1-1 By: Harris S.B. No. 506
1-2 (In the Senate - Filed February 12, 1999; February 15, 1999,
1-3 read first time and referred to Committee on Economic Development;
1-4 April 29, 1999, reported adversely, with favorable Committee
1-5 Substitute by the following vote: Yeas 5, Nays 0; April 29, 1999,
1-6 sent to printer.)
1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 506 By: Madla
1-8 A BILL TO BE ENTITLED
1-9 AN ACT
1-10 relating to suits to recover damages resulting from construction
1-11 defects; providing for recovery of a penalty from certain
1-12 contractors.
1-13 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-14 SECTION 1. Subdivisions (2) and (3), Section 27.001,
1-15 Property Code, are amended to read as follows:
1-16 (2) "Construction defect" means a matter concerning
1-17 the design, construction, or repair of a new residence, of an
1-18 alteration of or repair or addition to an existing residence, or of
1-19 an appurtenance to a residence, on which a person has a complaint
1-20 against a contractor. The term ["construction defect"] may include
1-21 any physical damage to the residence, any appurtenance, or the real
1-22 property on which the residence and appurtenance are affixed
1-23 proximately caused by a construction defect.
1-24 (3) "Contractor" means a person contracting with an
1-25 owner for the construction or sale of a new residence constructed
1-26 by that person or of an alteration of or addition to an existing
1-27 residence, repair of a new or existing residence, or construction,
1-28 sale, alteration, addition, or repair of an appurtenance to a new
1-29 or existing residence. The term ["contractor" also] includes:
1-30 (A) an owner, officer, director, shareholder,
1-31 partner, or employee of the contractor; and
1-32 (B) a risk retention group registered under
1-33 Article 21.54, Insurance Code, that insures all or any part of a
1-34 contractor's liability for the cost to repair a residential
1-35 construction defect.
1-36 SECTION 2. Section 27.002, Property Code, is amended to read
1-37 as follows:
1-38 Sec. 27.002. APPLICATION OF CHAPTER. (a) This chapter
1-39 applies to:
1-40 (1) any action to recover damages resulting from a
1-41 construction defect, except a claim for personal injury, survival,
1-42 or wrongful death or for damage to goods; and
1-43 (2) any subsequent purchaser of a residence who files
1-44 a claim against a contractor.
1-45 (b) To the extent of conflict between this chapter and any
1-46 other law, including the Deceptive Trade Practices-Consumer
1-47 Protection Act (Subchapter E, Chapter 17, Business & Commerce
1-48 Code), this chapter prevails.
1-49 (c) [(b)] In this section:
1-50 (1) "Goods" does not include a residence.
1-51 (2) "Personal injury" does not include mental anguish.
1-52 SECTION 3. Subsection (a), Section 27.003, Property Code, is
1-53 amended to read as follows:
1-54 (a) In an action to recover damages resulting from a
1-55 construction defect:
1-56 (1)[,] a contractor is not liable for any percentage
1-57 of damages caused by:
1-58 (A) [(1)] negligence of a person other than the
1-59 contractor or an agent, employee, or subcontractor of the
1-60 contractor;
1-61 (B) [(2)] failure of a person other than the
1-62 contractor or an agent, employee, or subcontractor of the
1-63 contractor to:
1-64 (i) [(A)] take reasonable action to
2-1 mitigate the damages; or
2-2 (ii) [(B)] take reasonable action to
2-3 maintain the residence;
2-4 (C) [(3)] normal wear, tear, or deterioration;
2-5 (D) [(4)] normal shrinkage due to drying or
2-6 settlement of construction components within the tolerance of
2-7 building standards; or
2-8 (E) [(5)] the contractor's reliance on written
2-9 information relating to the residence, appurtenance, or real
2-10 property on which the residence and appurtenance are affixed that
2-11 was obtained from official government records, if the written
2-12 information was false or inaccurate and the contractor did not know
2-13 and could not reasonably have known of the falsity or inaccuracy of
2-14 the information; and
2-15 (2) if an assignee of the claimant or a person
2-16 subrogated to the rights of a claimant fails to provide the written
2-17 notice to the contractor required by Section 27.004(a) before
2-18 performing repairs, the contractor is not liable for the cost of
2-19 any repairs or any percentage of damages caused by repairs made to
2-20 a construction defect at the request of an assignee of the claimant
2-21 or a person subrogated to the rights of a claimant by a person
2-22 other than the contractor or an agent, employee, or subcontractor
2-23 of the contractor.
2-24 SECTION 4. Chapter 27, Property Code, is amended by adding
2-25 Section 27.0031 to read as follows:
2-26 Sec. 27.0031. FRIVOLOUS SUIT; HARASSMENT. A party who files
2-27 a suit under this chapter that is groundless and brought in bad
2-28 faith or for purposes of harassment is liable to the defendant for
2-29 reasonable and necessary attorney's fees and court costs.
