HBA-ATS S.B. 506 76(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 506 By: Harris Civil Practices 5/6/1999 Engrossed BACKGROUND AND PURPOSE Chapter 27 (Residential Construction Liability), Property Code, applies to any action to recover damages resulting from a construction defect. Before a suit may be brought, a homeowner is required to provide written notice to the contractor. The notice must specify in reasonable detail the construction defects that are the subject of the complaint. If the contractor requests to inspect and have inspected the property that is the subject of the complaint to determine the nature and cause of the defect and the nature and extent of repairs necessary to remedy the defect, the homeowner is required to acquiesce. Within the 45 days after the contractor receives the notice, the contractor may make a written offer of settlement to the claimant. If the parties proceed to suit without reaching a settlement, the amount of damages that are recoverable depends on the reasonableness of the builder's original offer. There are two applicable damage measures. If the contractor's offer was reasonable, the claimant is prohibited from recovering an amount in excess of the reasonable cost of the repairs that are necessary to cure the construction defect and that are the responsibility of the contractor. The claimant may recover only the amount of reasonable and necessary attorney's fees and costs incurred before the offer was rejected or considered rejected. On the other hand, if the contractor's offer was unreasonable, the limitations on damages and defenses to liability provided for in Chapter 27 are prohibited from applying. Thus, the cap on damages limited to the reasonable cost of repairs necessary to cure any construction defect that the contractor failed to cure, the reasonable expenses of temporary housing reasonably necessary during the repair period, the reduction in market value, if any, to the extent the reduction is due to structural failure, and reasonable and necessary attorney's fees are inapplicable. S.B. 506 includes repair, in addition to an alteration of and addition to an existing residence, as matters that fall within the scope of the definition of "construction defect," and includes an owner, officer, director, shareholder, partner, or employee of the contractor as people defined as "contractors." In addition, this bill provides penalties for filing a frivolous suit. A party is liable to the defendant for reasonable and necessary attorney's fees and court costs if the party files a suit that is groundless and brings it in bad faith or for the purposes of harassment. This bill also requires the claimant to provide evidence of residential construction defects and establishes a mediation process for resolving disputes. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Sections 27.001(2) and (3), Property Code, as follows: (2) Includes repair, in addition to an alteration of and addition to an existing residence, as matters that fall within the scope of the definition of "construction defect." Makes a nonsubstantive change. (3) Includes an owner, officer, director, shareholder, partner, or employee of the contractor as people defined as "contractors." Makes a nonsubstantive and conforming change. SECTION 2. Amends Section 27.002, Property Code, to establish that this chapter (Residential Construction Liability) applies to any subsequent purchaser of a residence who files a claim against a contractor. Redesignates portions of text from existing Subsection (a) to Subsection (b) and redesignates Subsection (b) to Subsection (c). Makes conforming changes. SECTION 3. Amends Section 27.003(a), Property Code, as follows: (a) Provides that a contractor is not liable in an action to recover damages resulting from a construction defect, if an assignee of the claimant or a person subrogated to the rights of a claimant fails to provide the required written notice to the contractor before performing repairs, for the cost of any repairs or any percentage of damages caused by repairs made at the request of an assignee of the claimant or a person subrogated to the rights of a claimant by a person other than the contractor or an agent, employee, or subcontractor of the contractor. Makes conforming changes. SECTION 4. Amends Chapter 27, Property Code, by adding Section 27.0031, as follows: Sec. 27.0031. FRIVOLOUS SUIT; HARASSMENT. Establishes that a party is liable to the defendant for reasonable and necessary attorney's fees and court costs if the party files a suit that is groundless and brings it in bad faith or for the purposes of harassment. SECTION 5. Amends Sections 27.004, Property Code, by amending Subsections (a), (b), (d), (f), (h), (i), and (k) and by adding Subsection (p), as follows: (a) Requires a claimant, on the request of the contractor, to provide to the contractor any evidence that depicts the nature and cause of the defect and the nature and extent of repairs necessary to remedy the defect, including expert reports, photographs, and videotapes, if that evidence would be discoverable under Rule 192 (Permissible Discovery: Forms and Scope; Work Product; Protective