PROJECT OR PARTY: WHEN IS THE STATUTE OF REPOSE TRIGGERED FOR SUBCONTRACTORS IN CONSTRUCTION DEFECT CASES?
The right to file a lawsuit based on a construction defect is not without limitation. Specifically, section 95.11(3)(c), Florida Statute sets forth the deadlines by which claims must be filed. Recently, the Florida Legislature has made several amendments to this statute, particularly with respect to the repose aspect. Unfortunately, however, as certain terms are still undefined, this statute remains open to interpretation for subcontractors asserting a statute of repose defense. Notably, it fails to define whether certain trigger dates apply with respect to the party being sued or the construction project as a whole. Ultimately, the goal of this article is to help defense counsel better understand the statute of repose and effectively use it as a defense when representing subcontractors.
Overview of Florida's Statute of Repose for Construction Defect Claims
Section 95.11(3)(c), Florida Statute, specifically applies to actions “founded on the design, planning, or construction of an improvement to real property.” Surprisingly, the phrase “improvement to real property” is left undefined under the statute. However, in the absence of such definition, the Florida Supreme Court has defined such phrase as "a valuable addition made to property (usually real estate) or an amelioration in its condition, amounting to more than mere repairs or replacement of waste, costing labor or capital, and intended to enhance its value, beauty or utility or to adapt it for new or further purposes."[i] While there is some dispute, the majority of construction defect cases in Florida clearly arise out of projects that may be considered “improvements to real property.”
The most well-known deadline for filing a lawsuit is governed by the statute of limitations, which runs from “the date on which the final element (ordinarily, damages, but it may also be knowledge or notice) essential to the existence of a cause of action occurs.”[ii] More simply, the statute of limitations accrues on the date that the “cause of action arises.”[iii] Another deadline for filing a lawsuit – particularly for construction defect claims – is governed by the Statute of Repose (“SOR”).[iv] Unlike a statute of limitations, a SOR bars a suit after a fixed period of time upon the occurrence of certain events, even if this period ends before the plaintiff has suffered an injury. [v] Although phrased in similar language, a SOR is not a true statute of limitations because it begins to run from an established or fixed event which is unrelated to the accrual of the cause of action (such as the delivery of a product or the completion of work).[vi] Unlike a statute of limitations, a SOR eliminates the underlying substantive action upon the expiration of a time period specified in the statute.[vii] SOR's are designed to encourage diligence in the prosecution of claims, eliminate the potential of abuse from a stale claim, and foster certainty and finality in liability.[viii]
In Florida, the SOR for construction defect claims is found within section 95.11(3)(c) (hereinafter referred to as “the statute”), and begins to run from the latest date of: (1) actual possession by the owner; (2) issuance of a certificate of occupancy; (3) abandonment of the construction if not completed; or (4) completion or termination of the contract.[ix] Thus, the statute may bar a claim even though an injured party is not aware that a cause of action exists. Notably, since the statute is not conditioned on the plaintiff's knowledge, it is usually easier to prove dispositive than the statute of limitations.
Specifically, section § 95.11(3)(c) Florida Statutes currently states in pertinent part:
An action founded on the design, planning, or construction of an improvement to real property, with the time running from the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion of the contract or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest; except that, when the action involves a latent defect, the time runs from the time the defect is discovered or should have been discovered with the exercise of due diligence. In any event, the action must be commenced within 10 years after the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion of the contract or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest. (emphasis added).[x]
Oftentimes, the first three dates are either undisputed, easy to prove, or otherwise not applicable. Interestingly, the first date – actual possession by the owner – is undefined under the statute and has never been explained by any Florida appellate court. Nonetheless, it may reasonably be argued that “actual possession” of real property is tantamount to “legal possession” of such property. In Florida, a property owner will hold title to real property through possession of a deed.[xi] Thus, it may reasonably be assumed that the date an owner is conveyed the deed is the date that “actual possession by the owner” has occurred. It should be noted, however, that the statute's use of the term “owner” clearly refers to the owner of the property at the time the construction was performed and does not refer to “subsequent purchasers” as such interpretation would defeat the purpose of the statute. Regardless, it is rare that actual possession is the latest event to occur under the statute.
