GEC H.B. 1742 75(R) BILL ANALYSIS BUSINESS & INDUSTRY H.B. 1742 By: Bosse 4-2-97 Committee Report (Unamended) BACKGROUND In 1989, the Residential Construction Liability Act (RCLA) was passed. This act was passed in reaction to an imbalance created by the Texas Deceptive Trade Practices Act which allowed homeowners much latitude in suing Texas residential builders and remodelers. RCLA was passes to remedy this imbalance by providing "a fair and appropriate balance with respect to the resolution of construction disputes between a residential contractor and an owner." A recent Fort Worth Court of Appeals decision (Bullivant) pointed out an unclear section in RCLA which puts a cap on the amount of damages homeowners may collect. The Bullivant case pointed out an unfair consequence of the RCLA cap on damages since drafters of RCLA failed to anticipate litigation involving older homes. This bill would allow homeowners of an older home to recover the greater amount of the purchase price of the home or the current fair market price. In addition, this bill would ensure that second owners receive the same benefits and obligations as the first owner, clearly state that subcontractors and design professionals are included under RCLA, and add a mediation clause. Lastly, this bill clears up the test for contract and owner and provides that the contractor has the advantages of 27.004(f) if a reasonable offer is rejected by a homeowner. PURPOSE The purpose of this bill is to clarify that RCLA applies to claims involving older homes, second owners, subcontractors and design professionals. It also deals with questions relating to reasonable offers and provides for mediation. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1 Amends Section 27.001(3), Property Code, by expanding the definition of"contractor" to include both owners and employees of a contractor and subcontractors hired by the original contractor. Also, the definition is amended to include administrators of extended warranties on residences. SECTION 2 Amends Section 27.002(a), Property Code, to confirm that the RCLA applies to second owners of a home. SECTION 3 Amends Section 27.003(a), Property Code by omitting "employee, or subcontractor" as parties that a contractor is not liable for. SECTION 4 Amends Section 27.004, Property Code by amending Subsections (f), (g), (i) and (m) and by adding Subsection (p). (f) Omits "unreasonably" and adds "a reasonable" offer. (g) Adds reference to Subsection (f). (i) Provides that a homeowner may recover the greater of the purchase price of the home or the current fair market value. (m) Omits "employee, or subcontractor". (p) Provides rules of mediation on residential construction liability claims. SECTION 5 The change in law made by this Act applies only to after the effective date. SECTION 6 Effective Date: September 1, 1997 SECTION 7 Emergency Clause