Report Title:

Contractors Opportunity to Repair

Description:

Allows contractors the opportunity to repair construction defects prior to litigation; outlines process to be followed before litigation is filed.

HOUSE OF REPRESENTATIVES

H.B. NO.

2725

TWENTY-SECOND LEGISLATURE, 2004

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO CONSTRUCTION CLAIMS.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds a need for an alternative method to resolve construction disputes that reduces the need for litigation while still protecting claimants' rights. The legislature further finds that an effective alternative dispute resolution mechanism for construction defects should require the claimant to serve a notice of claim with the construction professional responsible for the defect and allow the construction professional an opportunity to resolve the dispute without litigation.

The purpose of this Act is to enact a notice and opportunity to repair law.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter    

CONTRACTOR REPAIR ACT

§   -1 Definitions. The following terms, whenever used in this chapter, shall have the following meanings, unless a different meaning clearly appears in context:

"Action" means any civil lawsuit or arbitration in which damages or other relief may be awarded or enforced with respect to an alleged construction defect.

"Association" means a nonprofit, incorporated, or unincorporated organization upon which responsibilities are imposed and authority is granted in a declaration or the bylaws.

"Claimant" means any person, entity, partnership, corporation, or association asserting a claim concerning an alleged construction defect.

"Common area" means real property within a planned community which is owned or leased by the association or is otherwise available for the use of its members or designated as common area in or pursuant to the declaration or bylaws.

"Construction defect" means a deficiency in, or arising out of, the design, specifications, surveying, planning, construction, supervision, or observation of construction of a dwelling or premises.

"Contractor" means any person, firm, partnership, corporation, association, or other organization that is engaged in the business of designing, developing, constructing, or selling a dwelling or commercial, industrial, or hotel facilities.

"Dwelling" means a single-family house, duplex, or multifamily unit designed for residential use, including common areas and improvements that are owned or maintained by an association or by members of an association.

"Planned community" means a common interest community including condominiums and cooperative housing corporations, excluding time share plans.

"Premises" means a dwelling or a commercial, industrial, or hotel facility, including common areas and improvements that are owned or maintained by any person, firm, partnership, corporation, association, or other organization that is engaged in a commercial, industrial, or hotel business. Premises includes the systems, other component improvements, other structures, or recreational facilities appurtenant to, but not necessarily a part of the dwelling or facility.

"Service" means personal service or delivery by certified mail, return receipt requested, to the last known address of the addressee.

§   -2 Applicability; administration. All claimants filing an action alleging construction defects shall comply with this chapter. This chapter shall not apply to any actions that arise out of claims for personal injury or death. This chapter shall be administered by the department of commerce and consumer affairs.

§   -3 Notice of claim for construction defect. The claimant, no later than ninety days before filing an action against a contractor, shall serve the contractor with a written notice of claim. The notice of claim shall state that the claimant asserts a construction defect claim and is providing notice pursuant to the requirements of this chapter. The notice of claim shall describe the claim in reasonable detail sufficient to explain the nature of the alleged construction defect and the results of the defect, if known.

§   -4 Rejection of claim; opportunity to repair construction defect. (a) The contractor may reject the claimant's claim of construction defects by:

(1) Serving the claimant a written rejection of the claim; or

(2) Not replying to claimant's notice of claim within thirty days after service.

(b) The contractor, within thirty days after service of the notice of claim, may serve the claimant and any other contractor that has received the notice of claim a written response for each alleged construction defect that either:

(1) Offers to settle the claim without inspecting the construction defect by:

(A) Monetary payment;

(B) Making repairs to the defect; or

(C) Both subparagraphs (A) and (B); or

(2) Proposes to inspect the premises of the alleged construction defect that is the subject of the claim.

(c) Thirty days following any proposal for inspection under subsection (b)(2), the claimant shall provide the contractor and its subcontractors, agents, experts, and consultants prompt and complete access to:

(1) Inspect the premises;

(2) Document any alleged construction defects; and

(3) Perform any destructive or nondestructive testing required to evaluate the nature, extent, and cause of the alleged construction defect and the nature and extent of any repair or replacement that may be necessary to remedy the alleged construction defect.

If destructive testing is required, the contractor shall give claimant advance notice of tests and, after completion of the testing, shall return the premises to its pre-testing condition. If any inspection or testing reveals a condition that requires additional testing to allow the contractor to fully and completely evaluate the nature, cause, and extent of the construction defect, the contractor shall provide notice to the claimant of the need for additional testing and the claimant shall provide access to the premises. If a claim is asserted on behalf of owners of multiple dwellings, or multiple owners of units within a multifamily complex or for a commercial, industrial, or hotel facility, then contractor shall be entitled to inspect each of the dwellings or units.