2-30 SECTION 5. Section 27.004, Property Code, is amended by
2-31 amending Subsections (a), (b), (d), (f), (h), (i), and (k) and
2-32 adding Subsection (p) to read as follows:
2-33 (a) Before the 60th day preceding the date a claimant
2-34 seeking from a contractor damages arising from a construction
2-35 defect files suit, the claimant shall give written notice by
2-36 certified mail, return receipt requested, to the contractor, at the
2-37 contractor's last known address, specifying in reasonable detail
2-38 the construction defects that are the subject of the complaint. On
2-39 the request of the contractor, the claimant shall provide to the
2-40 contractor any evidence that depicts the nature and cause of the
2-41 defect and the nature and extent of repairs necessary to remedy the
2-42 defect, including expert reports, photographs, and videotapes, if
2-43 that evidence would be discoverable under Rule 192, Texas Rules of
2-44 Civil Procedure. During the 35-day period after the date the
2-45 contractor receives the notice, and on the contractor's written
2-46 request, the contractor shall be given a reasonable opportunity to
2-47 inspect and have inspected the property that is the subject of the
2-48 complaint to determine the nature and cause of the defect and the
2-49 nature and extent of repairs necessary to remedy the defect. The
2-50 contractor may take reasonable steps to document the defect.
2-51 (b) Within the 45-day period after the date the contractor
2-52 receives the notice, the contractor may make a written offer of
2-53 settlement to the claimant. The offer must be sent to the claimant
2-54 at the claimant's last known address or to the claimant's attorney
2-55 by certified mail, return receipt requested. The offer may include
2-56 either an agreement by the contractor to repair or to have repaired
2-57 by an independent contractor at the contractor's expense any
2-58 construction defect described in the notice and shall describe in
2-59 reasonable detail the kind of repairs which will be made. The
2-60 repairs shall be made within the 45-day period after the date the
2-61 contractor receives written notice of acceptance of the settlement
2-62 offer, unless completion is delayed by the claimant or by other
2-63 events beyond the control of the contractor. For the purposes of
2-64 this section, "independent contractor" means a person who is
2-65 independent of the contractor and did not perform any of the work
2-66 complained of in the claimant's notice. The claimant and the
2-67 contractor may agree in writing to extend the periods described by
2-68 this subsection.
2-69 (d) The court shall abate a suit governed by this chapter
3-1 [section] if Subsection (c) does not apply and the court, after a
3-2 hearing, finds that the contractor is entitled to an abatement
3-3 because the claimant failed to provide the notice or failed to give
3-4 the contractor a reasonable opportunity to inspect the property
3-5 [was not provided] as required by Subsection (a). A suit is
3-6 automatically abated without the order of the court beginning on
3-7 the 11th day after the date a plea in abatement is filed if the
3-8 plea in abatement:
3-9 (1) is verified and alleges that the person against
3-10 whom the suit is pending did not receive the written notice or was
3-11 not given a reasonable opportunity to inspect the property as
3-12 required by Subsection (a); and
3-13 (2) is not controverted by an affidavit filed by the
3-14 claimant before the 11th day after the date on which the plea in
3-15 abatement is filed.
3-16 (f) If a claimant unreasonably rejects an offer made as
3-17 provided by this section or does not permit the contractor or
3-18 independent contractor a reasonable opportunity to repair the
3-19 defect pursuant to an accepted offer of settlement, the claimant:
3-20 (1) may not recover an amount in excess of:
3-21 (A) the reasonable cost of the offered repairs
3-22 which are necessary to cure the construction defect and which are
3-23 the responsibility of the contractor; or
3-24 (B) the amount of a reasonable monetary
3-25 settlement offer made under Subsection (n); and
3-26 (2) may recover only the amount of reasonable and
3-27 necessary attorney's fees and costs incurred before the offer was
3-28 rejected or considered rejected.
3-29 (h) Except as provided by Subsection (f), in a suit subject
3-30 to this chapter the claimant may recover only the following damages
3-31 proximately caused by a construction defect:
3-32 (1) the reasonable cost of repairs necessary to cure
3-33 any construction defect, including any reasonable and necessary
3-34 engineering or consulting fees required to evaluate and cure the
3-35 construction defect, that the contractor is responsible for
3-36 repairing under this chapter [failed to cure];
3-37 (2) the reasonable expenses of temporary housing
3-38 reasonably necessary during the repair period;
3-39 (3) the reduction in market value, if any, to the
3-40 extent the reduction is due to structural failure; and
3-41 (4) reasonable and necessary attorney's fees.
