As previously noted, House Bill 87 modified some of the requirements of Chapter 558, Florida Statutes.  The statute was recently signed by Governor Rick Scott and the changes will take effect Oct. 1.

The original intent of Chapter 558, enacted in 2003, was to require compliance with a mandatory pre-suit process before claims for construction defects could be brought in court.  Originally the claims subject to Chapter 558 were limited to residential defect claims but now include all residential and commercial project claims for defects.  All public projects are also included except for projects involving the Florida Department of Transportation.  In my experience the pre-suit process does not resolve many claims and add barriers and costs to owners and end-users.  A cynic might believe that the statute is working as intended.

Chapter 558 requires written notice from the claimant to the construction or design professionals believed to be responsible for defects or deficiencies and provide timeframes for the construction or design professionals to review the claims, inspect the property and respond. Responses from recipients of the claims could include an offer to repair the defects at no cost to the claimant, pay a monetary settlement, dispute the claim and decline to remedy or pay for some or all of the claimed defects, or a combination of these options.

Should the claim not be resolved then litigation may ensue. The defense remedy if a claimant does not comply with Chapter 558 is a stay of the lawsuit until compliance.

The amendments to Chapter 558 add a variety of requirements that, in my opinion, will make resolution pre-suit more difficult and continue to enact barriers to a claimant’s access to the courts.

  • Section 558.001, previously stated that the “contractor, subcontractor, supplier, or design professional” should have the opportunity to resolve the claim without further legal process but now includes “the insurer of the contractor, subcontractor, supplier, or design professional” as parties that should have such an opportunity.  However, there remains no requirement that notices of claim be served on insurers which from the claimants standpoint is appropriate as they often will not know who the insurers are.
  • Section 558.001 was further changed to add that such opportunity to resolve claim was “through confidential settlement negotiations” which is a point that may have been assumed previously.
  • Section 558.004(1)(b) had several changes made. The first is that the words “if known” were added to modify the requirement that claimant identify the damage or loss resulting from the defect.
  • The second change to 558.004(1)(b) is potentially more significant for all parties involved. The notice of claim must now “identify the location of each alleged construction defect sufficiently to enable the responding parties to locate the alleged defect without undue burden.”  Such identification must be based upon a visual inspection.  Such a requirement for identification may be easy for a single family home or an obvious defect.  However, such a requirement becomes exponentially more difficult in condominiums, hotels, schools and other end users with multiple units or rooms.  I expect there to be much argument, and litigation, about the quality of the notice of claim and what the terms “undue burden” mean.  This section will undoubtedly be used as a sword by recipients of notices not to resolve claims on the merits but on procedural grounds which is anathema to the alleged intent of the statute.  Further, this provision takes some of the “burden of proof” that a claimant may have at trial and attempts to force claimant to incur those costs up front.  Once again a cynic may view this as an attempt to set up barriers to claimants from pursuing claims.
  • The third change made to section 558.004(1)(b), is stating that the claimant has “no obligation to perform destructive or other testing for purposes of this notice.”  This change does make clear that the visual observation referenced previously is just that, a visual observation.  Given the costs for ASTM or other types of testing this provision does help owners.  However, given that there was no previous requirement for claimants to perform testing this provision clarifies the existing law.
  • Section 558.004(13) provides that a notice of claim does not constitute a claim for insurance purposes which was modified by “unless the terms of the policy specify otherwise.” I have yet to see a policy make the notices of claim a policy claim so this change may be of little impact.
  • Section 558.004(15) requires exchange of certain documents related to the alleged defects in the notice of claim. This section was revised to delete the requirement that “design drawings or specifications” be exchanged.  This change hurts owners who are less likely to be in possession of those documents than are the professionals hired to design and build.
  • Section 558.004(15) is further revised to require that maintenance records can be requested. Although the failure to maintain components may be a defense to some claims, the requirement to turn over maintenance records pre-suit, upon request of the claim recipients, is unnecessary and another cost for the owner.
  • Section 558.004(15) no also requires that, upon request, “documents related to the discovery, investigation, causation, and extent of the alleged defect” be produced. These documents would include many items protected by the attorney-work product or attorney-client privilege. Such documents would not be limited to those of the owner as designers and contractors who actually investigate the claims could be adversely impacted. Fortunately, the next change provides that a party may assert any privilege recognized under Florida law.  This latter portion may do away with the worst applications of the former.
  • Completion of a building has been modified to include temporary certificates of occupancy to reflect the actual practice of building departments in allowing occupancy of buildings.

