A California Supreme Court ruling could prod builders back into the state's sluggish townhouse and condominium market.
February 2001 - With California's lack of affordable housing now at crisis levels, a December 2000 ruling by the California Supreme Court limiting the way homeowners can file negligent - construction lawsuits is expected to lure litigation - wary builders back into the Golden State's townhouse and condominium market.
"The plaintiff's bar in California has made a cottage industry out of suing builders for alleged construction defect," says Gregory Dillion, the Newport Beach, Calif., attorney who successfully defended the William Lyon Co., a Newport Beach builder, in the State Supreme Court case. At a January 11 press conference, the California Association of Realtors (CAR) pronounced the state's lack of affordable housing at crisis levels and called upon the state legislature for immediate action. Typically, multifamily dwellings are the only affordable housing in high - priced real estate markets, such as those in and around California's major cities.
For the past decade, Dillion says attorneys have prompted homeowners' associations, primarily in high - density townhouse and condominium developments, to file lawsuits that often forced builders to pay for repairing defects that hadn't caused any actual damage or injury. On December 4, 2000, the California Supreme Court put a stop to such lawsuits. In Aas v. The William Lyon Co., the state's highest court ruled that unless homeowners experience an actual loss or injury caused by documented construction defects, they can no longer sue for damages.
Such claims were common practice in the lawsuits. "You could say that because some flashing was not installed, a roof that had properly functioned for nine years would eventually fail and cost the customer money to repair," says Rick Sherman, and attorney who represents several home builders and was Lyon's former general counsel. "It didn't matter if the roof was fine and had not leaked for nine or ten years. It only mattered that it might."
In addition, plaintiffs have argued that defects that could cause damages, but hadn't yet, would result in lower returns when homeowners decided to sell their homes. Such crystal ball reading, however, is not borne up by CAR's December 2000 housing finance survey. It revealed higher home prices and afford ability concerns increased sales of small single - family detached homes and pushed home buyers into lower - priced condominiums. Sellers of such units pocketed a median net cash gain of $80,000 per unit.
Plaintiffs who successfully sued home builders for defects were not obligated to spend the money they received for making repairs to their residences, Dillion says. Thus, the problem could remain unsolved for the next buyer to inherit. Defending against such lawsuits has cost builders' insurers dearly and has resulted in some insurers declining to underwrite builders who continued to build multifamily housing in the state, he says.
Because the U.S. Supreme Court has twice ruled on similar issues as those brought up in the Aas case, in 1986 and again in 1997, Dillion believes there is little likelihood the plaintiffs will mount a challenge. With the issues raised in the Aas v The William Lyon Co., case apparently settled, Sherman says he believes Californians' often unrequited quest to find affordable housing could result in a huge increase in the number of available close - in multifamily housing units.
"This should open the door for a lot of major home builders who have opted against construction multifamily units in California, " Sherman says.
Some builders, such a Ryland Homes, based in Woodland Hills, Calif., have not stayed entirely out of the Golden State's multifamily market. Ryland currently is building a 200 - unit townhouse development in Southern California. This year, it plans to open three new condo communities and a townhouse community in Northern California, says company spokeswoman Pamela Krebs.
Like Ryan, Los Angeles - based Kaufman and Braod has continued to construct a few multifamily units in some areas of the state. K&B is building about 200 townhouses this year in Northern California. But the high cost of land and the stiff building fees throughout the state do not make lower cost multifamily housing feasible, says Robert Freed, regional general manager for the home builder's Northern California division.
Clay Halvorsenq, general counsel for Standard Pacific Homes of Costa Mesa, Calif., is more upbeat, saying the California Supreme Court decision will probably prompt the company to "reconsider whether we start building that product in California on a very large scale. This should curb some of the most abusive lawsuits and make multifamily building economical again."
© Copyright 2010 The Miller Law Firm. All rights Reserved.
If you experience problems or have questions, contact us at Info@ConstructionDefects.com.
|