3-42 (i) The total damages awarded in a suit subject to this
3-43 chapter may not exceed the greater of the claimant's purchase price
3-44 for the residence or the current fair market value of the residence
3-45 without the construction defect.
3-46 (k) An affidavit certifying rejection of a settlement offer
3-47 under this section may be filed with the court. The trier of fact
3-48 shall determine the reasonableness of [a rejection of] an offer of
3-49 settlement made under this section.
3-50 (p) If the contractor provides written notice of a claim for
3-51 damages arising from a construction defect to a subcontractor, the
3-52 contractor retains all rights of contribution from the
3-53 subcontractor if the contractor settles the claim with the
3-54 claimant.
3-55 SECTION 6. Chapter 27, Property Code, is amended by adding
3-56 Section 27.0041 to read as follows:
3-57 Sec. 27.0041. MEDIATION. (a) If a claimant files suit
3-58 seeking from a contractor damages arising from a construction
3-59 defect in an amount greater than $7,500, the claimant or contractor
3-60 may file a motion to compel mediation of the dispute. The motion
3-61 must be filed not later than the 90th day after the date the suit
3-62 is filed.
3-63 (b) Not later than the 30th day after the date a motion is
3-64 filed under Subsection (a), the court shall order the parties to
3-65 mediate the dispute. If the parties cannot agree on the
3-66 appointment of a mediator, the court shall appoint the mediator.
3-67 (c) The court shall order the parties to begin mediation of
3-68 the dispute not later than the 30th day after the date the court
3-69 enters its order under Subsection (b) unless the parties agree
4-1 otherwise or the court determines additional time is required. If
4-2 the court determines that additional time is required, the court
4-3 may order the parties to begin mediation of the dispute not later
4-4 than the 60th day after the date the court enters its order under
4-5 Subsection (b).
4-6 (d) Unless each party who has appeared in a suit filed under
4-7 this chapter agrees otherwise, each party shall participate in the
4-8 mediation and contribute equally to the cost of the mediation.
4-9 (e) Section 154.023, Civil Practice and Remedies Code, and
4-10 Subchapters C and D, Chapter 154, Civil Practice and Remedies Code,
4-11 apply to a mediation under this section to the extent those laws do
4-12 not conflict with this section.
4-13 SECTION 7. Section 27.005, Property Code, is amended to read
4-14 as follows:
4-15 Sec. 27.005. LIMITATIONS ON EFFECT OF CHAPTER. This chapter
4-16 does not create a cause of action or derivative liability [an
4-17 implied warranty] or extend a limitations period.
4-18 SECTION 8. Chapter 27, Property Code, is amended by adding
4-19 Section 27.007 to read as follows:
4-20 Sec. 27.007. DISCLOSURE STATEMENT REQUIRED. (a) A written
4-21 contract subject to this chapter must contain next to the signature
4-22 lines in the contract a notice printed or typed in 10-point
4-23 boldface type or the computer equivalent that reads substantially
4-24 similar to the following:
4-25 "This contract is subject to Chapter 27, Property Code. The
4-26 provisions of that chapter may affect your right to recover damages
4-27 arising from the performance of this contract. If you have a
4-28 complaint concerning a construction defect arising from the
4-29 performance of this contract and that defect has not been corrected
4-30 through normal warranty service, you must provide notice regarding
4-31 the defect to the contractor by certified mail, return receipt
4-32 requested, not later than the 60th day before the date you file
4-33 suit to recover damages in a court of law. The notice must refer
4-34 to Chapter 27, Property Code, and must describe the construction
4-35 defect. If requested by the contractor, you must provide the
4-36 contractor an opportunity to inspect and cure the defect as
4-37 provided by Section 27.004, Property Code."
4-38 (b) If a contract does not contain the notice required by
4-39 this section, the claimant may recover from the contractor a civil
4-40 penalty of $500 in addition to any other remedy provided by this
4-41 chapter.
4-42 SECTION 9. (a) Except as provided by Subsection (b) of this
4-43 section, this Act takes effect September 1, 1999.
4-44 (b) Section 27.007, Property Code, as added by this Act,
4-45 takes effect September 1, 2000.
4-46 (c) The changes in law made by this Act apply only to a
4-47 contract subject to Chapter 27, Property Code, as amended by this
4-48 Act, that is entered into on or after the effective date of this
4-49 Act. A contract subject to Chapter 27, Property Code, that was
4-50 entered into before the effective date of this Act is governed by
4-51 the law in effect when the contract was entered into, and the
4-52 former law is continued in effect for that purpose.
4-53 SECTION 10. The importance of this legislation and the
4-54 crowded condition of the calendars in both houses create an
4-55 emergency and an imperative public necessity that the
4-56 constitutional rule requiring bills to be read on three several
4-57 days in each house be suspended, and this rule is hereby suspended.
4-58 * * * * *