As noted above, there are many changes and they do not make it easier for owners to make claims.  Also, it is likely that more amendments will be made in the next few years as some of the new changes prove unworkable.

The regular Florida legislative session is almost concluded.  The House adjourned on Tuesday and the Senate is in session until Friday.  A special session to address the state budget is expected but not yet set.  I previously addressed two construction related bills being considered this year: HB 87/SB418 related to construction defects, as noted here, and HB 501/SB 1158 related to shortening the statute of repose from 10 years to 7 years, as noted here.

The Chapter 558 bill, HB 87, was amended to address many of the concerns raised in my prior blog post.  The amended bill passed the House on a vote of 112 to 0. The House bill was substituted for the “companion” Senate bill, SB 418, and passed 35-4.  The bill will be sent to the Governor for his consideration. The Governor will have 7 days to veto, sign or allow the bill to become law without his signature, IF his office officially receives it during session (by May 1); if not sent to him until after May 1st, he will have 15 days to act.  It is expected that the governor will not veto this legislation and that the changes to Chapter 558 will take effect on July 1, 2015.  Although not perfect, the Chapter 558 bill, is significantly better than it was.  The text of the final bill can be found here.

The other pending construction bill, HB 501/SB 1158 regarding Statute of Repose, appears to be done for the year as it was not considered and passed in either chamber.  Although the bills could be considered as part of the special session, that is not likely.  The good news is that this legislation appears to be dead for this year.  The bad news is that this type of anti-owner legislation will come back, in the near future if not next year.  It will be important for all owners, public or private, in construction projects to watch for such legislation and oppose vigorously.

HB 501 to reduce the statute of repose in construction cases was heard by the House Civil Justice subcommittee.  There was an amendment to the bill to allow any claims that are currently over 7 years, but less than 10 years, to have until July 1, 2016, to file suit.  This “savings clause” is similar to the one used in 2006 when the statute of repose was then reduced from 15 years to 10 years.  The bill passed the subcommittee on a vote by 8-6.  For those interested in watching the hearing you can do so here beginning at the 7:18 mark.  Special recognition to Ronald Woods, P.E. of Woods Engineering and Tom Miller, P.E. of Structural Engineering and Inspections, Inc. for appearing and speaking out against the bill.

In addition to the proposed legislation to substantially change Chapter 558, link here, the Legislature is considering other legislation that will materially impact owners and taxpayers.  HB501 proposes to reduce the time owners have to pursue construction defect claims from 10 after completion to 7 years after completion.  Specifically, the proposed legislation reduces the time frame within which a claim can be brought for latent defects (a defect you did not know about or had no reason to know about) in the design, planning or construction of improvements to real property from the current 10 years to 7 years.  This reduction of time to pursue claims apply to claims where the building code was violated.  Why should Florida provide less protection to owners when historically, and now again, the biggest building booms have been occurring in Florida.  Even the AIA Form Agreements, not always owner friendly, provide for a 10 year statute of repose. More time should be provided because significant defects cannot often be discovered earlier.

In the Firm’s practice some of the most frequent defects which evidence themselves more than 7 years after completion:

  • the failure to properly treat post tension cables in high rise projects. The ends are not capped or treated with grout and waterproofing;
  • improper concrete cover over reinforcing steel on balconies;
  • stucco delamination;
  • bursting condenser sensor water pipes behind walls that have seams or improper fitting that fail;
  • roof membranes improperly installed and leaking into structural deck and trusses causing structural damage;
  • roof tiles improperly fastened and not compliant with wind codes;
  • a roof that appears new yet it is discovered it covers and old existing roof and has not adhered;
  • window frames with a useful life in excess of 20 years fail in year 10 by pitting and blistering;
  • sink hole issues that all should be familiar with in Florida;
  • poorly compacted soil;
  • concrete that is of less than the required compressive strength starts to crumble impacting structural members;
  • columns and beams with insufficient steel that is not apparent until a failure occurs ;