(d) Within fourteen days following completion of the inspection and testing, the contractor, subcontractor, supplier, or design professional may serve on the claimant a written:

(1) Offer to fully or partially remedy the construction defect at no cost to the claimant. Offers shall include a description of any additional construction necessary to remedy the construction defect and an anticipated timetable for the completion of the additional construction;

(2) Offer to settle the claim by monetary payment;

(3) Offer for a combination of repairs and monetary payment; or

(4) Statement that the contractor will not proceed further to remedy the construction defect.

§   -5 Written notice of acceptance; access to premises. (a) The claimant, within thirty days after receipt of contractor's settlement offer, may accept any offer by serving the contractor with a written notice of acceptance. If no written notice of acceptance or rejection is served pursuant to this subsection and section    -6, then the settlement offer shall be deemed accepted by the claimant.

(b) If a claimant accepts a contractor’s offer to repair a construction defect, the claimant shall provide the contractor and its subcontractors, agents, experts, and consultants prompt and unfettered access to perform and complete the construction by the timetable stated in the settlement offer.

§ -6 Written notice of rejection; reasonable settlement offers. (a) The claimant, within thirty days after receipt of contractor's settlement offer, may reject any offer by serving contractor a written notice of rejection. The notice shall include specific factual and legal reasons, if known, for the rejection of the settlement offer.

(b) If claimant believes contractor's settlement offer is unreasonable, claimant shall detail in the written notice of rejection the specific factual and legal reasons, if known, for contractor's unreasonableness.

(c) If claimant rejects a reasonable settlement offer or does not permit the contractor to repair the construction defect pursuant to an accepted settlement offer, the claimant may not recover in a subsequent action an amount in excess of:

(1) The reasonable cost of the offered repairs which are necessary to cure the construction defect and which are the responsibility of the contractor; or

(2) The amount of the monetary settlement offered by the contractor;

whichever is greater.

§   -7 Nonbinding mediation. (a) The parties shall attempt to resolve the construction defect dispute through nonbinding mediation if:

(1) The contractor rejects the claim or does not respond to the claimant's notice of claim within the time limits under section    -4;

(2) The claimant accepts the contractor's settlement offer, under section    -5 and the contractor does not make any monetary payment or fails to remedy the construction defect within the agreed timetable; or

(3) The claimant rejects the settlement offer made by the contractor, and claimant has served a written notice of the rejection to the contractor under section    -6.

§   -8 Statute of limitation exception. If an applicable statute of limitation would preclude an action, after the notice of claim has been served but before the dispute can be resolved under this chapter, the claimant may file an action against the contractor, but the action shall be immediately abated pending the contractor's opportunity to repair or the nonbinding mediation process under this chapter. This subsection shall not be construed to:

(1) Revive a statute of limitations period that has expired prior to the date on which a claimant’s written notice of claim is served; or

(2) Extend any applicable statute of repose. After the sending of the initial notice of claim, a claimant and a contractor, by written mutual agreement, may alter the procedure for the notice of claim process under this section.

§   -9 Additional construction defects. (a) A construction defect discovered after the notice of claim is served may not be alleged in an action until the claimant has given the contractor:

(1) Written notice of claim regarding the alleged defect under section    -3; and

(2) An opportunity to repair the construction defect under section    -4.

§   -10 Release; insurance. If a claimant accepts a settlement offer and the contractor fulfills the offer, the:

(1) Claimant shall be barred from bringing an action for the construction defect described in the notice of claim; and

(2) Contractor shall be deemed, for insurance purposes, to have been legally obligated to make the repairs or the monetary payment as if the claimant had recovered a judgment against the contractor in the amount of the cost of the repairs or the amount of the monetary payment.

§   -11 Contract of sale; provisions. (a) Upon entering into a contract for sale, construction, or substantial remodeling of the premises, the contractor shall provide notice to the owner of the premises of the contractor’s right to resolve alleged construction defects before a claimant may commence litigation against the contractor. The notice shall be conspicuous and included as part of the contract.

(b) The notice required by subsection (a) shall be in substantially the following form:

THE HAWAII REVISED STATUTES CONTAINS IMPORTANT REQUIREMENTS YOU MUST FOLLOW BEFORE YOU MAY FILE A LAWSUIT OR OTHER ACTION FOR DEFECTIVE CONSTRUCTION AGAINST THE CONTRACTOR WHO DESIGNED, REPAIRED, OR CONSTRUCTED YOUR HOME OR FACILITY. NINETY DAYS BEFORE YOU FILE YOUR LAWSUIT OR OTHER ACTION, YOU MUST SERVE ON THE CONTRACTOR A WRITTEN NOTICE OF ANY CONSTRUCTION CONDITIONS YOU ALLEGE ARE DEFECTIVE. UNDER THE LAW, A CONTRACTOR HAS THE OPPORTUNITY TO MAKE AN OFFER TO REPAIR AND/OR PAY FOR THE DEFECTS. YOU ARE NOT OBLIGATED TO ACCEPT ANY OFFER MADE BY A CONTRACTOR. THERE ARE STRICT DEADLINES AND PROCEDURES UNDER THE LAW, AND FAILURE TO FOLLOW THEM MAY AFFECT YOUR ABILITY TO FILE A LAWSUIT OR OTHER ACTION.

