Here’s how the Purchaser Dwelling Act protects residential contractors

Real Estate | 24 Sep |

Contractors can enjoy Purchaser Dwelling Act protection only if they are aware of their rights and obligations, and they comply with the requirements that the Purchaser Dwelling Act imposes at each step of the process.

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Under Arizona’s Purchaser Dwelling Act (PDA), a purchaser of a residence is barred from filing a construction defect lawsuit until the purchaser gives the seller – including residential contractors – reasonable notice of the alleged defects and an opportunity to cure them.

Jason Clark is a construction litigation attorney at Lang & Klain, P.C., in Scottsdale.

The PDA is contained in A.R.S. §§ 12-1361 to -1366. It was enacted in 2002 and has been amended multiple times, most recently in 2019.

Given the PDA’s sweeping application to most residential construction and remodeling projects, residential contractors should familiarize themselves with its current requirements, which are summarized in this article.

Some of the statute’s terms are confusing. For example, the definition of “seller” includes contractors, subcontractors, etc. For the purpose of this article, which is written for residential construction professionals, we will use the term “contractor.”

Dwelling Action

The Purchaser Dwelling Act applies to all “dwelling actions” – any action “involving a construction defect brought by a purchaser against the seller of a dwelling arising out of or related to the design, construction, condition or sale of the dwelling.”

While it uses the terms “purchaser” and “seller,” the PDA is not limited to new home construction and sales; it also extends to construction projects that repair, remodel, or alter an existing residence. Thus, the PDA arguably applies to most residential construction defect lawsuits.

Exceptions. The Purchaser Dwelling Act does not apply to personal injury or death claims; claims to damage to property other than a dwelling; common law fraud; complaints filed with the Arizona Registrar of Contractors (ROC); or claims solely seeking recovery of monies the purchaser already expended to repair alleged defects.

Pre-Litigation Notice

Except when there is an immediate threat to the safety of occupants or visitors, a purchaser cannot file a dwelling action before it provides the contractor with written notice that specifies:

• the address of the subject dwelling

• each alleged construction defect with sufficient detail to allow the contractor to identify the alleged construction defect

• the location of each alleged construction defect at the subject dwelling

• the impairment the construction defect has caused, or is reasonably likely to cause, to the structural integrity, the functionality, or the appearance of the dwelling if the defect is not repaired or replaced.

This pre-litigation notice must be sent via certified mail, return receipt requested.

Contractor Rights, Obligations After Receiving a Purchaser Dwelling Act Notice

The contractor’s receipt of a purchaser’s written notice triggers important rights and obligations.

First, the contractor must promptly forward the notice to all construction professionals that the contractor reasonably believes are responsible for any of the alleged defects. Notice can be sent by mail, fax or email.

Second, upon request, the contractor is entitled to inspect the dwelling and the alleged construction defects. The purchaser must make the dwelling available for such inspection within 10 days from when the inspection request is made.

Third, the contractor must provide a good-faith written response to the purchaser’s pre-litigation notice of alleged defects. The response must be sent via certified mail, return receipt requested. The response can include the contractor’s notice of intent to repair or replace any alleged construction defect, or an offer to provide monetary compensation to the purchaser.

The content of the contractor’s written response dictates the remaining pre-suit obligations between the parties under the PDA:

• If no written response is timely provided, the purchaser is free to proceed to litigation.

• If the written response contains only an offer of monetary compensation, the purchaser may reject the monetary offer and proceed to litigation.

• If the contractor’s response contains a notice of intent to repair or replace the alleged construction defects, the purchaser must allow the contractor a reasonable opportunity to repair or replace the alleged construction defects, as detailed below, before commencing litigation.

Opportunity to Cure

Once a contractor provides a notice of intent to repair or replace the alleged defects, the purchaser and contractor have 30 days to schedule the anticipated repairs and replacements, and must make all reasonable efforts to start the repair or replacement work within 35 days from the contractor’s notice. If a permit is required to perform the repair work, the parties must make reasonable efforts to begin the repair work within 10 days from receipt of the permit or 35 days from the contractor’s notice of intent to repair, whichever is later. The parties can agree in writing to extend any of these time periods.

The purchaser must provide the contractor with reasonable access to perform the repairs or replacements, and the contractor must complete the repairs or replacements with reasonable care and within a commercially reasonable time frame, based on the nature of the repair or replacement (and any issues with access or unforeseen events).

However, regarding the repair or replacement work, a purchaser may ask the seller to select a construction professional that was not involved in the original work and that is acceptable to the purchaser. In that case, the purchaser may not unreasonably withhold consent to the selected replacement contractor.

If, at the end of the repair and replacement process, the purchaser is unsatisfied with the finished product, the purchaser may then commence a dwelling action.

A purchaser may supplement its list of alleged construction defects to include additional defects that that were identified in good faith after service of its original notice, or even after a dwelling action is initiated. In either instance, the contractor is entitled to the same notice and opportunity to inspect and cure the supplemental alleged construction defects.

Litigation Impact

In addition to the pre-litigation requirements, the PDA contains several provisions that affect the litigation of dwelling actions.

• With its dwelling action, the purchaser must verify the facts and allegations in the complaint and affirm that he or she is not receiving, and has not been promised, anything of value in exchange for filing the dwelling action.

• If a purchaser fails to comply with the PDA before bringing a dwelling action, the court must dismiss the dwelling action.

• Each identified construction professional allegedly responsible for a construction defect that forms the basis of a dwelling action must be joined as a third-party defendant, if feasible.

• The parties’ pre-litigation conduct during the repair and replacement process, including the purchaser’s written notice and the contractor’s written response, may be admitted into evidence.

• To the extent permissible, each dwelling action will be bifurcated into two phases. In phase 1, the purchaser has the burden to demonstrate the existence of a construction defect and the damages incurred as a result of the construction defect. In phase 2, the court or arbitrator shall determine and assess the relative degree of fault for each construction defect to the contractor and to any third-party defendant construction professional.

• The prevailing party in any dwelling action is entitled to recover its reasonable attorneys’ fees and court costs.

• In a dwelling action brought by a single purchaser, the prevailing party may recover its reasonable expert witness fees.

Additional Provisions: Sale of Dwellings

In the sale of a newly constructed dwelling, all contracts between a buyer and the contractor responsible for the original construction of the dwelling must contain or attach the following notice, in at least 10-point bold type, alerting the buyer of its right to file a complaint with the ROC:

Under Arizona Revised Statutes section 32-1155, a buyer of a dwelling has the right to file a written complaint against the homebuilder with the Arizona registrar of contractors within two years after the close of escrow or actual occupancy, whichever occurs first, for the commission of an act in violation of Arizona Revised Statutes section 32-1154, subsection A.

Also, a contract for the sale of a dwelling may require disputes to be resolved through arbitration rather than litigation. However, an arbitration provision in the sales contract is enforceable only if (a) the arbitration procedures are conspicuously displayed in the contract in bold and capital letters, and (b) the face of the contract contains a disclosure statement, in at least 12-point, bold and capital letters, that identifies the location of the arbitration procedures.

Conclusion

Consistent with its legislative intent, the PDA requires a fair and effective process by which residential contractors and subcontractors receive a reasonable opportunity to cure alleged construction defects before they must defend a construction defect lawsuit. By the same token, purchasers are also afforded a vehicle to achieve correction of alleged construction defects before resorting to the court system.

However, contractors can enjoy the PDA’s protections only if they are aware of their rights and obligations and they comply with the requirements that the PDA imposes at each step of the process.

 

Jason Clark is a construction litigation attorney at Lang & Klain, P.C., in Scottsdale.

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