The attempt to reduce the time frame for the Statute of Repose for latent defects affects owners in existing buildings as the clock is running on those buildings already.  It is important that every condominium owner realize that this bill is a further stripping away of the rights of condominium unit owners and deserves to be soundly defeated.  Repair of significant defects will be solely on the owners rather than the parties that created the defective situation. However, not only are condominiums impacted but public construction such as schools, hospitals, roadways and public facilities such as stadiums. If deficiencies exist where the statute has expired, the public will pay for the corrective work as opposed to those that created the condition through faulty workmanship and design. The burden to pay should be borne by those accountable for the issue.

Why in this climate is legislation helping shoddy construction being pushed?  The only beneficiaries are construction professionals that perform lousy work that can avoid liability for their poor performance by waiting out the clock. The bottom line is that it is the consumer and taxpayer that are impacted by this legislation designed to help contractors, design professionals, subcontractors and suppliers.

The Legislature will be considering legislation this year to change Chapter 558, Florida Statutes.  Chapter 558 is  required process for any party seeking to pursue claims for construction defects.  The original goal of Chapter 558 was to provide an opportunity to settle defect claims without litigation or arbitration, and not to create another source of dispute or litigation.  This bill is contrary to that original intent. The proposed bill would create new rights and defeats any realistic hope to amicably resolve claims as more fully explained below.  These changes, if enacted, will negatively impact all owners of construction improvements including hospitals, doctor’s offices, school buildings, condominiums, single family homes and commercial buildings.  The proposed legislation can be found here and the specific problems are noted below.

Lines 66-76:

Requiring the notice to specify the location of each alleged defect is impossible relative to any structure of any size.  To require a claimant to inspect all buildings (20, 30, 40 or 50+) and identify with specificity every instance where a specific defect (e.g. crack in the stucco) appears would be prohibitively expensive, and not necessary at this stage.  The parties to whom a notice of claim would be sent are the construction professionals – they should be able to locate the defects if the Notice of Claim describes “in reasonable detail sufficient to determine the general nature of each construction defect.” The last sentence, which provides that the failure to provide the information is prima facie evidence of a defective notice, invites disputes over the sufficiency of a notice of claim.  Once the nature of the defect is identified, the notified parties can inspect and draw their own conclusions just as easily as the claimant can.  The only thing this will accomplish is to create a “gotcha” for claimants.

Overall, the proposed procedure will increase the burden on owners (residential and commercial) to go beyond what a court would require to prove a case at trial. It will also have a chilling effect because the cost to do so would be exorbitant and many would simply not be able to get it done and afford it. Chapter 558 was created to lower expense as opposed to increasing the cost to reach a resolution.  This will effectively stop homeowners and owners from being able to make a claim when legitimate defects exist in residential and commercial construction.

All of these issues were addressed in 2003 when Chapter 558 was originally enacted and then later revised to clarify and resolve some early inequities in the process. Why is this being revisited now?  This will place the burden of defective construction on claimants as opposed to shifting responsibility to the party that created the problem.

Further, requiring the notice to specify the specific provisions of the Building Code that are violated would again impose prohibitive costs on claimants, who would have to pay consultants for hours of analysis and report preparation which, again, is not necessary at this stage.  The intent of Chapter 558 is to require notice and give an opportunity to inspect and allow a cooling-off period for the parties to talk before suit is filed.  The purpose of Chapter 558 and the notice procedure is to not have trial specific proof but enough information to allow the parties to discuss the defects and achieve a possible remediation or settlement.

Collectively, these changes are not designed to facilitate resolution, but are instead punitive toward claimants.

Lines 120-129:

There is no need for another statutory provision allowing fees for “frivolous” claims.  Section 57.105 already exists for that purpose.  Further, the courts already have inherent jurisdiction to sanction parties for bad faith or egregious conduct.  See Bitterman v. Bitterman, 714 So. 2d 356 (Fla. 1998) .

