Defective Workmanship by Builders and Contractors & The Consumer's Legal Rights

Arizona allows property owners several legal remedies or causes of action when it becomes necessary to litigate against builders and contractors for defective construction work that is performed in less than a workmanlike manner.  The various options may include the property owner choosing to file a complaint with the Arizona Registrar of Contractors (ROC) against the builder or contractor’s license, and/or filing a civil lawsuit for damages under the theories of breach of express or implied warranty, breach of contract, and the tort of negligence.  When deciding which of these causes of action to pursue, the property owner should take into consideration the nature and extent of the defects, the nature of the resulting damages, and the time that has elapsed since the acts giving rise to the cause of action.

  1. Consumer Complaint With Arizona Registrar of Contractor

    First, the property owner’s initial course of action should always be to file a complaint with the Arizona Registrar of Contractors (ROC), based on its broad licensing and regulatory authority over contracting activities, including residential contractors and subcontractors.  The rules of the Arizona Registrar of Contractors require that “All work shall be done in a workmanlike manner,” and establish minimum standards for good and workmanlike construction practices.  Moreover, Arizona Revised Statutes, and particularly A.R.S. § 32-1154, impose requirements that include compliance with building plans, specifications and applicable building codes, as well as, compliance with the Registrar of Contractors rules that include the previously mentioned workmanship standards.

    One of the most effective ways for a consumer to get a non-compliant or non-responsive contractor or subcontractor’s attention is to file a complaint with the Arizona Registrar of Contractor (ROC), primarily because this will result in the ROC schedule an inspector from the Registrar’s office to visit and inspect the worksite, and meet with the complainant and the licensee.  If the inspector determines that the work is unworkmanlike or incomplete, the inspector will issue a “corrective work order” directing the licensee to fix the problem usually within the next fifteen days from the date of the orders issuance, and followed up by the inspectors return to the work site to ensure that the problem has been satisfactorily addressed.

    If the problem cannot or is not addressed by the licensee through corrective work because of irreparable damage, or misuse of funds by the licensee, or the licensee is no longer licensed to do the work, the consumer/property owner has the option of proceeding to an administrative hearing, wherein an administrative law judge will determine whether the evidence demonstrates that the licensee has violated any number of provisions under the applicable licensing statute, A.R.S. § 32-1154. It is the property owner’s burden to show through testimony, contracts and/or other documents executed between the parties, photographs, or through testimony of an expert witness that the contractor’s work fell below the minimum workmanship standards.  However, the contractor also has the right to defend the allegations of the complaint by using similar method’s to show his work met the Registrar’s minimum required workmanship standards.  Only after first obtaining an award and findings that the minimum standards were violated and suspending or revoking the contractor’s license can the consumer property owner submit a claim for compensation through the Registrar’s Residential Contractor Recovery Fund. However, it is only after receiving an order that finds the contractor or subcontractor in violation and suspends or revokes the contractor’s license that a consumer can submit a claim for any type of compensation under the Registrar’s Residential Contractor Recovery Fund.

    Most consumer’s find it advantageous to initially file a complaint with the Registrar of Contractors Office because this state agency can force the contractor to make corrective repairs to the unworkmanlike problems or suffer consequences that can involve the suspension or revocation of the contractor’s license if he/she fails to do so.  Also, this process is usually much less formal, much quicker, and much less costly than the alternative course of action of filing a civil lawsuit in a superior court that usually requires the consumer to retain legal counsel to prosecute his/her claim or, to defend the claims likely put forth by the contractor.  The Registrar of Contractor complaint is most effective to force the licensees to fix, or complete, work during the continuum of the construction project.

    However, a consumer’s right to file a complaint with the Registrar of Contractors is limited to a period of two years from the completion date of the project and the most that a consumer/homeowner can receive from the Recovery Fund is $30,000 per consumer.  The consumer does not receive a judgment against the contractor that can otherwise be enforced or collected, but instead, the consumer submits a claim and may have to appear at a subsequent hearing to recover.  The burden placed on the consumer to show that the contractor’s work was below the minimum workmanlike standard is less stringent than those required in an “at law” superior court action.  Finally, the consumer action brought before the Registrar of Contractors does not include claims by the consumer, or subsequent purchasers that do not have a contractual relationship with the original builder for consequential damages resulting from either damage to property or personal injuries caused by the faulty work.  There is also a method of recovery for a consumer that pursues their “at law” action through the superior court system and obtains a judgment against the contractor that ends up being uncollectable.  The consumer can take his/her judgment and apply to the Registrar of Contractors Recovery Fund, but again, is limited to a maximum recovery of $30,000 per consumer, regardless of the total amount of the superior court judgment.

  2. Superior Court “Actions at Law”

    If the two-year limitations period for a Registrar of Contractor proceeding has expired, or the consumer does not feel that the Registrar of Contractors is the best venue for their claims, a consumer’s claims may be more effectively pursued in a superior court action under several legal theories including breach of warranty, contract, and tort (negligence).

    Notice Required and Waiting Period

    Arizona Revised Statute, A.R.S. §§ 12-1361, et seq., also referred to as the “Purchaser Dwelling Action” statutes, applies to any action brought against a “seller” of residential property arising out of the condition of the property and, initially requires that prior to filing an action in court the consumer must first provide written “Notice” (by certified mail, return receipt requested) to the “Seller” that advises the seller of the consumer’s intentions to bring a purchasing dwelling action, along with a statement of the factual and legal basis for each such action. If the defects exist in a “multi-unit dwelling action” (i.e. 5 or more owners joining in per A.R.S. §12-1361(5)), the description of reasonable details may list the defects in “sample units."  However, the responding “seller” also has the opportunity and right to formally respond with a “good faith written response” offering to make repairs and replace the defects at issue, or to provide monetary compensation or reimbursement to the complaining consumer to satisfy the dispute, including a “reasonable” estimate of when it will be done.  Seller must respond (also via certified mail, return receipt requested) within sixty (60) of receipt of the purchaser’s notice, or the purchaser can stop waiting and just file his/her superior court cause of action.  Beware, for this statute to apply, the “seller” who is being sued has to be a person or entity “engaged in the business of designing, constructing, or selling dwellings.”

