BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 1963 (Calderon)
Version: April 4, 2016
Hearing Date: June 14, 2016
Fiscal: No
Urgency: No
TH
SUBJECT
Common Interest Developments: Construction Defects
DESCRIPTION
Existing law requires, until July 1, 2017, a homeowner
association in a common interest development of more than 20
units to follow a pre-litigation dispute resolution procedure
before commencing a design or construction defect action against
a builder, developer, or general contractor. This bill would
extend the above sunset date to July 1, 2024.
BACKGROUND
In California, residential common interest developments (CIDs)
are governed by the Davis-Stirling Common Interest Development
Act (Davis-Stirling Act). Owners of separate property in a CID
have an undivided interest in the common property of the
development and are subject to the CID's covenants, conditions,
and restrictions. Residential CIDs are governed by a homeowner
association, which is run by volunteer directors that may or may
not have prior experience managing an association.
In 1995, the Davis-Stirling Act was amended to require homeowner
associations to take part in specified pre-litigation dispute
resolution procedures before commencing a design or construction
defect action against the builder, developer, or general
contractor of the CID. (See SB 1029, Calderon, Ch. 864, Stats.
1995; Civ. Code Sec. 6000.) According to the Senate Judiciary
Committee analysis of that bill:
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The author has introduced [SB 1029] because in many instances,
expensive and time-consuming litigation alleging defects in
the design or construction of common interest developments are
commenced before the parties have a reasonable opportunity to
discuss the merits of the claim, or to consider alternative
proposals to resolve the claim. The author believes that the
initiation of such litigation prior to a meaningful
opportunity for the parties to meet and confer is detrimental
because of the substantial costs to both parties, and to the
courts, of complex construction defect litigation which in
many instances could be avoided. (Sen. Com. on Judiciary,
Analysis of Sen. Bill No. 1029 (1995-1996 Reg. Sess.) as
amended Mar. 29, 1995, p. 7 [for hearing on May 9, 1995].)
In 2001, the Act was further amended to require an association
to serve a "Notice of Commencement of Legal Proceedings" on the
respondent builder, developer, or general contractor, including
an initial list of defects sufficient to apprise the respondent
of the general nature of the defects at issue, and also
specified timelines and procedures for parties to follow during
the pre-litigation dispute resolution process. (See AB 1700,
Steinberg, Ch. 824, Stats. 2001.) AB 1700 included a sunset
provision that would have rendered the CID pre-litigation
dispute resolution requirement inoperative on July 1, 2010. In
2009, AB 927 (Calderon, Ch. 7, Stats. 2009) extended the
effective date of the CID pre-litigation dispute resolution
requirement to July 1, 2017, and repeals the requirement on
January 1, 2018, unless a later enacted statute deletes or
extends these dates.
This bill would extend until July 1, 2024, the requirement that
homeowner associations take part in the pre-litigation dispute
resolution process, and would repeal this requirement on January
1, 2025, unless a later enacted statute deletes or extends these
dates.
CHANGES TO EXISTING LAW
Existing law , the Davis-Stirling Common Interest Development
Act, defines and regulates residential common interest
developments (CIDs), including the ability of the association to
levy regular and special assessments sufficient to perform its
obligations. (Civ. Code Sec. 4000 et seq.)
Existing law requires, before an association files a complaint
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for damages against a builder, developer, or general contractor
(respondent) of a common interest development based upon a claim
for defects in the design or construction of the common interest
development, certain specified requirements to be satisfied.
(Civ. Code Sec. 6000 et seq.)
Existing law requires an association to serve upon the
respondent a "Notice of Commencement of Legal Proceedings,"
indicating the name and location of the project, an initial list
of defects sufficient to apprise the respondent of the general
nature of the defects at issue, a description of the results of
the defects, if known, a summary of the results of a survey or
questionnaire distributed to homeowners to determine the nature
and extent of defects, if a survey has been conducted or a
questionnaire has been distributed, and either a summary of the
results of testing conducted to determine the nature and extent
of defects or the actual test results, if that testing has been
conducted. (Civ. Code Sec. 6000(b).)
