By Brown                                              S.B. No. 1324
         77R3845 AJA-F                           
                                A BILL TO BE ENTITLED
 1-1                                   AN ACT
 1-2     relating to express and implied warranties of a contractor for
 1-3     residential construction.
 1-5           SECTION 1. The purpose of this Act is to protect homeowners
 1-6     by requiring a contractor to provide certain express warranties to
 1-7     a homeowner before the contractor may disclaim any implied
 1-8     warranties, including the implied warranties of habitability,
 1-9     fitness, and good and workmanlike construction.
1-10           SECTION 2. Chapter 27, Property Code, is amended by
1-11     redesignating Sections 27.001-27.007, Property Code, as Subchapter
1-12     A, Chapter 27, Property Code, and by adding a heading for
1-13     Subchapter A, Chapter 27, Property Code, to read as follows:
1-15                             CONSTRUCTION DEFECT
1-16           SECTION 3. Section 27.001, Property Code, is amended to read
1-17     as follows:
1-18           Sec. 27.001.  DEFINITIONS. In this subchapter [chapter]:
1-19                 (1)  "Appurtenance" means any structure or recreational
1-20     facility that is appurtenant to a residence but is not a part of
1-21     the dwelling unit.
1-22                 (2)  "Construction defect" means a matter concerning
1-23     the design, construction, or repair of a new residence, of an
1-24     alteration of or repair or addition to an existing residence, or of
 2-1     an appurtenance to a residence, on which a person has a complaint
 2-2     against a contractor.  The term may include any physical damage to
 2-3     the residence, any appurtenance, or the real property on which the
 2-4     residence and appurtenance are affixed proximately caused by a
 2-5     construction defect.
 2-6                 (3)  "Contractor" means a person contracting with an
 2-7     owner for the construction or sale of a new residence constructed
 2-8     by that person or of an alteration of or addition to an existing
 2-9     residence, repair of a new or existing residence, or construction,
2-10     sale, alteration, addition, or repair of an appurtenance to a new
2-11     or existing residence.  The term includes:
2-12                       (A)  an owner, officer, director, shareholder,
2-13     partner, or employee of the contractor; and
2-14                       (B)  a risk retention group registered under
2-15     Article 21.54, Insurance Code, that insures all or any part of a
2-16     contractor's liability for the cost to repair a residential
2-17     construction defect.
2-18                 (4)  "Residence" means a single-family house, duplex,
2-19     triplex, or quadruplex or a unit in a multiunit residential
2-20     structure in which title to the individual units is transferred to
2-21     the owners under a condominium or cooperative system.
2-22                 (5)  "Structural failure" means actual physical damage
2-23     to the load-bearing portion of a residence caused by a failure of
2-24     the load-bearing portion.
2-25           SECTION 4. Sections 27.002(a) and (b), Property Code, are
2-26     amended to read as follows:
2-27           (a)  This subchapter [chapter] applies to:
 3-1                 (1)  any action to recover damages resulting from a
 3-2     construction defect, except a claim for personal injury, survival,
 3-3     or wrongful death or for damage to goods; and
 3-4                 (2)  any subsequent purchaser of a residence who files
 3-5     a claim against a contractor.
 3-6           (b)  To the extent of conflict between this subchapter
 3-7     [chapter] and any other law, including the Deceptive Trade
 3-8     Practices-Consumer Protection Act (Subchapter E, Chapter 17,
 3-9     Business & Commerce Code), this subchapter [chapter] prevails.
3-10           SECTION 5. Section 27.003, Property Code, is amended by
3-11     amending Subsection (b) and adding Subsection (c) to read as
3-12     follows:
3-13           (b)  Except as provided herein, this subchapter [chapter]
3-14     does not limit or bar any other defense or defensive matter or
3-15     other defensive cause of action applicable to an action to recover
3-16     damages resulting from a construction defect.
3-17           (c)  This subchapter shall be read in conjunction with
3-18     Subchapter B.  Any claim against a contractor under this subchapter
3-19     is also subject to Subchapter B.