The second date – issuance of a certificate of occupancy – is almost never disputed when there is a single building or structure involved. Under Section 110 of the current Florida Building Code (“FBC”), the local building department must issue a “certificate of occupancy” for any new construction or change of occupancy to “any building or structure.”[xii] As the FBC defines a structure as “[t]hat which is built or constructed,”[xiii] and a change of occupancy as a “change in the use of the building or a portion of a building,”[xiv] nearly all construction projects require this certification. Oftentimes, however, there are several certificates of occupancy that are issued over the course of a construction project, which may be several years long. As this article will discuss, the statute's application of this date becomes less clear when there are multiple certificates of occupancy involved.
The Third date –abandonment of construction if not completed – is only triggered if the project has been abandoned, which is rarely an issue for SOR purposes. Therefore, this article will not provide any analysis for this part of the statute.
The fourth date – the completion of the contract or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer – is usually the last to occur, and not surprisingly, the most contested. As this article will discuss, it is unclear whether the referenced contract refers to the contract of the party asserting the defense or the contract between the owner and the general contractor (aka “the general contract”).
The 2017 Amendment: Completion of the Contract
In 2017, the Florida legislature amended the statute to define the phrase “completion of the contract” largely as a result of the controversial decision in Cypress Fairway Condominium Association v. Bergeron Construction Company.[xv] There, the Fifth DCA interpreted the statutory term “completion of the contract” to mean “the date on which final payment was made under the contract.”[xvi] The problem with this interpretation was that the SOR's accrual date now depended on the final payment being made. Thus, an untimely final payment would extend the repose period, while failure to make such payment would eliminate the defense altogether. Therefore, in 2017, the Florida Legislature amended the statute to define the phrase “completion of the contract” to mean “the later of the date of the final performance of all the contracted services or the date that final payment for such services becomes due without regard to the date final payment is made."[xvii]
However, while this revision may have fixed one problem, it did nothing to clarify which “contract” the statute actually refers to. Specifically, is the date that triggers the SOR: (a) the completion of the contract for the party asserting the defense; or (b) the completion of the contract for the entire construction project? This interpretation is particularly important for subcontractors, which make up most of the named parties in Florida construction defect cases. Similarly, for large construction projects that have multiples certificates of occupancy, it is unclear which certificate the court should use for SOR purposes.
It is common knowledge that construction projects often have lengthy delays, particularly in between project “phases” or when the owner/developer has experienced financial hardship. Consider the following hypothetical:
A development company (“developer”) purchased a large parcel and “hired” a general contractor (“GC”) to construct hundreds of single-family homes on the property. The GC is controlled and operated by the same managing members who control and operate the developer. Following the design phase, the GC hires multiple subcontractors, and construction on the project commences.
In 2000, a subcontractor hired by the GC (“the window sub”) installs windows on building # 1. The window sub completes its work after a couple days, and immediately submits its final payment to the GC. One month later, building # 1 is issued a certificate of occupancy. The window sub never performs any other services on the project.
Around this time, the developer conveys the property through public declaration to a developer controlled HOA. Nonetheless, construction on the project continues for several years, but then temporarily ceases in 2004 for financial reasons.
In 2007, construction on the project picks up again. In 2011, construction finishes and the final building is issued a certificate of occupancy. The GC does not submit its final payment to the developer until the following year. In 2018, the developer “turns over” control of the HOA to the Association.
Shortly thereafter, the HOA hires an engineer who performs destructive testing on a couple of buildings. The engineer opines that every major component on every building is systemically defective. As a result, in 2019, the HOA files a lawsuit against the developer, the GC and 100 subcontractors, including the window sub that completed its services nearly two decades earlier.