Existing law specifies that service of the notice shall commence
a period, not to exceed 180 days, during which the association,
the respondent, and all other participating parties shall try to
resolve the dispute through a specified process, and states that
service of the notice shall toll all applicable statutes of
limitation and repose, whether contractual or statutory, by and
against all potentially responsible parties, regardless of
whether they were named in the notice, including claims for
indemnity. (Civ. Code Sec. 6000(b), (c).)
Existing law states that, upon receipt of the notice, the
respondent shall provide the association with access to
specified information for the project reasonably calculated to
lead to the discovery of admissible evidence regarding the
defects claimed within 60 days. (Civ. Code Sec. 6000(e).)
Existing law states that within 20 days of sending the notice,
the association, respondent, subcontractors, design
professionals, and their insurers shall meet and confer in an
effort to select a dispute resolution facilitator to preside
over the specified mandatory dispute resolution process. (Civ.
Code Sec. 6000(f).)
Existing law provides, among other things, that the respondent
may submit to the association a request to meet with the board
to discuss a written settlement offer. If the board rejects a
settlement offer presented at the meeting, the board shall hold
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a meeting open to each member of the association no less than 15
days before the association commences an action for damages
against the respondent. No less than 15 days before this
meeting is held, a written notice shall be sent to each member
of the association specifying all of the following:
that a meeting will take place to discuss problems that may
lead to the filing of a civil action, and the time and place
of this meeting;
the options that are available to address the problems,
including the filing of a civil action and a statement of the
various alternatives that are reasonably foreseeable by the
association to pay for those options and whether these
payments are expected to be made from the use of reserve
account funds or the imposition of regular or special
assessments, or emergency assessment increases; and
the complete text of any written settlement offer, and a
concise explanation of the specific reasons for the terms of
the offer received from the respondent. (Civ. Code Sec.
6000(k).)
Existing law states that all defect lists and demands,
communications, negotiations, and settlement offers made in the
course of the pre-litigation dispute resolution process shall be
inadmissible, as specified. (Civ. Code Sec. 6000(l).)
Existing law states that any party may at any time petition the
superior court in the county where the project is located, upon
a showing of good cause, to resolve a dispute or make a
determination, as specified. (Civ. Code Sec. 6000(n).)
Existing law states that the pre-litigation dispute resolution
process shall become inoperative on July 1, 2017, and, as of
January 1, 2018, is repealed, unless a later enacted statute,
that becomes operative on or before January 1, 2018, deletes or
extends the dates on which it becomes inoperative and is
repealed. (Civ. Code Sec. 6000(s).)
This bill extends the above sunset date by seven years, stating
that the pre-litigation dispute resolution process shall become
inoperative on July 1, 2024, and, as of January 1, 2025, is
repealed, unless a later enacted statute, that becomes operative
on or before January 1, 2025, deletes or extends the dates on
which it becomes inoperative and is repealed.
COMMENT
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1.Stated need for the bill
According to the author:
Before a homeowner's association may file a complaint for
damages against a builder, developer, or general contractor of
a [common interest development] based upon a claim for defects
in the design or construction of the development, the
association must first engage in the extensive pre-litigation
process specified by Civil Code Section 6000, under the
Davis-Stirling Act. This process was initially established by
the Legislature in 1995, and since then has been revised and
reauthorized twice before for seven-year trial periods, the
last one of which ends on July 1, 2017. This process is also
referred to as the "Section 6000 process" and requires among
other things:
the plaintiff to provide notice;
within 25 days, the respondent may request a meeting
with the [association] board of directors within 10 days;
the association and respondent to exchange information
about the defect within 60 days of the notice;
the respondent to provide notice to subcontractors,
design professionals, and insurers within 60 days of the
notice;
within 20 days of the notice to subcontractors, that all
parties meet to select a mediator and establish a procedure
to request the court to select a mediator if they cannot
agree; and
mediation costs to be split equally.
