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For Immediate Release
February 2001 |
Builder
Magazine - Golden State Bonanza
By Daniel Walker Guido |
"California
Condo Craze"
A California Supreme Court ruling could prod
builders back into the state's sluggish townhouse and condominium
market.
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."
See [Verdicts
and Settlements] for a listing of settlements.
See the [Online
Press] for a complete list of Press Releases.
© Copyright 2001 The
Miller Law Firm All rights Reserved.
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