Last month, this column provided an overview of House Bill 383, passed by the Ohio General Assembly earlier this year and effective August 31, 2012. The new law establishes Chapter 4722 of the Ohio Revised Code, enacting the Home Construction Service Supplier Act (the “Act”). The Act will now govern major portions of contracts for new construction and remodeling services. This month’s column outlines key strategies builders and remodelers should employ to adhere to the Act, gain its benefits and avoid liability.
Although the Act contains many benefits for builders, it also codifies strong legal rights for homeowners. The best defenses against litigation are still building a quality product, thoroughly documenting the construction decision making process with items like signed changed orders, and maintaining a solid warranty program. All points of customer contact, field staff, and sales and construction personnel should be trained on the Act, the existing builder’s right to cure in the Revised Code, and the builder’s contracts and warranties. With the Act’s emphasis on liability stemming from prohibited acts, builders and staff must “live by” the procedures, requirements and details of the Act. Key strategies to adhere to the Act are as follows:
Existing Ohio Revised Code §1312, the “Builder’s Right to Cure” and the Act are not reconciled under the Act and exist independently in the Ohio Revised Code. The Act does not state that alleged violations of the “workmanlike” standard negate the requirement that homeowners must provide the builder with the right to cure notice prior to taking legal action under R.C. 1312. BIA form contracts take the position that the right to cure notice must be complied with first, and builders must be allowed to assess alleged defects in the home, before actions under the Act are pursued. The provisions of R.C. 1312 thus act as a bar to legal actions under the Act if the right to cure procedures are not followed.
Pro-active action by a builder when a construction defect is alleged by a homeowner is critical and typically gains the best results, regardless of the legal backdrop. First, the builder should assert his or her right to cure by fully investigating the allegations, visiting the home, documenting alleged issues, interviewing any expert the owner has hired, and making a full written response to the allegations of defects. If something was not built correctly or a construction standard was violated, it should be fixed. It is more than likely that it will be less costly and more productive for a builder to address a construction defect issue quickly and permanently. In turn, most homeowners respond favorably to quick, positive builder responses to real issues.
The Act covers contracts for construction, without making reference to warranty agreements. The Act does not address warranty agreements and rights and responsibilities there-under. The BIA form warranty agreement has been written as an independent contract, with separate consideration exchanged between parties. The homeowner receives twelve (12) month warranty service as needed, with limitations specified. The builder receives an absolute right to address and cure alleged defects arising in the context of warranty procedure before the homeowner can take legal action. The BIA form warranty provides a cure procedure based in part on statutory concepts of R.C. 1312 with mandatory arbitration as a back up if the builder’s cure does not end the dispute.
In this way, the BIA limited warranty does not waive the homeowners’ rights to enforce construction standards or seek remedies under the Act. Rather, the warranty agreement creates a form of alternative dispute resolution that in most cases will be quicker, easier, better, and cheaper than legal action. Builders need to understand that the Act does not have a specific time limit for homeowners to assert their rights. The applicable Statutes of Limitations for negligence and contract legal actions are four (4) and eight (8) years under Ohio law, respectively.
In some cases, builders may want to service defect issues under the warranty agreement terms, even after the warranty period has closed, especially when a defective condition from original construction is evident. If service is provided outside the warranty period, it should be documented as an exception to the agreement, not to be expected or extended for future items. Providing and servicing warranties and acting to cure defects under warranty extensions can be highly effective in avoiding litigation and satisfying customers.
One of the main benefits of the Act is that it takes home construction contracts out of the unclear standards, triple damages, and attorney’s fees provisions of the Ohio Consumer Sales Practices Act (“CSPA”). However, a review of the “prohibited acts” the Act reveals many old CSPA pro-consumer concepts made it into the Act. Fully understanding and complying with the Act in conjunction with using the strategies outlined herein will help builders take full advantage of the positive aspects of the Act.
Contact Tom Hart at Wiles, Boyle, Burkholder & Bringardner: (614) 221-5216, thart@wileslaw.com
Contact Alicia Zambelli at Wiles, Boyle, Burkholder & Bringardner: (614) 221-5216, azambelli@wileslaw.com