AB 1963 would extend the sunset for the "Section 6000"
pre-litigation process for an additional seven years. It
encourages disputes about construction defects in common
interest developments to be settled or sent to alternative
dispute resolution before a lawsuit is filed. This process
has worked for the last twenty years, by providing an avenue
for dispute resolution prior to costly and time-consuming
lawsuits. In an era of overcrowded court dockets, the
Legislature should act to preserve a process that relieves
some of this pressure on our already overburdened courts. AB
1963 will ensure that homeowners and builders are able to
continue to resolve disagreements in a cost effective manner
that is careful to preserve the legal options of those
involved.
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1.Pre-litigation Dispute Resolution Process
Existing law establishes a pre-litigation dispute resolution
process that must be followed prior to an association filing a
lawsuit against a builder, general contractor, or developer of a
common interest development with 20 or more units regarding
claims for defects in the design or construction of the
development. While the dispute resolution process is ongoing,
the statute of limitation on the association's claim or claims
is tolled, generally for a period of 180 days, unless the
parties agree to extend the process beyond 180 days. The five
general steps of this process are described below.
Step 1 : Before filing suit, the association must give written
notice to the builder. This notice, denoted a "Notice of
Commencement of Legal Proceedings," must include, among other
things:
an initial list of defects sufficient to apprise the
respondent of the general nature of the defects at issue; and
either a summary of the results of testing conducted to
determine the nature and extent of defects or the actual test
results, if that testing has been conducted.
Service of the notice commences a period, not to exceed 180 days
unless extended by the parties, during which the association,
the respondent, and all other participating parties try to
resolve the dispute through the process.
Step 2 : Within 25 days, the respondent may request in writing
to meet and confer with the association, which meeting must take
place 10 days after the request. Upon receipt of the notice,
the respondent must, within 60 days, provide the association
with specified information pertaining to the project that may
lead to evidence concerning the defects claimed by the
association. Likewise, the association must provide the
respondent with specified information concerning the defects
claimed by the association, such as reserve studies, maintenance
records, and test results.
The respondent must also provide written notice by certified
mail to all subcontractors, design professionals, their
insurers, and the insurers of any additional insured whose
identities are known to the respondent or are readily
ascertainable and whose potential responsibility appears on the
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face of the notice. This notice must include a copy of the
Notice of Commencement of Legal Proceedings, and must specify
the date and manner by which the parties shall meet and confer
to select a dispute resolution facilitator.
Step 3: Within 20 days of sending the above notice, the
association, respondent, subcontractors, design professionals,
and their insurers must meet and confer in an effort to select a
dispute resolution facilitator to preside over a mandatory
dispute resolution process. Once selected, the dispute
resolution facilitator and the participating parties agree to a
date, time, and location to hold a case management meeting of
all parties to discuss the claims being asserted and the
scheduling of events in the process.
The costs of the dispute resolution facilitator are apportioned
among the parties as follows: one-third to be paid by the
association; one-third to be paid by the respondent; and
one-third to be paid by the subcontractors and design
professionals, as allocated among them by the dispute resolution
facilitator. The costs of the dispute resolution facilitator
are recoverable by the prevailing party in any subsequent
litigation.
Step 4: No later than the case management meeting, the parties
must begin to generate data showing the following information
regarding the alleged defects:
the scope of the work performed by each potentially
responsible subcontractor;
the tract or phase number in which each subcontractor provided
goods or services, or both; and
the units, either by address, unit number, or lot number, at
which each subcontractor provided goods or services, or both.