Under these facts, the viability of the window-sub's SOR defense will change drastically depending on which contract or certificate of occupancy is used by the court. If the window-sub's contract and the certificate of occupancy for building # 1 are used to determine the SOR's accrual date, then the HOA's action against the window sub would be time-barred. Under this interpretation, the SOR would accrue in 2000 and the claim would be time-barred if not filed by 2010. Conversely, if the general contract or the final building's certificate of occupancy is used to determine the SOR's accrual date, then the HOA's action against the window sub would not be time-barred. Under this interpretation, the SOR would accrue in either 2011 or 2012, and the claim would be time-barred if filed after 2021. As shown, the court's interpretation of the statute will have a material effect on when claims may be timely filed against a subcontractor.
Reasons Why the Statute Should Be Read in Favor of Subcontractors
In Florida, statutory interpretation is a question of law for the court to decide.[xviii] "[T]he central purpose of statutory interpretation is deciphering and giving effect to legislative intent."[xix] To discern legislative intent, courts must first look to the plain and obvious meaning of a statute's text, which may be discerned from a dictionary.[xx] When statutory language is clear and unambiguous, the statute must be given its plain and obvious meaning.[xxi] Additionally, courts “are not at liberty to add words to statutes that were not placed there by the Legislature.”[xxii] Therefore, like any statutory analysis, the first place to look is the language in the statute.
For the completion of the contract date, the pertinent language is: “the contract between the professional engineer, registered architect, or licensed contractor and his or her employer.”[xxiii] Here, the statute merely refers to a “licensed contractor.” There is no mention or requirement in the statute that this contractor be the general contractor or otherwise in privity with the owner. As most building trades in Florida require some form of license, the majority of subcontractors can easily be considered “licensed contractors” under both the plain and industry meanings of such terms. Further, because the statute refers to the contract between the contractor and its “employer” (as opposed to the “owner”), a subcontractor's agreement with the general contractor falls squarely within the plain meaning of this text. Conversely, no reasonable argument can be made that the plain meaning of this text refers exclusively to the general contract.
Moreover, the statute expressly says “the date of the completion of the contract or termination of the contract between the professional engineer, registered architect, or licensed contractor...”[xxiv] Notably, the use of the term “contract” (instead of “contracts”) and the term “or” (instead of “and”) shows that, under the plain meaning of the text, the completion of the contract date is supposed to vary depending on each party's contract. Thus, a strong argument exists that the plain meaning of the statute's completion of the contract date is the date that final payment was due by the party asserting the defense.
For the certificate of the occupancy date, the pertinent language is simply: “the issuance of a certificate of occupancy.”[xxv] Here, there is a strong argument that this language clearly and unambiguously refers to the date the first certificate of occupancy was issued on the project. Most notably, nothing about this phrase suggests there is any ambiguity. As the statute says “certificate” instead of “certificates,” it clearly refers to a single record and not a composite. The statute does not include text like “all,” “last” or “final” when discussing the certificate of occupancy, and such language cannot be unilaterally added by the court.[xxvi] Moreover, because the statute says “a certificate” instead of “the certificate,” it does not refer to any subsequently issued certificate of occupancy, let alone the last one issued on the project.[xxvii] For these reasons, it may be argued that the plain meaning of the statute is the date that the first certificate of occupancy was issued on the project. To the extent the court is unwilling to accept this interpretation, it may be alternatively argued that the applicable date is when the last certificate of occupancy was issued on a building that was actually worked on by the subcontractor. Notably, if there were buildings constructed on the project that the subcontractor did not work on, no reasonable argument can be made that the issuance of these certificates of occupancy can be the date used by the court. Such interpretation would be illogical and contrary to the plain meaning of the text.
