Reawakening: Builder returns to condo market after court ruling on defects

A December state Supreme Court decision that placed new limits on construction-defect litigation has led the president of Barratt American to revive a long-delayed condominium project in Temecula.

The moderately priced, 324-unit development is expected to appeal to San Diegans who have been priced out of the soaring single-family- home market. Although Barratt American has owned the property for several years, a proliferation of construction-defect suits led the builder to put the project on hold, Pattinson said.

"We got out of the multifamily business about three to four years ago," the builder said through an English-country accent that some mistake for Australian. "When this decision was received, we did push the button and actually begin preparations. We should be building in late March or early April."

The new project "is something of an experiment, but it is a pretty big one," Pattinson said. "It is not a full-scale commitment to return to this part of the industry. What the building industry is waiting for is to see how the trial lawyers react to the (Supreme Court) decision."

In a 5-2 ruling in December, the court held that homeowners can't sue construction companies for negligence unless there actually has been property damage or bodily injury.

California law doesn't allow people to sue to prevent problems that might occur, the court asserted. The justices pointed out that homeowners already benefit from remedies available through builder warranties and contracts, which can cover periods ranging from one to 10 years.

Alarmed foes of the decision hold that it leaves homeowners vulnerable to builders who put profits ahead of sound construction. In his dissent, Justice Stanley Mosk said he regretted the court did not create even a minimal safeguard for homeowners.

"The answer is quality control in construction," said Douglas Grinnell, a local attorney who handles construction-defect cases. "The problem that we have experienced is, builders have not utilized quality superintendents who will properly instruct the labor force."

According to Thomas Miller, a veteran construction-defect attorney in Southern California, one in two condominium developments reports major construction defects and a third of those are involved in litigation. He holds that faulty construction -- not lawyers--is to blame for numerous lawsuits.

Builders strongly disagree. They maintain that the quality of their homes is better than ever before. Because of the court's ruling, other builders are likely to resume condo construction, said Pattinson.

Condo construction nearly came to a halt in the mid-1990s under the combined weight of the recession and construction-defect litigation. Condominiums accounted for about 34 percent of the local home resale market in late 1989, according to DataQuick Information Systems. As single-family home prices declined, condos dropped to about 23 percent of resale market in 1994. Today, condos again account for about 34 percent of resales.

Construction defect attorneys are expected to ask state lawmakers to neutralize the high court's decision. Lawmakers may be too busy with the state's energy woes to intervene, however, Pattinson said.

"With the energy crisis with us, it remains to be seen if legislators are going to want to get involved with that. They have enough on their hands as it is."

In an effort to reassure buyers and to shield his Temecula project against defect lawsuits, Pattinson will have every stage of construction photographed or otherwise documented by third-party inspectors. This has become a common practice among builders, he said.

A persistent critic

Pattinson, who is vice president of the California Building Industry Association, is a past president of the San Diego Building Industry Association. He also is one of the most persistent critics of attorneys and expert witnesses who specialize in construction- defect suits.

Some say Pattinson's high profile in the debate over defects may be the reason that many of his own projects have been the target of lawsuits. Pattinson shrugs off the notion that he may have drawn fire.

"It's fair to say there are plenty of trial lawyers who don't like me," the builder said. "That's OK because we all have to do what we have to do."

Pattinson is the right person to champion the cause of developers, said Ure Kretowicz, chief executive officer of Cornerstone Communities.

"He has been a tireless warrior for the building industry not only in San Diego but on the state level," he said.

Barratt American is the U.S. subsidiary of Barratt Developments PLC, an international construction company that's publicly traded in Britain. According to the company's Web site, Barratt has built and sold more than 200,000 homes in the United States and Europe.

"We have built probably about 16,000 homes over the last 20 years in Southern California and half of those were multifamily," Pattinson said.

Pattinson, 52, joined Barratt in 1976 as a sales agent. He came to California in 1983 as a marketer, experiencing both the boom of the '80s and the bust of the '90s. The Englishman served a stint as marketing director for the international parent company in Europe, but returned to California in 1991, becoming president of Barratt American.

A matter of survival

Reining in construction-defect litigation isn't simply a matter of builders maximizing profits, Kretowicz insists. With the cost of single-family homes rising higher and higher, eventually buyers will be forced to turn to multiple-family dwellings.

Many San Diegans already have been priced out of the single- family-home market. The county's median price for a single-family home in December 2000 was $259,000, up 20.5 percent from $215,000 a year earlier, according to DataQuick Information Systems.

"There is going to be a major shift into attached housing just for survival purposes," Kretowicz said.

Brookfield Homes in San Diego has more than 260 condominium units under construction in Scripps Ranch. Steve Doyle, president of the company, also serves as president of the local Building Industry Association. Despite the pressing need for multiple-family housing, he expects most builders to proceed cautiously into the market.

"Builders are conservative by nature," he said.

Kretowicz said his company will be "actively searching for opportunities to do attached housing" in 2001. "It's the only way we can provide anything that approaches affordable."

Battleground

Meanwhile, foes of the Supreme Court decision will be looking for ways to undermine the ruling in Sacramento. Miller said he has been meeting regularly with other defect-litigation lawyers and homeowner groups to plan a legislative lobbying campaign.

"We currently are working on legislation and we fully expect it to be introduced this session to basically neutralize the (Supreme Court) decision," the attorney said.

Miller envisions "a simple piece of legislation that will say a building code violation is a construction defect, regardless of whether it presently is causing property damage or not."

"Florida has that statute," he said. "Nevada has spelled out what a construction defect is. I think it is time we cut to the chase and make it very simple."

Land-use planners say the future of San Diegans must increasingly include multiple-family dwellings. The region is running out of land for single-family developments. According to the San Diego Association of Governments, the county must add about 15,000 housing units annually to keep up with projected population growth over the next 20 years. Based on existing general and community plans countywide, there is a projected shortfall of about 100,000 homes.

The association's economic and land-use planners are calling for a "smart growth" alternative that emphasizes higher-density housing in the urban core, near mass transit lines and shopping centers.

If future generations are to own their own homes in the San Diego region, builders and local planning agencies will have to embrace condominiums and higher densities, said Pattinson.

"We do have a housing crisis," he said. "That crisis won't be solved without affordable housing, multifamily and smart growth."

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