April 2008 Nevada Lawyer
The “Right to Repair:” Does it Work?
In 2003, at the urging of the construction industry, the Nevada Legislature expanded Chapter 40 to include a “Right to Repair” option for builders. Under these statutes (N.R.S. 40.647–40.648), a developer, general contractor or subcontractor can choose to repair a defect after receiving the statutorily-required notice of defects (N.R.S. 40.645 et al.), with the presumed objective of ending the litigation. Editorial Board Member Richard Vilkin asked Judge Allan R. Earl of the Eighth Judicial District, as well as some local practitioners, how the law is working.
Nevada Lawyer: You mentioned “right to repair,” and it’s a relatively new statute. Two
questions: Are builders taking advantage of it? And is the statute effective?
Judge Earl: It sounds easy in theory, but it’s not. It works well on one home, if you have a developer or builder that built your home and had four or five subs that built that home and you have some problems and you get in touch with the builder and say, “Look, I’ve got these problems. I want your firm to come in and fix them.” The statute works pretty well along those lines.
But if you have a development with 200 homes in it or more, such as Summerlin, which has a vast number of homes, and there are alleged defects and they occurred as much as seven to ten years ago, a good percentage of the subcontractors who worked on the job are out of business. This construction defect litigation and the crunch it has generated and the housing boom and then the bust have all mixed together to drive a lot of people, particularly small, family-type subcontractors, out of business. They’ve also driven away very small developers. If you have a situation where several hundred homeowners say, “I’m going to give you notice and I want you to come in and fix these homes,” then you’re talking about a fix that involves a gigantic sum of money, and there are insurance issues involved. The statute, for example, has a very small time-frame in which all of this is supposed to occur. Almost all of us who work in the field will tell you privately that it’s too short. It can’t be done within the time-frames that are set out. So, if the builders do want the chance to repair – and some of them are getting more aggressive in doing that – then we have to work out a time-frame in which it actually can be done.
Another problem is that the statute does not make the work that’s done subject to a release. I think there are cases in which some builders or some subcontractors are saying, “I’d like the chance to go in and fix whatever is wrong.” But if you, as a homeowner, make a claim against your builder, and the builder comes in and fixes what’s there, he doesn’t get a release from you saying that the work has been done and that there are no more claims. If the work is done improperly or you still think the defect exists, even after the fix, you can still bring a lawsuit. So the statute’s not perfect along those lines. If the defect is one that most people agree is a defect, and you know what the fix is and you know what damage, if any, has occurred, then you can go in and just do it. That’s much easier to do than if you have a claim where you have problems with a sewer, or stucco, or drywall, or framing, or roofing; the damage is different in every home because it doesn’t hit every home the same way. That’s very difficult for a builder to accomplish.
Nevada Lawyer: Are there some things that are apparent to you that might help
everybody in the process if they were part of the statute?
Judge Earl: I believe that the timeframes set forth in the statute need to be elongated. Most of the cases that we deal with are big, involving not just one home or a group of homes, but developments. The timeframes to fix homes in an entire development are just unworkable in our statute. I believe that the nature of the notice given by the developer to the subcontractor probably needs to be clarified a bit. The notice that the plaintiffs have to give to the developer was clarified recently by our Supreme Court (D.R. Horton, Inc. v. Eighth Judicial District Court, 168 P.3d 731 (2007)). But after the plaintiffs give notice to the developer, if the developer wants to involve the subcontractors, he has turn around and give notice to them. The question that remains is: What is the nature and extent of the notice the developer has to give to the subs? That issue has sparked great debate, and I think that probably needs to be clarified a bit.
Nevada Lawyer: Do you think the “right to repair” law is working well?
David S. Lee (developer/general contractor attorney of Lee, Hernandez, Kelsey, Brooks, Garofalo & Blake):
I think, by and large, the “right to repair” law has been a bust. While the concept is laudable, problems in the legislation and practical issues have made it ineffective.
I think the law could be greatly improved with these changes:
1) Provide more definitive notice from claimants. Telling us there are “stucco cracks” or “electrical
problems” in “ten percent” of the homes doesn’t give us the specificity we need to do repairs.
2) Elongate the time-frames. The current time-frames don’t take into account the number of homes nor the scope of the claims; they are unrealistic.
3) Provide objective standards for repairs and a release. Currently, the homeowner can still sue if he is unhappy with the repair.
4) Prohibit attorneys’ fees where repairs are made. Currently there are cases where repairs
were made and accepted, but the lawsuit continues because of claims for attorneys’ fees.
5) Provide deadlines to end the claim after repairs are made and accepted. Currently, while the builders face deadlines to do the repairs, the homeowners do not face a deadline in accepting or rejecting a repair.
Brad R. Kohler II (subcontractor attorney of Carraway & Associates, LLC):
I think a lot of subcontractors are reluctant to
make repairs because you cannot condition
a repair to get a release and end the lawsuit.
If there was a provision that a subcontractor could do a repair,
get it inspected by a building inspector and then get a release,
many more subcontractors might take advantage of it. Also,
doing a repair raises issues related to warranties and the statute
of limitations that the law does not address.
Scott K. Canepa (plaintiff attorney of Canepa Riedy and Rubino):
The “right to repair” law only works well when builders want to fix their mistakes. Unfortunately, most builders continue to ask their insurance companies to pay for their mistakes. These builders’ unwillingness to commit their own funds toward repairs, coupled with a recent trend toward under-insuring the single-purpose entities they form to build homes, has created a real crisis for many homeowners victimized by faulty construction practices. Legislative reforms will be necessary to prevent abuses of LLC laws by builders who take the money and run, leaving homeowners to pursue asset-less entities.