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Oregon Supreme Court Affirms Shorter Statute of Ultimate Repose for Spec Homes
March 04, 2016

By Jacob A. Zahniser

On February 19, 2016, the Oregon Supreme Court clarified which of two statutes of ultimate repose apply when a home is built on spec (i.e., “a house built without preexisting construction contracts in anticipation of eventual sale to the public”). Both statutes provide a 10-year repose period, after which time no claims may be brought for negligence in the construction of the home. Under one statute (ORS 12.135), the 10-year repose period runs from the date of substantial completion; under the other statute (ORS 12.115), the 10-year repose period runs from the date of “the act or omissions complained of.” In the residential construction context, this can be two very different dates.

For example, in Shell v. The Schollander Companies, Inc., the contractor began construction in 1999.  In May 2000, before the house was finished, Mrs. Shell decided to purchase it. On June 22, 2000, the contractor recorded a notice of completion. By this time the house’s exterior weather envelope was complete; however, the contractor continued to work on other portions of the house until sometime after July 7, 2000. The sale of the house closed on July 12, 2000. On June 25, 2010, Mrs. Shell served her Notice of Construction defect, asserting negligent construction claims.

The contractor moved for summary judgment based on ORS 12.115. Mrs. Shell argued ORS 12.135 applied so the repose period did not begin to run until she accepted the house as substantially complete on July 12, 2000 when she closed the sale. The trial court rejected that argument, ruling that ORS 12.115 was the applicable statute of repose because Mrs. Shell did not have a contract to build her home, and concluding that, because the alleged “acts or omissions” that gave rise to Mrs. Shell’s negligence claims occurred before she purchased the home, her claims were barred by ORS 12.115. The Oregon Supreme Court affirmed on appeal.

The Court’s analysis pivoted on the word “contractee” in the definition of “substantial completion” under ORS 12.135. The Court reasoned that the legislature’s use of the word “contractee” within the context of “substantial completion” means that the legislature intended ORS 12.135 to apply where there is a contract “to construct, alter, or repair an improvement to real property.”

"Used in that context, the term ‘contractee’ is most naturally understood as referring to a person who entered into a contract to construct, alter, or repair an improvement to real property. Ordinarily, only the person who had entered into such a contract would have reason to accept the contractor’s work as ‘substantial[ly] complet[e].” Conversely, a party entering into a purchase and sale agreement to buy a home ordinarily would have little or no occasion to accept that home as substantially complete. Typically, a purchase and sale agreement for a home conveys title to both an existing home and the underlying land."

In other words, “considered in isolation” the term “contractee” “could refer either to a party to a purchase and sale agreement to buy an existing home or to a party to a construction contract to construct, alter, or repair a home. However, the context in which the legislature used the term ‘contractee’ makes clear that that term refers to a party to a contract to construct, alter, or repair an improvement to real property.”
 
Moving forward, so long as a contractor does not contract to construct a home for a buyer, the statute of ultimate repose will begin to run on the buyer’s claims based on the date of “the act or omissions complained of” even if the contractor continues to work on the house. So, for defectively installed windows, building paper, siding or roofing, the time would begin to run on the date the windows, building paper, siding, or roofing was installed.
 



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