April 1, 2016

Each type of business faces its own challenges. After taking a significant hit over the past seven years, Minnesota’s residential construction industry continues to rebound. This means an increase in new home sales and remodeling projects – and the inevitable lawsuits that follow. Building and remodeling businesses, which will soon face new warranty claims, should know about the obligations – and limitations – under Minnesota’s Right to Repair law.

Anyone building or selling a new house must provide a homeowner with three statutory warranties under Minn. Stat. § 327A.02. Workmanship and materials fall under a one-year warranty, akin to a cosmetic warranty for finishes and fixtures. As you get into the bones of the house, issues that cost more to fix and take longer to come to light, you encounter longer warranties. Plumbing, electrical, heating and cooling systems are warrantied for two years. The longest warranty, running for 10 years (and sometimes up to 12 years), applies to major construction defects, significant structural issues involving load bearing components. Major remodeling projects are also subject to these same three warranties.

Builders should understand what homeowners are required to do, under the Right to Repair amendment of Section 327A.02, when they encounter a defective condition covered by statutory warranties. Minnesota law requires that homeowners give written notice to their builder of any defects within six months of discovery. Homeowners must also allow the builder the right to repair and give them 30 days to inspect the home. The builder has the option to make an offer to repair the problem within 15 days of the inspection; this response is necessary if the builder wishes to preserve the offer in later proceedings. Since 2011, disagreements as to the scope of proposed warranty repair were to be addressed through a special dispute resolution process conducted by the Minnesota Department of Labor and Industry, which calls for an expedited neutral evaluation or other process as agreed to by the parties. A homeowner can start a lawsuit if the builder does not inspect or offer to repair.

The Right to Repair was a response to the need for a less costly method to resolve construction defect claims. Like other states, the Legislature wanted to balance homeowners’ concerns – avoiding a return to the original contractor whom they believe did a bad job in the first place – with those of builders, who previously had no ability to require a homeowner to timely report a defect or give them a chance to repair the problem. In practice, the Right to Repair amendment has done little, if anything, to eliminate defect lawsuits and in some instances, has actually emboldened litigation.

First, a builder’s right to repair applies only to one, two and 10-year warranty claims under Section 327A.02. Creative lawyers know that the majority of construction projects involve written contracts containing assurances of quality or condition, and there are other legal claims, such as negligence and breach of contract, that do not involve a breach of statutory warranty. Lawyers representing homeowners routinely reject the notion that a builder is entitled to an opportunity to inspect or make a repair offer prior to the filing of a lawsuit. Second, the dispute resolution process has been virtually ignored by homeowners as it is up to them to submit to the process if they cannot reach agreement on scope of work.

So where does that leave the builder when faced with a defect claim?

Timely preparation and response to claims is key. Advise homeowners to keep an eye out for problems after construction is complete. Customers should be told at the close of a project that any issues with construction will be addressed only after a written report is submitted to the builder in a timely fashion, and emphasize that this a legal requirement. If the issue ever gets litigated, the notice period will become very important, especially for gradual problems like water intrusion.

Defect reports from customers must be tracked diligently. Put a process in place to send a warranty manager to the customer no later than 15 days after receipt of the customer’s written notice because after 30 days, homeowners no longer have any obligation to let builders inspect or offer repairs to the home. If the builder completes repair work after negotiating a repair, require the customer to sign a form documenting their acceptance of the work as being complete.

Builders should consider the defenses in Section 327A when faced with untimely claims or unreasonable repair demands on warranty claims. The Right to Repair provisions are asserted as a defense when a homeowner fails to (1) notify the builder, in writing, of a defect within six months of discovery; (2) refuses to let the builder inspect the defective condition within 30 days; or (3) refuses to accept reasonable repair offers.

Also, keep in mind that builders and remodelers are required to provide the one, two and 10-year warranties to their customers in writing. Use a copy of the actual statutory language; do not attempt to re-write or paraphrase the warranties required under the law. Finally, remind your new homeowners that the right to repair procedures are intended to ensure an alternative to formal legal proceedings.

Douglas J. McIntyre