    The consumer may file an action in the superior court only after waiting ninety (90) days after providing the “seller” with the written notice of intent to file a purchaser dwelling action, or after sixty (60) days if the “seller” declines to respond.  If the “seller” issues a written response within the sixty day period, the purchaser will have twenty (20) days thereafter to issue a written reply, which can be a rejection (along with a written explanation of why it was rejected) or a counteroffer.  The “seller” with than have ten (10) days to accept the purchaser’s counteroffer or make his “best and final offer” to purchaser.  After the ninety (90) day waiting period has passed (or, 60 days if not response is received from the “seller”) and, if no agreement is reached, the purchaser can now commence arbitration (if applicable) or file the Complaint with the superior court.  A.R.S. § 12-1363.

    Following this notice requirement adds incentives for the seller/builder to resolve the dispute by providing him/her prior notice of pending legal action resulting from the defects and, it also allows the consumer to proceed with a lawsuit and recover its attorney’s fees, witness fees, and taxable costs pursuant to A.R.S. § 12-1364, but only if the relief obtain following the conclusion of the lawsuit is more favorable to the consumer/purchaser than that originally offered by the seller in its response to the original purchaser/consumer’s notice.

  3. Superior Court Legal Theories of Liability

    If the consumer/purchaser chooses to file an action in superior court system, the notice to the builder or seller should not only set for the relevant facts supporting each claim of defective workmanship, but should also put the builder or seller on notice of the specific legal grounds on which the builder/seller may be liable to the consumer/purchaser, including breach of contract, express and/or implied warranties, or tort.

    1. Contract: Express and Implied Warranties

      A contractor may be liable under claims for breach of contract of express and/or implied warranties.  Under current Arizona law, a builder is held responsible for defective conditions in a home under contract principles, including any express warranty on the work (usually limited by a one or two year time period), and also including an implied warranty of workmanlike performance and habitability.

      The implied warranty issue is of great importance, because it exists separate from any express warranties, and cannot be waived, contrary to what many builders and contractors believe. Moreover, the implied warranty applies in favor of subsequent purchasers of a home, not merely the initial consumer who has a contractual relationship (privy) with the builder.  Furthermore, the implied warranty theory of liability is subject to the six-year state of limitations applicable to actions.  Finally, this limitation period does not begin to run until the claimant knows or should reasonably know that he or she has been injured, allowing for a claim of injury under the implied warranty theory to be brought up many years after the work is completed.

      The implied warranty legal theory may broaden the scope of the action to also apply to a builder or developer in cases of improper grading, infill, or site preparation of a lot prior to construction of the residence.

    2. Tort Liability:

      The builder’s liability may also exist under tort legal principles, based on the Builder’s failure to construct a home in a workmanlike manner if there is resulting personal injury to the homeowner or property damage.  Application of the discovery rule of the damage or personal injury means that the normal two year statute of limitation rule begins to run from the only from the date of reasonable discovery of the injury or damage by the consumer/purchaser.  However, a tort claim may be brought in conjunction with an action for breach of contract or warranty.  However, in order to bring a claim for negligence, the resulting injury or property damage has to be damage to a person or personal property, and not to the structure itself.  Otherwise, if the consumer’s only damages are to the structure itself, it is very likely that a court will find that there is no proper tort claim based on the economic loss doctrine that forbids recovery in tort for damages sustained only to the structure in question, and not for personal injury or personal property damage.

      Arizona court’s, in the context of construction defects, tend to formulate the standard of liability under tort very similar to that of contract or implied warranty.  However, certain aspects of a tort claim are different from actions arising out of contract, including the fact that tort claims do not entitle the successful party to recover its attorneys’ fees and, tort claim has a two year statute of limitation period from the date of discovery of the damage or injury.  But, a tort claim is the only vehicle for recovering for personal injuries caused by the defective construction or condition and, while the two-year limitation period for a tort claim is obviously shorter that the six-year period applied to contract or implied warranty actions, the “Statute of Repose”, as discussed below, does not apply to tort claims.

    3. Statute of Repose

      In the legislature’s effort to impose a definitive time limitation on all breach of warranty actions, in 1992 it enacted a statute of repose that essentially bars actions filed ore than eight years from the date the work was completed. More particularly, Arizona’s statute of repose under A.R.S. § 12-552(A), states:

      [N]o action or arbitration based in contract may be instituted or maintained against a person who develops or develops and sells real property, or performs or furnishes the design, specifications, surveying, planning, supervision, testing, construction or observation of construction of an improvement to real property more than eight years after substantial completion of the improvement to real property.

      The statute of repose expressly states that in no event can a claim based in contract be brought more than nine years after substantial completion, because Arizona’s statute of repose contains very little grace period up to one year, which applies only in the event that the latent defect is discovered during the eighth year after the substantial completion.  However, this limitation applies only to actions “based in contract” and, it does not apply to tort or negligence actions, even between contracting parties.

If you have questions about construction defects, claims, or causes of action that might be available to you regarding unworkmanlike construction conditions caused by a builder or developer on your property, the real estate attorneys at Platt & Westby, P.C., can advise on which course of action you should take and the best potential claims and remedies to pursue to gain the most expedient, efficient and effective results.

Contact our law office or call 602-277-4441 to discuss your claim and receive our professional assistance in resolving your dispute.