At the case management meeting, the parties must come to an
agreement on several issues with regard to resolving the
dispute, including:
the provision of a detailed list of defects by the association
to the respondent after the association completes a visual
inspection of the project;
invasive testing conducted by the association, respondent, or
other party, if deemed appropriate;
provision by the association of a comprehensive demand which
provides sufficient detail for the parties to engage in
meaningful dispute resolution; and
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facilitated dispute resolution of the claim, with all parties
present and having settlement authority.
Step 5: After the selection of a dispute resolution
facilitator, and at his or her determination, the respondent may
submit to the association a request to meet with the board to
discuss a written settlement offer. No less than 10 days after
the respondent submits required settlement information to the
association, the respondent and the board must meet and confer
about the settlement offer. If the board rejects the settlement
offer, the board must hold a meeting open to each member of the
association no less than 15 days before the association
commences an action for damages against the respondent. Fifteen
days prior to that open meeting, the board must send the
following to each member of the association:
notice that an open meeting will take place to discuss
problems that may lead to the filing of a civil action, and
the time and place of the meeting;
options available to address the problems identified,
including the filing of a civil action and a statement of the
various alternatives to pay for those options and whether
these payments are expected to be made from the use of reserve
account funds or the imposition of regular or special
assessments, or emergency assessment increases; and
the text of any written settlement offer, and a concise
explanation of the specific reasons for the terms of the
offer.
The respondent is obligated to pay all expenses attributable to
sending the settlement offer to members of the association, and
for the expense of holding the meeting, up to a specified limit.
At any point during the pre-litigation dispute resolution
process, any party may petition the superior court to resolve a
dispute concerning the process, including disagreements relative
to the timing of specific events, or to the production of
documents or the exchange of information.
1.Extension of Sunset Date
Under current law, the pre-litigation dispute resolution process
described in Comment 2 is scheduled to sunset on July 1, 2017.
This bill would extend that sunset date by seven years, delaying
its terminal date to July 1, 2024. The California Land
Surveyors Association, writing in support, states:
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The provisions of Section 6000 of the Civil Code set forth a
balanced procedure whereby a land surveyor or other party is
provided notice of intent to file construction defect
litigation and provided an opportunity to present facts to a
dispute resolution facilitator. This pre-litigation process
not only results in the non-inclusion of a land surveyor in
subsequently filed litigation, but also expedites the court
time and expense necessary to try construction defect
litigation. It is important for all parties to continue to
use the pre-litigation process in Section 6000.
In the past, this Committee has raised concerns about imposing
mandatory pre-litigation dispute resolution procedures. First,
procedures that are too complex or too time-consuming could
place an unfair obstacle in the path of a litigant - here, a
homeowner association - who seeks to vindicate its rights.
Second, mandatory pre-litigation procedures could be used as a
tool by defendants to make procedural objections and prevent a
court from ruling on the merits of a litigant's claim. However,
it does not appear that these concerns are warranted with
respect to this particular pre-litigation dispute resolution
process for several reasons. First, the process, by its terms,
must be completed within 180 days, unless the parties agree to
extend that period, and during that time all applicable statutes
of limitation are tolled. Second, as described in Comment 2,
the process does not appear to be overly complex or difficult to
execute. Finally, as noted in the Background, this particular
process has been in place, in varying forms, for at least 20
years, and during that time the Committee has not received any
significant indication that the process acts to frustrate the
vindication of rights, or that it has been abused by litigants
for procedural advantage.
Support : American Subcontractors Association California, Inc.;
California Land Surveyors Association; California Professional
Association of Specialty Contractors; Community Associations
Institute; Construction Employers' Association
Opposition : None Known
HISTORY
Source : California Building Industry Association
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Related Pending Legislation : None Known
Prior Legislation :
AB 927 (Calderon, Ch. 7, Stats. 2009) See Background.
AB 1700 (Steinberg, Ch. 824, Stats. 2001) See Background.
SB 1029 (Calderon, Ch. 864, Stats. 1995) See Background.
Prior Vote :
Assembly Floor (Ayes 77, Noes 0)
Assembly Judiciary Committee (Ayes 10, Noes 0)
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