§   -12 Actions of associations. (a) A person shall not provide or offer to provide anything of value, directly or indirectly, to a property manager of an association or to a member or officer of an association to induce the property manager, member, or officer to encourage or discourage the association to file a claim for damages arising from a construction defect.

(b) A property manager retained by a homeowner’s association shall not accept anything of value, directly or indirectly, in exchange for encouraging or discouraging the association that he manages to file a claim for damages arising from a construction defect.

(c) A member or officer of an association shall not accept anything of value, directly or indirectly, in exchange for encouraging or discouraging the association of which he is a member or officer to file a claim for damages arising from a construction defect.

(d) A person who knowingly violates subsections (a), (b), or (c) shall be guilty of a misdemeanor.

(e) An association may bring an action against a contractor to recover damages resulting from construction defects in any of the common areas only of the planned community. The action may be maintained only after:

(1) The association first obtains the written approval of each unit’s owner whose interest in the common areas will be the subject of the action;

(2) A vote of the units' owners, to which at least a majority of the votes of the members of the association are allocated, pursuant to subsection (h);

(3) The full board of directors of the association and the contractor have met in person and conferred in a good faith attempt to resolve the association’s claim, or the contractor has definitively declined or ignored the requests to meet with the board of directors of the association; and

(4) The association has otherwise satisfied all of the pre-action requirements for a claimant to commence an action under this chapter.

(f) At least three business days in advance of any vote to commence an action by an association to recover damages resulting from construction defects in the common areas of the planned community, the attorney representing the association shall provide to each unit’s owner a written statement that includes, in reasonable detail:

(1) The defects and damages or injuries to the common areas;

(2) The cause of the defects, if the cause is known;

(3) The nature and the extent that is known of the damage or injury resulting from the defects;

(4) The location of each defect within the common areas, if known;

(5) A reasonable estimate of the cost of the action or mediation, including reasonable attorney’s fees and costs, expert fees, and the costs of testing; and

(6) All disclosures that the unit owner is required to make upon the sale of the unit.

(g) An association or an attorney for an association shall not employ a person to perform destructive tests to determine any damage or injury to a unit or common area caused by a construction defect unless:

(1) The person is licensed as a contractor pursuant to chapter 444;

(2) The association has obtained the prior written approval of each unit’s owner whose unit or interest in the common area will be affected by such testing;

(3) The person performing the tests has provided a written schedule for repairs;

(4) The person performing the tests is required to repair all damage resulting from such tests in accordance with applicable state laws and county ordinances;

(5) The association or the person so employed obtains all permits required to conduct such tests and to repair any damage resulting from such tests; and

(6) Reasonable prior notice and opportunity to observe the tests is given to the contractor against whom an action may be brought as a result of the tests.

(h) An association may commence an action only upon a vote or written agreement of the owners of the units to which at least a majority of the votes of the members of the association are allocated. The association shall provide written notice to the owner of each unit of the meeting at which the commencement of an action is to be considered or action is to be taken at least twenty-one calendar days before the meeting.

(i) The board of directors of an association, without giving notice to the units’ owners, may employ a contractor and other persons as are necessary to make immediate repairs to a unit or common area within the planned community as are required to protect the health, safety, and welfare of the units’ owners.

§   -13 Other actions; punitive damages not allowed. (a) Nothing in this chapter shall create any cause of action not provided in this chapter on behalf of any claimant or contractor.

(b) This chapter shall not apply to a contractor’s right to seek contribution, indemnity, or recovery against a subcontractor, supplier, or design professional for any claim made against a contractor by a claimant.

(c) No punitive damages may be awarded for any claim involving construction defects.

§   -14 Dismissal without prejudice. The court or arbitrator shall dismiss, without prejudice, any action failing to meet the requirements set forth in this chapter."

SECTION 3. Section 444-25.5, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) All licensed contractors performing home construction or improvements shall provide a written contract to the homeowner. The written contract shall:

(1) Contain the information provided in subsection (a) and any other relevant information that the board may require by rule;

(2) Contain a notice of contractor's right to resolve alleged construction defects prior to commencing any litigation in accordance with section    -11;

[(2)] (3) Be signed by the contractor and the homeowner; and

[(3)] (4) Be executed prior to the performance of any home construction or improvement."

SECTION 4. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect upon its approval.

INTRODUCED BY:

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