October 17, 2018

Folklore in the construction business is that you can safely throw out your records after seven years because the IRS will only chase you for that long.  Effective July 1, 2018, people in the business need to basically double that period, because of the Florida Legislature has extended the ten year statute of repose for construction claims, through its 2018 amendment to Sec. 95.11(3)(c), Fla. Stat.

Until about 2013, we all “knew” that a plaintiff with claiming a construction effect had to sue within 10 years of completion of “the work”, even as to latent defects.  The Legislature conferred this absolute bar on claims, regardless of whether they could be discovered by the building owner, to provide financial protection to the construction industry against stale claims.  Much was made in the case law and scholarly articles about the unfairness of defending claims after files were thrown out, employees moved on, and insurance policies expired.  “[I]n 1980, the legislature reenacted the statute stating an overwhelming public need…” after the Florida supreme court in Overland Constr. Co. v. Sirmons, 369 So. 2d 572 (Fla. 1979) had struck down a previous statute of repose.  Sabal Chase Homeowners Ass’n v. Walt Disney World Co., 726 So. 2d 796, 799 (Fla. 3d DCA 1999)    After 1980, a contractor (or sub) could diligently calendar ten years from project completion before tossing its project files in the shredder.  (This was never really true, but it’s what many people believed).

The misunderstanding was because the repose period had four possible trigger dates to start it running, including the “completion of the contract.”  This post won’t go into the legal controversy over the last several years over what the term “completion of the contract” means.  What is clear is the Fifth DCA decided in 2015 that it meant “the making of final payment by the owner to the general contractor or architect”, and not the physical completion of the construction work.  Cypress Fairway Condo. v. Bergeron Constr. Co., 164 So. 3d 706 (Fla. 5th DCA 2015).     After Cypress Fairways was decided in 2015, there was clearly no longer a ten year bright line repose period.

The Legislature tried to address this problem in 2017 by adding the following definition of completion:

“Completion of the contract means the later of the date of 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.”

In theory, under this amendment, the parties could look to the contract for the date performance would be due, and have a bright line rule again.  Of course, the date final payment is legally due is a matter people disagree about often.  In reality, final payment comes due to the general contractor not on the 1st of the month like the rent under a lease, but (usually) 30 days after it submits a payment application for retainage, and then, only if the application is correct and complete, and then, the owner may dispute whether money should be withheld for unsatisfactory work.  Entire chapters of construction law books are written around this issue.  This is no country for bright lines.

Effective July 1, 2018, the Legislature has opened another extension to the ten year repose period.  A defendant may avoid the statute of repose when filing a third party claim or crossclaim against another person in the chain of construction:

“However, counterclaims, cross-claims, 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. “

The scenario this contemplates is common:  a developer may be sued by a condominium association, and then attempts to bring claims against its general contractor or design team.  Or a general contractor may be sued, and it may attempt to third party in its subcontractors.  The concern this amendment addresses is that the defendant may be sued late in the repose period (say, nine years and 364 days after the contract was completed — yes, it has really happened), and not have time to pass the claim through to subtrades who did the work, because of the difficulty evaluating the claim, finding the subcontracts, formulating the pleading and the like.

On its face, and perhaps in intent, this extends the repose period to 11 years, and only for potential third party defendants like subcontractors or subconsultants.  In practice, the ten years plus one year equals eleven years is not the real repose period.  A few examples illustrate this:

  • Plaintiff condominium association sues general contractor nine years and 364 days after completion (call it ten years for simplicity). Defendant general contractor identifies the responsible subs and sues them at the end of year eleven.  Then, plaintiff amends its complaint in year 12 after completion, to add new defects or clarify allegations.  It’s unlikely the court will not hold that the amendment “relates back” to the original filing.  If new subcontractors are implicated in the amended complaint, filed after eleven years, the defendant general contractor may have another year – year 12 or 13 – to sue these subs.
  • A subcontractor who is served with a third party complaint may itself have hired a subsub or a materialman. The third party defendant subcontractor, joined in the case, say, at the end of year eleven, arguably has another year to bring its own third party claims against its subsubs or vendors.  They would  have no repose until as late as 12 years after “completion”.  If so, they would remain at risk that the defendant general contractor could amend its third party claim against the subcontractor, and that in turn triggers a new set of issues and parties being implicated, in year 12 to 13.
  • Some may object that a claim by a subcontractor against its subsubcontractor is a “fourth party complaint,” and the amendment to 95.11 only reopens the repose period for a “third party complaint”.. A careful reading of Fla. R. Civ. P. 1.180 shows there is no such terminology as a “fourth party complaint,” and Sec. 95.11(3)(c) does not define a “third party complaint”.  To the contrary,  Rule 1.180, entitled “Third Party Practice”, specifically authorizes a third party defendant to “proceed under this rule [called “Third Party Practice”] against any person… who is or may be liable…”  While colloquially we might call this a “fourth party complaint”,  Rule 1.180 calls this process part of “Third Party Practice”.  “Third party” seems to mean “somebody other than the plaintiff (first party) or defendant (second party)”, and not “the guy under the second “vs.” in the case style, but not under any subsequent “vs.”” in the case style.”

Our point is that the idea of a ten year repose period from the time a contractor or sub did “the work” was never quite correct (for reasons outside the scope of this post).  The 2018 amendment makes it absolutely clear that persons in the chain of construction are at risk for at least eleven, and probably thirteen, or more, years.  Even that assumes there is a bright line date for “completion of the contract,” and that’s a questionable assumption.

The point of the statute of repose was to create such a readily discernible safe harbor date,  that people in the industry and plaintiffs could understand and guide their conduct by.  Ever since the Second DCA opened the door (in this lawyer’s opinion) in 2013 in Clearwater Hous. Auth. v. Future Cap. Holding Corp., 126 So. 3d 410 (Fla. 2d DCA 2013) to a legalistic and highly technical concept of “completion of the contract,” the benefit of a bright line rule has been an illusion.  Here’s the disconnect:  a subcontractor who thinks he understands the “ten year” rule knows he last did work on a job on, say, June 1, 2007, and on June 1, 2017, he can no longer be sued.  In reality, after Clearwater Housing and Cypress Fairway Condo. v. Bergeron Constr. Co., 164 So. 3d 706 (Fla. 5th DCA 2015), the repose period ran from events such as the delivery of submittals and the making of final payment, between the owner and the general contractor.  These are events the typical subcontractor would not know about, and would not be able to prove out of his own records.  If the Legislature’s goal was to enable a small business to walk into court, hold up a job log entry or check for payment and shut down a lawsuit on a ten year old job, the 2017 and 2018 amendments to Sec. 95.11(3)(c) have not restored that refuge against stale claims.  Those in the construction and insurance industries and those who represent them should adjust their expectations, and record retention, accordingly.

Sec. 95.11(3)(c) , as of July 1, 2018, now reads:

(3) WITHIN FOUR YEARS.—

….

(b) An action relating to the determination of paternity, with the time running from the date the child reaches the age of majority.

1(c) 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. However, counterclaims, cross-claims, 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. With respect to actions founded on the design, planning, or construction of an improvement to real property, if such construction is performed pursuant to a duly issued building permit and if a local enforcement agency, state enforcement agency, or special inspector, as those terms are defined in s. 553.71, has issued a final certificate of occupancy or certificate of completion, then as to the construction which is within the scope of such building permit and certificate, the correction of defects to completed work or repair of completed work, whether performed under warranty or otherwise, does not extend the period of time within which an action must be commenced. Completion of the contract means the later of the date of 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.

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