Orders; Definitions), Texas Rules of Civil Procedure. (b) Provides that the offer of settlement must be sent to the claimant at the claimant's last known address or to the claimant's attorney by certified mail, return receipt requested. (d) Requires the court to abate a suit governed by this chapter, rather than section (Notice and Offer of Settlement), provided that Subsection (c) does not apply, and, after a hearing, the court finds that the contractor is entitled to an abatement because the claimant failed to provide the notice or to give the contractor a reasonable opportunity to inspect the property, rather than because notice was not provided. Provides that a suit is automatically abated without the order of the court beginning 11 days after a plea in abatement is filed provided that the plea in abatement is verified and alleges that the person against whom the suit is pending was not given a reasonable opportunity to inspect the property, in addition to not receiving written notice. (f) Prohibits a claimant who unreasonably rejects an offer from recovering an amount greater than the reasonable cost of the offered repairs which are necessary to cure the construction defect and which are the responsibility of the contractor or the amount of a reasonable monetary settlement offer made under Subsection (n). Makes conforming changes. (h) Authorizes the claimant, in a suit subject to this chapter, to recover only the reasonable cost of repairs necessary to cure any construction defect, including any engineering or consulting fees required to evaluate and cure the construction defect, that the contractor is responsible for repairing under this chapter, except as provided by Subsection (f). Deletes text authorizing the claimant, in a suit subject to this chapter, to recover only the reasonable costs of repairs necessary to cure any construction defect that the contractor failed to cure. (i) Prohibits the total damages awarded in a suit subject to this chapter from exceeding the claimant's purchase price for the residence or the current fair market value of the residence without the construction defect, whichever is greater. (k) Requires the trier of fact to determine the reasonableness of an offer of settlement, rather than the reasonableness of a rejection of an offer, made under this section. (p) Provides that, if the contractor provides written notice of a claim for damages arising from a construction defect to a subcontractor, the contractor retains all rights of contribution from the subcontractor if the contractor settles the claim with the claimant. SECTION 6. Amends Chapter 27, Property Code, by adding Section 27.0041, as follows: Sec. 27.0041. MEDIATION. (a) Authorizes a claimant or contractor to file a motion to compel mediation of the dispute no later than 90 days after the suit is filed, if the claimant seeks damages from a contractor arising from a construction defect in an amount greater than $7,500. (b) Requires the court, no later than 30 days after the motion is filed under Subsection (a), to order the parties to mediate the dispute and, if the parties cannot agree on the appointment of a mediator, to appoint the mediator. (c) Requires the court to order the parties to begin mediation of the dispute no later than 30 days after the court enters its order under Subsection (b), unless the parties agree otherwise or the court determines additional time is required. Authorizes the court, upon determining that additional time is required, to order the parties to begin mediation of the dispute no later than 60 days after the court enters its order under Subsection (b). (d) Requires each party to participate in the mediation and contribute equally to the cost of the mediation unless each party who has appeared in the suit agrees otherwise. (e) Sets forth that Section 154.023 (Mediation), Civil Practice and Remedies Code, and Subchapters C (Impartial Third Parties) and D (Miscellaneous Provisions), Chapter 154 (Alternative Dispute Resolution Procedures), Civil Practice and Remedies Code, apply to a mediation under this section to the extent those laws do not conflict with this section. SECTION 7. Amends Section 27.005, Property Code, to provide that this chapter does not create a cause of action or derivative liability, rather than an implied warranty, or extend a limitations period. SECTION 8. Amends Chapter 27, Property Code, by adding Section 27.007, as follows: Sec. 27.007. DISCLOSURE STATEMENT REQUIRED. (a) Sets forth the language of the notice required to be in a written contract that is subject to this chapter. Specifies the notice must be printed or typed in 10-point boldface type or the computer equivalent and that it must be located next to the signature lines of the written contract. (b) Authorizes the claimant to recover from the contractor a civil penalty of $500 if a contract does not contain the notice required by this section. SECTION 9. (a) Effective date: September 1, 1999, except as provided by Subsection (b). (b) Effective date: September 1, 2000, for Section 27.007, Property Code. (c) Makes application of a contract subject to Chapter 27, Property Code, prospective. SECTION 10.Emergency clause.