Under California’s SB 800 “Right to Repair Act,” may a builder obtain a “reasonable release” to resolve a construction defect claim in exchange for a cash payment? If so, what is a “reasonable release” under SB 800?
Plaintiff, David Belasco (“Belasco”), purchased a newly construction home in Manhattan Beach from builder, Gary Wells (“Wells”). Two years after purchasing the property, Belasco filed a Complaint for construction defects, which eventually resulted in settlement between the parties. The settlement agreement included a California Civil Code Section 1542 waiver of all known or unknown claims with the word “claims” defined in part as “any and all known and unknown construction defects.” Six years later in 2012, Belasco filed a Complaint alleging a claim, amongst others, that the defective and leaky roof breached the statutory warranty on new construction under California Civil Code section 896 (“Right to Repair Act”).
Relying on San Diego Hospice v. County of San Diego (1995) 31 Cal.App.4th 1048, Wells filed a motion for summary judgment contending that the 2012 action was barred by the settlement of Belasco’s prior Complaint against Wells for construction defects to his home. The trial court ruled in favor of Wells and Belasco appealed. Belasco, an attorney, made the following contentions:
- The general release and Section 1542 wavier in the settlement agreement for patent construction defects is not a “reasonable release” of a subsequent claim for latent construction defects within the meaning of section 929 and the “Right to Repair” Act;
- A reasonable release can only apply to a “particular violation” and not to a latest defect under the language of section 945.5, subdivision (f), and the settlement was too vague to be valid because it does not reference a “particular violation;”
- Section 932 of the California Civil Code specifically authorizes an action on “[s]ubsequently discovered claims of unmet standards”;
- Public policy prohibits use of a general release and section 1542 waiver to bar a subsequent claim for latent residential construction defects; and
- A genuine issue of material fact exists concerning Belasco’s fraud and negligence claims that would have voided the settlement pursuant to section 1668.
Pursuant to the “Right to Repair Act” Section 929 subsection (a), a builder can make a cash offer in lieu of a repair and the homeowner is free to accept or reject such offer. Section 929subsection (b) goes on to state that:
“[t]he builder may obtain a reasonable release in exchange for the cash payment. The builder may negotiate the terms and conditions of any reasonable release in terms of scope and consideration in conjunction with a cash payment under this chapter.”
The Second District Court of Appeal ruled that the prior cash settlement, with a release and section 1542 wavier, was a “reasonable release” under the language of California Civil Code Section 929.
As the Court of Appeal found, a ‘builder’ is liable under SB 800 in original residential construction for failure to follow standards, including issues that involve the roof. SB 800 has several procedural components, including agreements to repair or simply a cash payment in exchange for a “reasonable release in exchange for a cash payment.” (§929(a)-(b).)
The Court held that the general release in the 2006 settlement agreement was a “reasonable release” under section 929 because of the following:
- Plaintiff was an attorney and represented by counsel when he signed the 2006 agreement;
- The agreement was explicit;
- Plaintiff expressly waived his rights under section 1542; and
- Plaintiff was free to reject Wells’ cash offer.
Simply put, the settlement agreement was a result of “arm’s length” negotiation.
Arguments over the scope of a release are common, especially when there is a discrete claim. A represented homeowner will not typically sign a broad release and waiver in those situations where there is one discrete claim, but it does happen occasionally. For claims involving multiple building components, 1542 waivers are standard practice and expected as part of the settlement. As demonstrated by this case, 1542 waivers are incredibly powerful and should be sought whenever possible.
ABOUT THE AUTHOR: David Ramirez is a Senior Counsel at TYSON & MENDES, LLP, and primarily represents clients in complex litigation, including construction defect, insurance law, property disputes, and product liability. Mr. Ramirez was recently named as a “Top Lawyer” of San Diego for “Complex Litigation” in the March 2014 issue of San Diego Magazine.
Download Article Here: Appellate Court Lets Broad General Release Stand in SB 800 Case