to the home.  R&I and its insurance company inspected the home as the damage was being discovered.  However, R&I refused to repair and/or pay for any of the damages.  Initially, the District Court and Court of Appeals granted judgment to R&I on the basis that the damage occurred after the home was complete.  However, the Minnesota Supreme Court disagreed with this analysis.

The Minnesota Supreme Court decision made the following issues clear:

1.            Minnesota Statutes Sec. 541.051, subd. 4, is the applicable statute of limitations for Chapter 327A warranty claims;

2.            The two-year statute of limitations begins to run when the homeowner discovers, or should have discovered, the builder’s breach of warranty (i.e. “the builder’s refusal or inability to ensure the home” is as warranted.);

3.            The 10 year statutory warranty applicable to “major construction defects” extends to actual damage to load-bearing portions of the dwelling occurring after the completion of construction; and

4.            The discovery of a breach of warranty by the original homeowner will trigger the running of the statute and could bar a subsequent homeowner’s claim.

Minnesota’s Amended Statute of Repose

During last year’s legislative session, Minnesota Statute Sec. 541.051, subd. 4, was amended.  The amendment took effect on August 1, 2004.  The amendment language provides as follows:

“In the case of an action under Sec. 327A.05, which accrues during the 9th or 10th year after the warranty date, as defined in Sec. 327A.01, subd. 8, an action may be brought within two years of the discovery of the breach, but in no event may an action under Sec. 327A.05 be brought more than 12 years after the effective warranty date.”

By enacting this amendment, the legislature has now clarified that the absolute bar date for construction claims is 12 years after the effective warranty date.  The statute defines the “warranty date” under Sec. 327A.01, subd. 8, as “the earlier of:  a) the date of the initial buyer’s first occupancy of the dwelling; or b) the date on which the initial buyer takes legal or equitable title to the dwelling.”

The amended law closes a “loophole” created by a 2001 court case.  That court case, Koes v. Advanced Design, 636 N.W.2d 352 (Minn. Ct. App. 2001), essentially held that the statute of limitations provided for in Minnesota Statutes Sec. 541.051 did not apply to certain claims made under Chapter 327A.  Due to the clarification of the statute of repose, it is now applicable to claims made under Chapter 327A. 

In summary, the primary “trigger” for potential claims has been defined.  The Vlahos decision implies that a builder does not breach the applicable statutory warranties until the builder refuses, or is unable to, honor its warranty.  The statute, as amended, also clarifies that the builder’s potential liability for warranty claims absolutely ends 12 years after the warranty date.