However, to the extent the court determines the language of the statute is unclear, it must look to the rules of statutory construction to interpret legislative intent.[xxviii] In doing this, the court should examine the statute's legislative history and the purpose behind its enactment.[xxix] Arguably the most probative legislative history would be found in the statute's 2006 amendment, which was when the repose period for construction defect claims was shortened from 15 years to 10 years.[xxx] Notably, in justifying this reduction, the legislature stated that “to permit the bringing of such actions without an appropriate limitation as to time places the defendant in an unreasonable, if not impossible, position with respect to asserting a defense.”[xxxi] Additionally, the Legislature expressly stated that it reduced the repose period because of: (a) the lack of control contractors have over an owner's neglect in maintaining the property; (b) the increased difficulty and expense contractors have in obtaining liability insurance with prolonged exposure to litigation; (c) the unavailability of insurance coverage in excess of 10 years for residential projects; and (d) the increase in construction prices that result from lengthy repose periods.[xxxii] Most importantly, the Legislature stated that:
“[L]iability insurance coverage is increasingly difficult and more expensive to acquire to cover a period of more than 10 years after an improvement to real property is completed, especially for small and medium-sized architecture, engineering, and construction firms.”[xxxiii]
It is obvious based on the Legislature's comments that it never intended the statute to allow an extended repose period specifically for subcontractors. In fact, a review of this legislative history only further establishes that the SOR was intended to apply as fairly to subcontractors as any other party asserting the defense.
Another common rule of statutory construction is that an interpretation may not be used when doing so would lead to an unreasonable conclusion or result in a manifest incongruity.[xxxiv] While no reasonable argument may be made that the interpretation favorable to subcontractors would violate this rule, such argument can certainly be made for the alternative. Consider again the above hypothetical. There, while the repose period for a construction defect claim is supposed to be ten (10) years, the alternative interpretation would allow subcontractors to be sued twenty (20) plus years after their work had been completed. Logic dictates that the legislature did not intend a subcontractor's SOR defense to accrue a decade after it finished its work. Such interpretation would obviously be unreasonable and result in a manifest inconsistency with the underlying policy of the SOR to “foster certainty and finality in liability.”[xxxv]
2018 Revision of the Statute and Its Effect on Subcontractors
In 2018, the Legislature again amended the statute to include two additional provisions. The first provision clarified that repairs or corrections to completed work did not extend the date that a claim could be timely filed.[xxxvi] More notably, however, the second provision provided a one-year “extension” for defendants to file additional claims that may otherwise be barred by the statute. Specifically, it included the following bold language:
In any event, the action must be commenced within 10 years after the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion of the contract or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest. However, counterclaims, crossclaims, and third-party claims that arise out of the conduct, transaction, or occurrence set out or attempted to be set out in a pleading may be commenced up to 1 year after the pleading to which such claims relate is served, even if such claims would otherwise be time barred.[xxxvii]
As the statute says, this amendment allows a defendant to file a related counterclaim, crossclaim, or third-party claim within one (1) year of being served, regardless of whether such filing would otherwise be time-barred. The obvious rationale for this amendment was to allow defendants an opportunity to assert their own claims, particularly if they were sued immediately prior to the expiration of a statutory deadline. However, a consequence of this amendment is that it potentially allows every subcontractor to be brought into a lawsuit, regardless of when their work was completed.
Consider again the above hypothetical, but now assume that the GC filed a third-party complaint against the window-sub instead of the Plaintiff. Here, as long as the GC filed its third-party claim against the window-sub within one year of being served, such claims would likely not be time-barred under the express language of the statute. Unfortunately, the fact that the window-sub had completed its services 20 years before being sued would no longer be of consequence to a SOR defense. Therefore, when a subcontractor is brought into a case as a third party, even if the court interprets the statute favorably, the SOR is probably not a viable defense.
Unfortunately, whether intentional or not, this amendment clearly opens the door to otherwise untimely claims being filed against subcontractors. It also potentially allows large developers to completely circumvent the SOR altogether. Consider again the above hypothetical, but now assume that there is no turnover, and the defect claim is brought directly by a developer-controlled HOA that is managed by the same company that managed the GC. Here, had the claim been brought timely, the developer may likely just sue the subcontractors directly. However, since these claims would now be time-barred, the developer can instead circumvent the SOR by “suing” the GC, having the GC file a third-party complaint, and obtaining an assignment of such claims for virtually no consideration. While this was probably not the intent of the legislature, it is one example of a myriad of problems that can result from an open-ended extension for otherwise time-barred claims.
