Effective June 9, 2023, Texas has shortened its statute of repose from the existing 10-year statute for builders of new homes to 6-years under specific conditions. The significantly shorter statute of repose bars suits against construction contractors of detached one-and two-family homes and townhomes, filed six years after the substantial completion of such homes, where the contractor also furnished a written warranty in compliance with the statute. Notably, projects including apartments, mixed-use, and hotels are not covered by the new law. It is also noted that a grey area in the law exists as to whether condominiums will be covered by the statute. The statute of repose strictly bars the filing of any action, claim or arbitration demand regardless of when the injury was actually discovered (latent defects) and is separate and distinct from any applicable statute of limitations.
The New Texas Statute of Repose Law
Under the Texas Civil Practice & Remedies Code § 16.009, persons who construct or repair improvements to real property cannot be sued for defective or unsafe conditions of the property or deficiencies in the construction or repair of the improvement later than 10 years after substantial completion of the improvement, except in certain narrow circumstances. This statute is known as the “statute of repose.” The statute applies not only to suits for construction defects, but also personal injury, wrongful death, contribution, and indemnity.
The statute of repose was amended to, among other things, shorten the time period from 10 years to 6 years for claims against certain contractors who issue a written warranty with the following minimum terms: (1) 1-year warranty for workmanship and materials; (2) 2-year warranty for plumbing, electrical, heating, and air-conditioning delivery systems; and (3) 6-year warranty for major structural components. The key is a written warranty must be extended to the homebuyer at the time of purchase for the statute to be triggered.
The new 6-year statute of repose applies to a “Residence,” which is defined as the real property and improvements for (1) a detached one-family or two-family dwelling, (2) a townhouse not to exceed three stories above grade plane in height with a separate means of egress, or (3) an accessory structure not more than three stories above grade plane in height. Note that condominiums do not fall within the statute’s definition of “Residence.”
The statute incorporates the Residential Construction Liability Act’s definition of “Contractors” (Texas Property Code Section 27.001) to whom the statute of repose applies. This definition has been partially amended, but the amendment does not take effect until September 1, 2023. Both the prior version of Section 27.001 and the new version include in the definition of a “Contractor,” a builder who contracts with an owner for the construction or repair of a new residence, as well as a builder who contracts with an owner for the repair or alteration of, or an addition to, an existing residence, or appurtenance to a new or existing residence. The pre-September 1, 2023 definition also includes any person contracting with a purchaser for the sale of a new residence constructed by or on behalf of that person; this definition is amended as of September 1, 2023 to be any person contracting for the sale or construction of a new residence constructed by or on behalf of that person.
Effective Date and Extending Time
The new law is effective as of June 9, 2023 and applies to suits commenced on or after that date. However, if the contract under which the claim is brought was entered into before June 9, 2023, the former 10-year version of the statute of repose applies. In other words, the statute applies to contracts entered into on or after June 9, 2023, if the contract has at least a 1-2-6 warranty. The six-year statute of repose starts with typically a valid Certificate of Substantial Completion, Certificate of Occupancy, or a Close of Escrow following sale of the home.
If a written claim for damages, contribution, or indemnity is presented to the builder during the applicable limitations period and the 6-year statute of repose applies, the time to sue is extended one year from the date the claim is presented. In practical effect, this means that if a written claim is presented and the statute of repose expires before suit is filed, suit may still be filed provided it is within one year of the date the written claim was made.
Exceptions to the Statute
There are a few examples where the statute of repose may be extended or not apply. Claims presented in a formal notice (i.e. a written claim for damages, contribution, or indemnity to the person performing or furnishing the construction or repair work) in the sixth year as noted above may be extended one year from the date of the claim being presented. Additionally, if there is an injury or death occurring in the sixth year, traditionally the claimant may bring suit up to two years after suffering the injury, damage or death. Finally, the willful misconduct and fraudulent concealment exception under Texas case law states the owner has the burden to show the contractor had actual knowledge of the wrong, a duty to disclose the wrong and a fixed purpose to conceal the wrong. This could also extend the statute of repose if proven.
The new statute has some unresolved questions effecting the statute of repose. First, what is considered a sufficient written warranty? Some traditional warranties have exclusions built into the warranty language (Ex. American Construction & Education Services Inc. warranty) that could negate the effectiveness of the statute. What about limiting the implied warranty of good and workmanlike performance with overriding express warranties? In Centex Homes and Centex Real Estate v. Buecher (2002) 18 S.W.3d 807, the Texas Supreme Court allowed the substitution of the implied warranty of good and workmanlike performance with an express warranty providing for the “manner, performance, or quality of desired construction.” (Id.) Finally, what about 3-story homes or townhomes more than 3-stories tall? This vertical construction trend is an unknown in terms of applicability of the statute.
Practical Tips for Homebuilders
The intent behind the statute according to the legislative history captured in the bill’s House Research Organization report, a goal of the new law was to incentivize builders to provide stronger written warranties to homeowners. Accordingly, it is imperative that the builder/contractor who wants to inure to the benefits of the statute furnish no-qualification warranties (Ex. 2-10 warranties) and provide warranties expressly covering (1) 1-year warranty for workmanship and materials; (2) 2-year warranty for plumbing, electrical, heating, and air-conditioning delivery systems; and (3) 6-year warranty for major structural components.