3-20           SECTION 6. Section 27.0031, Property Code, is amended to read
3-21     as follows:
3-22           Sec. 27.0031.  FRIVOLOUS SUIT; HARASSMENT. A party who files
3-23     a suit under this subchapter [chapter] that is groundless and
3-24     brought in bad faith or for purposes of harassment is liable to the
3-25     defendant for reasonable and necessary attorney's fees and court
3-26     costs.
3-27           SECTION 7. Sections 27.004(c), (d), (h), (i), (m), and (o),
 4-1     Property Code, are amended to read as follows:
 4-2           (c)  If the giving of the notice under Subsections (a)  and
 4-3     (b) within the period prescribed by those subsections is
 4-4     impracticable because of the necessity of filing suit at an earlier
 4-5     date to prevent expiration of the statute of limitations or if the
 4-6     complaint is asserted as a counterclaim, that notice is not
 4-7     required.  However, the suit or counterclaim shall specify in
 4-8     reasonable detail each construction defect that is the subject of
 4-9     the complaint, and the inspection provided for by Subsection (a)
4-10     may be made during the 60-day period following the date of service
4-11     of the suit or counterclaim on the contractor, and the offer
4-12     provided for by Subsection (b) may be made within the 60-day period
4-13     following the date of service.  If, while a suit subject to this
4-14     subchapter [chapter] is pending, the statute of limitations for the
4-15     cause of action would have expired and it is determined that the
4-16     provisions of Subsection (a)  were not properly followed, the suit
4-17     shall be abated for up to 75 days in order to allow compliance with
4-18     Subsections (a)  and (b).
4-19           (d)  The court shall abate a suit governed by this subchapter
4-20     [chapter] if Subsection (c) does not apply and the court, after a
4-21     hearing, finds that the contractor is entitled to an abatement
4-22     because the claimant failed to provide the notice or failed to give
4-23     the contractor a reasonable opportunity to inspect the property as
4-24     required by Subsection (a).  A suit is automatically abated without
4-25     the order of the court beginning on the 11th day after the date a
4-26     plea in abatement is filed if the plea in abatement:
4-27                 (1)  is verified and alleges that the person against
 5-1     whom the suit is pending did not receive the written notice or was
 5-2     not given a reasonable opportunity to inspect the property as
 5-3     required by Subsection (a); and
 5-4                 (2)  is not controverted by an affidavit filed by the
 5-5     claimant before the 11th day after the date on which the plea in
 5-6     abatement is filed.
 5-7           (h)  Except as provided by Subsection (f), in a suit subject
 5-8     to this subchapter [chapter] the claimant may recover only the
 5-9     following damages proximately caused by a construction defect:
5-10                 (1)  the reasonable cost of repairs necessary to cure
5-11     any construction defect, including any reasonable and necessary
5-12     engineering or consulting fees required to evaluate and cure the
5-13     construction defect, that the contractor is responsible for
5-14     repairing under this subchapter [chapter];
5-15                 (2)  the reasonable expenses of temporary housing
5-16     reasonably necessary during the repair period;
5-17                 (3)  the reduction in market value, if any, to the
5-18     extent the reduction is due to structural failure; and
5-19                 (4)  reasonable and necessary attorney's fees.
5-20           (i)  The total damages awarded in a suit subject to this
5-21     subchapter [chapter] may not exceed the greater of the claimant's
5-22     purchase price for the residence or the current fair market value
5-23     of the residence without the construction defect.
5-24           (m)  Notwithstanding Subsections (a), (b), and (c), a
5-25     contractor who receives written notice of a construction defect
5-26     resulting from work performed by the contractor or an agent,
5-27     employee, or subcontractor of the contractor and creating an
 6-1     imminent threat to the health or safety of the inhabitants of the
 6-2     residence shall take reasonable steps to cure the defect as soon as
 6-3     practicable.  If the contractor fails to cure the defect in a
 6-4     reasonable time, the owner of the residence may have the defect
 6-5     cured and may recover from the contractor the reasonable cost of
 6-6     the repairs plus attorney's fees and costs in addition to any other
 6-7     damages recoverable under any law not inconsistent with the
 6-8     provisions of this subchapter [chapter].