When applying basic rules of statutory construction, the dates which trigger the accrual of the SOR should be interpreted favorably to subcontractors. Specifically, when a subcontractor is asserting the defense, the completion of the contract date should apply to the subcontract (instead of the general contractor) and the certificate of occupancy date should apply to the first certificate of occupancy issued on the project (instead of the last). These arguments are supported by the plain meaning of the statute's text, the legislative history, and common sense.
Unfortunately, despite this clear legislative intent, the 2018 amendment allowing otherwise time-barred claims to be filed is a devastating blow to subcontractors. Nonetheless, in situations where a subcontractor has been named directly in a Complaint, or where the cross-claim, counterclaim, or third-party claim has been filed more than one year after the initial pleading, defense counsel may confidently argue that the statute applies with respect to their client and not the construction project as a whole. Either way, as the statute and case law continues to evolve, it is always best to assert a SOR defense whenever possible.
[iv] § 95.11(3)(c), Fla. Stat.
[v] See Kush v. Lloyd, 616 So.2d 415, 419 (“The period of time established by a statute of repose commences to run from the date of an event specified in the statute, such as the delivery of goods, closing on a real estate sale or the performance of a surgical operation. At the end of the time period, the cause of action ceases to exist.”
[vi] Kush v. Lloyd, 616 So.2d at 420.
[vii] Beach v. Great Western Bank, 692 So.2d 146, 152 (Fla. 1997); See also Nehme v. Smithkline Beecham Clinical Labs., Inc., 863 So. 2d 201, 208 (“The very purpose of a statute of repose is to extinguish valid causes of action, sometimes before they even accrue.”).
[viii] Lamb v. Volkswagenwerk Aktiengesellschaft, 631 F. Supp. 1144, 1147 (S.D. Fla. 1986), judgment aff'd, 835 F.2d 1369 (11th Cir. 1988); see also Harrell v. Ryland Grp., 277 So. 3d 292, 299 (Fla. 1st DCA 2019) (“The legislative intent behind section 95.11(3)(c) was to protect engineers, architects, and contractors from stale claims.”).
[ix] Harrell v. The Ryland Group 277 So. 3d 292, 299.
[x] § 95.11(3)(c) Fla. Stat.
[xi] See § 689.03, Fla. Stat.
[xii] § 110, Florida Building Code (2020).
[xiii] § 202, Florida Building Code (2020).
[xvii] § 95.11(3)(c), Fla. Stat.
[xix] Metro. Cas. Ins. Co. v. Tepper, 2 So.3d 209, 213 (Fla. 2009), (citations omitted).
[xx] West Florida Reg'l Med. Ctr., Inc. v. See, 79 So.3d 1, 9 (Fla.2012), (citation omitted).
[xxi] Daniels v. Fla. Dept. of Health, 898 So.2d 61, 64 (Fla. 2005), (citation omitted).
[xxiii] § 95.11(3)(c), Fla. Stat. (emphasis added).
[xxiv] Id. (emphasis added).
[xxvii] McNeil v. State, 162 So. 3d 274, 275 (Fla. 5th DCA 2013) (“The dictionary definition of ‘a' is ‘one, a certain, a particular.'") (emphasis added).
[xxix] West Florida, supra at 9.
[xxx] Fla. HB 1089 (2006).
[xxxi] Id. (emphasis added).
[xxxiii] Id. (emphasis added).
[xxxiv] Joshua, supra at 435 (citation omitted).
[xxxv] Lamb, supra at 1147.
[xxxvi] § 95.11(3)(c), Fla. Stat; see also Fla. S. Comm. on Cmty. Aff., SB 536 (2018) Bill Analysis and Fiscal Impact Statement 1 (Feb. 28, 2018).
[xxxvii] § 95.11(3)(c), Fla. Stat. (emphasis added).