Lines 154-157:

Requiring claimants to produce maintenance records and “other documents” pre-suit imposes costs on claimants but is not helpful at this stage.  The statute already allows for visual inspections and destructive investigation.  An inspection, destructive or otherwise, will allow the notified party to form an opinion about whether the alleged defect is truly a defect or merely the result of a lack of maintenance.  Producing records will be neither helpful nor relevant unless and until suit is filed as they are matters of proof.  Having these records does not assist a party in responding to the notice of claim as the recipients will either agree to fix the problem, make a monetary offer or not.  Once again, the point of Chapter 558 is to allow the inexpensive and efficient resolution of disputes, not create obstacles to filing suit.

Lines 166 – 181:

This section creates a mini-litigation process of its own.  The whole point of creating Chapter 558 was that it was to be an alternative to litigation.  Chapter 558 does not currently require a notified party to do anything.  A notified party is not required to retain consultants, review documents, provide a remediation or do anything at all under the existing statute.  In fact, a notified party can simply not respond to a notice of claim and no punishment is afforded under current law.  The idea that contractors must spend substantial sums investigating and defending against Chapter 558 claims is not true.  There is no purpose to be gained by adding subsection (16) except to create a club with which to threaten claimants.

At the end of the day, these changes will make pursuing real construction defects more difficult and will pass along the liability for those defects to the owners and purchasers rather than those that constructed the improvements.

The Supreme Court issued its opinion in the Maronda Homes, Inc. of Florida v. Lakeview Reserve Homeowners Association, Inc., case earlier today. I previously blogged about the case and its ramifications on Florida’s common law implied warranties here. Subsequent to oral argument in that case the legislature enacted Section 553.835, Florida Statutes, which abrogated all common law implied warranties for “off site improvements” as noted here and here.

The opinion recounts at length the procedural and factual history of the underlying case as well as the status of the law regarding common law implied warranties. It is the Supreme Court’s most comprehensive recitation of this area of the law since Gable v. Silver in 1972 and Conklin v. Hurley in 1983. 

The original question dealt with whether the underlying 5th District Court of Appeal’s decision was correct, or if a prior 4th District Court of Appeal decision in Port Sewall v. First Federal, controlled. The opinion’s takeaways are as follows:

         The 5th District’s opinion was approved;

         The 4th District’s opinion was disapproved to the extent inconsistent with the Supreme Court’s decision;

         The Lakeview Reserve Association has standing to present a claim for breach of implied warranty under section 720.303(1), Florida Statutes;

         The Supreme Court approved of the reasoning of the underlying opinion;

         The Supreme Court approved and adopted the “essential services” test to determine “whether a defect in an improvement beyond the actual confines of a home impacts the habitability and residential use of the home”;

         Found that although the infrastructure improvements were not physically attached to the home the “component parts provide essential services that directly affect the habitability of the homes…such improvements provide immediate support to the residences. Thus the implied warranties of fitness and merchantability extend to the defects alleged in this case”;

         Section 553.835 cannot constitutionally be applied retroactively to Lakeview Reserve’s cause of action for breach of implied warranty;

         Lakeview Reserve had a vested right in its cause of action for breach of common law implied warranty;

         Retroactive Application of Section 553.835 would offend due process;

         Section 553.835 violates the Constitutional right of access to the courts “because it attempts to abolish the common law cause of action for breach of the implied warranties for certain injuries to property;

         Notes that the intent of section 553.835 was, per its own terms, to “place limitations on the applicability of the doctrine or theory of implied warranty of fitness and merchantability” which was “a clear violation of separation of powers because the Legislature does not sit as a supervising appellate court over our district courts of appeal.”

All-in-all this was as good a decision as could be hoped for if you believe that homeowners should have protections via implied warranties. Four Justices joined Justice Lewis in this opinion. Chief Justice Polston concurred in part and dissented in part, and Justice Canady dissented.

Governor Rick Scott signed HB 85 yesterday, creating Florida’s new Public/Private Partnership Statute.  Senator Miguel Diaz de la Portilla and Representative Greg Steube, the bill sponsors, deserve great recognition for championing this cause through the difficulties of the legislative session.

However, it was all worth it.  As Representative Steube said, "We must use Florida funds wisely but we must be open to new ideas. My legislation ensures that public benefit comes first. Growth and job creation are important to our state’s future. That being said, public and private entities must be accountable for their actions and Floridians will hold projects accountable for the final investment and, more importantly, the results".