 6-9           (o)  The inspection and repair provisions of this subchapter
6-10     [chapter] are in addition to any rights of inspection and
6-11     settlement provided by common law or by another statute, including
6-12     Section 17.505, Business & Commerce Code.
6-13           SECTION 8. Section 27.0041(d), Property Code, is amended to
6-14     read as follows:
6-15           (d)  Unless each party who has appeared in a suit filed under
6-16     this subchapter [chapter] agrees otherwise, each party shall
6-17     participate in the mediation and contribute equally to the cost of
6-18     the mediation.
6-19           SECTION 9. Section 27.005, Property Code, is amended to read
6-20     as follows:
6-22     This subchapter [chapter] does not create a cause of action or
6-23     derivative liability or extend a limitations period.
6-24           SECTION 10. Section 27.007, Property Code, is amended to read
6-25     as follows:
6-26           Sec. 27.007.  DISCLOSURE STATEMENT REQUIRED. (a)  A written
6-27     contract subject to this subchapter [chapter] must contain next to
 7-1     the signature lines in the contract a notice printed or typed in
 7-2     10-point boldface type or the computer equivalent that reads
 7-3     substantially similar to the following:
 7-4           "This contract is subject to Subchapter A, Chapter 27,
 7-5     Property Code.  The provisions of that subchapter [chapter] may
 7-6     affect your right to recover damages arising from the performance
 7-7     of this contract.  If you have a complaint concerning a
 7-8     construction defect arising from the performance of this contract
 7-9     and that defect has not been corrected through normal warranty
7-10     service, you must provide notice regarding the defect to the
7-11     contractor by certified mail, return receipt requested, not later
7-12     than the 60th day before the date you file suit to recover damages
7-13     in a court of law.  The notice must refer to Subchapter A, Chapter
7-14     27, Property Code, and must describe the construction defect.  If
7-15     requested by the contractor, you must provide the contractor an
7-16     opportunity to inspect and cure the defect as provided by Section
7-17     27.004, Property Code."
7-18           (b)  If a contract does not contain the notice required by
7-19     this section, the claimant may recover from the contractor a civil
7-20     penalty of $500 in addition to any other remedy provided by this
7-21     subchapter [chapter].
7-22           SECTION 11. Chapter 27, Property Code, is amended by adding
7-23     Subchapter B to read as follows:
7-25           Sec. 27.101.  SHORT TITLE. This subchapter may be cited as
7-26     the Homeowners Express Warranty Act.
7-27           Sec. 27.102.  DEFINITIONS. In this subchapter:
 8-1                 (1)  "Building inspector" means a person:
 8-2                       (A)  appointed or employed by a governmental
 8-3     entity or contractor to enforce building standards; and
 8-4                       (B)  if enforcing a building code, certified to
 8-5     inspect property for compliance with the building code.
 8-6                 (2)  "Building standards" means:
 8-7                       (A)  the standards contained in:
 8-8                             (i)  the building code, including any
 8-9     separate mechanical-plumbing code and electrical code adopted by
8-10     the governmental entity authorized by law to adopt standards in the
8-11     area in which a residence is located at the time construction of
8-12     the residence begins; or
8-13                             (ii)  the International Residential Code
8-14     for One- and Two-Family Dwellings if no governmental entity has
8-15     adopted a building code that is in effect in the area in which the
8-16     residence is located; and
8-17                       (B)  any additional performance standards with
8-18     which the contractor agrees to comply.
8-19                 (3)  "Contractor" means a person contracting for the
8-20     construction or sale of a new residence constructed by that person,
8-21     the construction of an alteration of or addition to an existing
8-22     residence, or the alteration or addition of an appurtenance to a
8-23     new or existing residence.  The term includes:
8-24                       (A)  an owner, officer, director, shareholder,
8-25     partner, or employee of the contractor; and
8-26                       (B)  a risk retention group registered under
8-27     Article 21.54, Insurance Code, that insures all or any part of a
 9-1     contractor's liability for the cost to repair a residential
 9-2     construction defect.
