Residential Construction Liability Act
(“RCLA”)

In the early 1970’s, there was a general feeling throughout Texas that consumers were being taken advantage of by unfair business practices. In response, Texas Legislature enacted the Deceptive Trade Practices – Consumer Protection Act (“DTPA”) to protect consumers. Many lawyers and homeowners began suing homebuilders and general contractors under the liberal provisions of the DTPA. The construction industry then began a full-scale lobbying effort to pass new legislation more favorable to builders. In 1989, Texas enacted the Residential Construction Liability Act (“RCLA”). Under RCLA, the consumer’s remedies that were once available under the DTPA were limited, and the builder or contractor was given the opportunity to inspect the alleged defect and repair it before a lawsuit was filed.

In an attempt to strike a greater balance between the consumer’s rights and the builder’s interest, Texas enacted the Texas Residential Construction Commission Act (“TRCCA”). This legislation added statutory warranties and building and performance standards, as well as instituted the State Sponsored Inspection and Dispute Resolution Process (“SIRP”). The SIRP process was essentially a government inspection process that was meant to give the consumer and the builder an objective evaluation regarding the existence of a construction defect and what repairs were reasonably necessary. Unfortunately, the SIRP process created more red tape and obstacles for the consumer, and delayed the consumer’s recovery for defects.

In September 2009, the Texas Legislature did not renew the TRCCA and SIRP is no longer a prerequisite for consumers to file suit for construction defects. On the other hand, the statutory warranties created by the TRCCA have also been done away with.

Construction Defect

We Texans take special pride in our homes. Owning land and building a home has long been a part of the Texas way of life. Our homes are our castles, and we protect them like none other. Purchasing a home is typically the largest consumer transaction we face in our lives, and new home construction is often a very complex and daunting undertaking. If mistakes are made or work is done improperly, the implications can be felt for a long time. The law regarding residential construction has evolved greatly over the last few decades. The Residential Construction Liability Act (“RCLA”) sets forth the consumer’s rights and the builder’s duties regarding home construction.

A cracked or faulty foundation is typically the most common defect associated with the term “construction defect.” However, it is important to understand exactly what constitutes a construction defect. Under RCLA, a construction defect is essentially any matter involving the construction of a new home or an alteration or addition to an existing residence. This can also apply to appurtenances – that is, structures otherwise connected to a residence. It also may include damage caused to a residence, appurtenance, or the real property on which the residence or appurtenance is built. As you can see, this is a very broad definition that encompasses a wide variety of issues that may arise during construction.

It is important to note that a claim for personal injury can never be a “construction defect” claim under RCLA.

Notice Provisions & Opportunity to Cure

Generally, before a lawsuit may be filed against a contractor for a construction defect, the homeowner must give the contractor at least sixty (60) days notice of the defect. After the contractor receives the notice, it has 35 days to inspect the defect to determine the extent of the defect and what repairs may be reasonably necessary. Typically, the contractor then gives the owner a written offer of settlement, which can provide for the repair of the defect or a monetary settlement. A homeowner may then accept the settlement offer or reject it and proceed with his or her lawsuit.

Remedies

RCLA sets forth an exclusive list of remedies available to consumers who prevail on a claim against a builder. These damages are essentially limited to “economic damages,” such as:

1. the reasonable cost of repairs necessary to cure the defect;
2. the reasonable and necessary cost for the replacement and repair of any damaged goods in the residence;
3. reasonable and necessary engineering and consulting fees;
4. the reasonable expense of temporary housing reasonably necessary during the repair period;
5. the reduction in current market value, if any, after the construction defect is repaired if the construction defect is a structural failure (“stigma damages”); and
6. reasonable and necessary attorney’s fees.

For Builders

If a claim for a construction defect is made against a builder, the builder’s first thought is (or should be), “who is going to pay for this?” Is a general contractor liable for shoddy work performed by a subcontractor? Does the builder’s commercial general liability (CGL) insurance policy apply to this defect?

Generally speaking, a general contractor is liable to the homeowner for damages caused by its subcontractors. However, that contractor is usually entitled to then recover its damages from the subcontractor responsible for the problem.

Whether the defect is covered under the builder’s CGL policy is usually determined by the language of the policy itself. A more complete discussion of Texas law regarding the rights of insured’s and the scope of coverage under CGL policies can be found here.