Gov.ScottandRep.Steube 

The new legislation requires the responsible public entity to ensure the quality of the private entity’s performance and safeguard the most efficient pricing.  It addresses the transfer of the private entity’s obligations to the investors or public entity if the project agreement, called a comprehensive agreement, is terminated or a material default occurs. Additionally, the public entity must perform an independent analysis of the proposed public-private partnership to ensure the cost-effectiveness and overall public benefit of the job.

 

Representative Steube said it best when he said "I want to personally thank the Governor for his support of public-private partnerships in Florida. The signing of this bill will create jobs, encourage economic development and provide infrastructure to taxpayers at little or no taxpayer expense."   

 

 

 SB 84 and HB 85, as amended to reflect the merger with a competing bill, continues to pick up momentum. The House Bill passed the Government Operations Subcommittee three days ago by a vote of 11 to 1 and the Senate Bill is set for the Governmental Oversight and Accountability Committee today. Many interested parties have raised very good suggestions for changes in the statutory language and we’re addressing as many of them as we can. We’re excited that this legislation has garnered so much attention, as that indicates people are preparing themselves to implement it upon passage. Keep up the support!

I was recently interviewed by Carolina Bolado at Law360 about the legislation and the portion of her article addressing it is reprinted below. In the meantime, the newly formed Florida Council of Public/Private Partnerships is putting the final touches on our P3 conference set for May 16 and 17 in Orlando, which will coincide with the statewide launch of that trade association to the public. If you want to be on the e-mailing list to receive notice of the seminar when registration opens shortly, let me know. 

 

In the meantime, keep up the P3 momentum! Here is the segment of the Law360 article on P3:

 

Continue Reading Update on Public/Private Partnership Legislation

 

As the legislative session is only a week away, our pending public/private partnership bill looks like it’s full steam ahead. All industry participants of whom I’m aware are on board, with only a few concerns having been raised thus far, none of which appear strong enough to derail the momentum. The bill has already passed its first Senate committee unanimously and the sponsors of a competing bill agreed to merge theirs into ours in exchange for changes that will make ours a stronger bill than before.   They include the appointment of a task force to create guidelines for a public agency receiving and processing P3 proposals, added flexibility in determining the amount of time for competitive bidding after an unsolicited proposal has been received, and authorizing discretionary interim agreements where appropriate, whereby the private entity can be compensated during the due diligence phase of the project as a means of ensuring issues like zoning, environmental mitigation, design, etc. are properly aligned for the job.

 

Keep an eye on this spot as we continue tracking SB 84 and the companion HB 85. The newly formed Florida Council for Public/Private Partnerships is planning on conducting a P3 seminar focused largely on how to implement the new legislation on May 16 and 17 in Orlando. Put this on your calendar and contact me if you wish to be notified when conference registration is available.

 

SB 112 would create a new statute on ramifications for claiming a fraudulent interest in property. It provides a person may not, with the intent of defrauding, file or cause to be filed for recording in the official records a document pertaining to property which the person knows contains a misrepresentation or material omission of fact. A violation would be a third degree felony. The bill specifically provides that construction liens would not fall under this law because such liens would continue to be governed by the fraudulent lien statute in the Construction Lien Law.

                              

However, a proposed lengthy amendment recently surfaced that would make anybody who files, attempts to file, solicits or directs another to file or conspires to file any document in the public records pertaining to property knowing or having reason to know the document is false would be liable for a second or third degree felony. This amendment is problematic on a number of levels. First, it expands liability from someone intending to defraud to someone who knew or should have known the document is false, regardless of whether it’s actually fraudulent. Second, it increases the charge from a third degree felony for the first violation to a second degree felony for second or subsequent offenses. Third, the statute would cover not only the lienor, but also any lawyer or other person who advised or counseled the lienor pertaining to the lien. Finally, the exclusion of construction liens was removed, making construction liens subject to this law, thereby creating an inconsistent conflict between this law and the fraudulent lien statute, which imposes a significantly different standard of liability and ramifications for violation.

 

I’m not sure who’s behind this amendment, but you should keep a close eye on it and help do your part to defeat it.