 9-3                 (4)  "Homeowner" means the initial purchaser or any
 9-4     subsequent purchaser of fee simple title to the residence.
 9-5                 (5)  "Initial purchaser" means a person for whom a
 9-6     residence is built or the first person to whom a residence is sold
 9-7     following construction of the residence for residential occupancy
 9-8     by that person or the person's immediate family.
 9-9                 (6)  "Structure" means the load-bearing portion of a
9-10     residence.
9-11                 (7)  "Structural defect":
9-12                       (A)  has the meaning assigned by the express
9-13     written warranty of the contractor; or
9-14                       (B)  means the actual physical damage to the
9-15     structure of a residence caused by a failure of the structure if no
9-16     definition is provided in the warranty.
9-17                 (8)  "Residence" has the meaning assigned by Section
9-18     27.001.
9-19                 (9)  "Warranty commencement date" means:
9-20                       (A)  the earlier of:
9-21                             (i)  the date on which legal or equitable
9-22     title to a new residence is conveyed to the initial purchaser of
9-23     the residence; or
9-24                             (ii)  the date on which a new residence is
9-25     first occupied by the initial purchaser, the immediate family of
9-26     the initial purchaser, or an initial occupant who is not the
9-27     initial purchaser; or
 10-1                      (B)  the date on which an alteration or addition
 10-2    to an existing residence or appurtenance is substantially
 10-3    completed.
 10-5    CONDITIONS. (a)  The express written warranties required under this
 10-6    subchapter replace  all implied warranties established by common
 10-7    law before September 1, 2001.
 10-8          (b)  A contractor who provides to a homeowner the express
 10-9    written warranties required under this subchapter does not provide
10-10    any implied warranty to the homeowner, even if the contractor does
10-11    not specifically disclaim an implied warranty.
10-13    UNDER CERTAIN CONDITIONS. (a)  A contractor may not disclaim an
10-14    implied warranty related to a residence under this subchapter
10-15    unless:
10-16                (1)  the minimum warranties required under Section
10-17    27.105 and the right to transfer a warranty as provided by Section
10-18    27.106 are included as provisions in:
10-19                      (A)  a written contract or attachment to a
10-20    written contract between the contractor and the initial purchaser
10-21    of the residence; or
10-22                      (B)  a written express warranty agreement or an
10-23    insurance policy; and
10-24                (2)  the disclaimer is printed in capital letters in at
10-25    least 10-point bold-faced type on the contract for the sale and
10-26    purchase of the residence and the deed transferring title to the
10-27    residence.
 11-1          (b)  A disclaimer that complies with Subsection (a)  is
 11-2    effective to disclaim implied warranties to a subsequent homeowner
 11-3    who acquired title to a residence after the initial purchaser
 11-4    acquired title.
 11-5          Sec. 27.105.  EXPRESS WRITTEN WARRANTY REQUIRED. (a)  A
 11-6    contractor shall provide an express written warranty to an initial
 11-7    purchaser in which the contractor warrants, as applicable, that:
 11-8                (1)  the residence will substantially comply with
 11-9    applicable building standards for one year following the warranty
11-10    commencement date;
11-11                (2)  a new residence or an alteration or addition that
11-12    affects a plumbing, electrical, heating, or cooling system will
11-13    substantially comply with the building standards applicable to that
11-14    system for two years following the warranty commencement date; and
11-15                (3)  a residence or an alteration or addition that
11-16    affects the structure of the residence will be free from structural
11-17    defects for the period beginning on the warranty commencement date
11-18    and ending on the latest date on which a suit could be brought
11-19    under Section 16.008 or 16.009, Civil Practice and Remedies Code,
11-20    as applicable.
11-21          (b)  All or part of the warranty required by Subsection (a)
11-22    may be provided by the contractor in the form of an express
11-23    warranty issued by a warranty company if the warranty is backed by
11-24    an insurance policy issued by an insurance company or risk
11-25    retention group authorized by law to issue the policy.
11-26          (c)  An express written warranty and any related insurance
11-27    policy must inform the homeowner of the claim procedure for the
 12-1    homeowner to report defects to the contractor, warranty company, or
 12-2    insurer.   The claim procedure must conform to the terms of any
 12-3    contract between a homeowner and a contractor and any warranty
 12-4    provided to a homeowner by the contractor.
 12-5          (d)  An express written warranty provided by a contractor
 12-6    must include a provision that requires the contractor, warranty
 12-7    company, or insurer to make any repair or replacement necessary to
 12-8    cure the defect covered by the warranty or pay the homeowner the
 12-9    reasonable cost of repair or replacement necessary to cure the
12-10    defect at the contractor's, warranty company's, or insurer's option
12-11    if timely notice is provided to the contractor or to any warranty
12-12    company or insurer as prescribed by the claim procedure provided in
12-13    the express written warranty or the related insurance policy.
12-14    Notice provided by a homeowner as prescribed by Subchapter A is
12-15    sufficient to satisfy the notice requirements of this subsection.
12-16          (e)  Repair of a structural defect is limited to:
12-17                (1)  the repair of damage to the structure of a
12-18    residence that is necessary to restore the structure's load-bearing
12-19    ability; and
12-20                (2)  the repair of any portion of the residence damaged
12-21    by the structural defect.
12-22          (f)  An express written warranty and any related insurance
12-23    policy may contain:
12-24                (1)  written exclusions that do not waive or restrict
12-25    the requirements of applicable building standards; or
12-26                (2)  provisions permitting or requiring binding
12-27    arbitration of any disputed claim.
 13-1          Sec. 27.106.  TRANSFERABILITY. (a)  An express written
 13-2    warranty and any related insurance policy are automatically
 13-3    transferable, without charge, to any subsequent homeowner who
 13-4    acquires title to the residence after the initial purchaser
 13-5    acquires title.
 13-6          (b)  The transfer of title to a residence does not extend the
 13-7    duration of an express written warranty or any related insurance
 13-8    coverage.
 13-9          Sec. 27.107.  SUBSTANTIAL COMPLIANCE. (a)  A contractor
13-10    complies with this subchapter if the contractor delivers to the
13-11    homeowner an express written warranty that provides coverage
13-12    substantially similar to the coverage required by this subchapter.
13-13          (b)  The language used in the express written warranty is not
13-14    required to be similar to the language used in this subchapter if
13-15    the coverage under the warranty is substantially similar to the
13-16    coverage required by this subchapter.
13-18    LIQUIDATED DAMAGES. If a contractor fails to comply with Section
13-19    27.105 or 27.106, the contractor is liable to the affected
13-20    homeowner for $500 in liquidated damages.
13-21          Sec. 27.109.  FAILURE TO PERFORM UNDER WARRANTY. If a
13-22    contractor or insurer fails to perform under the terms of an
13-23    express written warranty or related insurance policy, the affected
13-24    homeowner may file suit under Subchapter A.
13-25          Sec. 27.110.  CONSTRUCTION OF SUBCHAPTER. (a)  This
13-26    subchapter shall be read in conjunction with Subchapter A and shall
13-27    be construed liberally so as to give the broadest possible effect
 14-1    to the warranties and disclaimers provided by this subchapter.
 14-2          (b)  If a dispute exists as to whether a specific express
 14-3    written warranty complies with this subchapter, the warranty must
 14-4    be construed in the manner most likely to result in a determination
 14-5    that the warranty complies with the minimum requirements of this
 14-6    subchapter.
 14-7          (c)  A disclaimer shall be construed liberally so as to limit
 14-8    the liability of a contractor or insurer to the terms of the
 14-9    written warranty and avoid imposing liability outside the terms of
14-10    the written warranty.
14-11          SECTION 12.  This Act takes effect September 1, 2001, and
14-12    applies only to a contract for the construction of a new residence
14-13    for an initial purchaser or for alterations or additions to a
14-14    residence under Subchapter B, Chapter 27, Property Code, as added
14-15    by this Act, that is entered into on or after that date.