Architect’s Executed AIA Certificate of Substantial Completion Does Not Conclusively Establish Date of Substantial Completion for Purposes of the California Statute of Repose

Most states, including Washington, have adopted a statute of repose to protect parties to the construction process from indefinite “long tail” liability for construction defects.  The effect of statutes of repose is to bar any action which occurs a set number of years after the date of a project completion milestone set forth in the statute, usually 6-10 years.  In a recent California Court of Appeals case, Hensel Phelps Construction Co. v. Superior Court of San Diego, 2020 WL 370445 (Jan. 22, 2020), the contractor, Hensel Phelps, sought summary judgment dismissal of a defect action alleged to have been filed by a subsequent property owner more than 10 years after the date of substantial completion.  The California statute of repose bars actions brought “more than 10 years after substantial completion of the improvement but not later than the date of recordation of a valid notice of completion”.   The contractor argued that the construction contract’s definition of substantial completion, as evidenced by the project architect’s issuance of an AIA standard form Certificate of Substantial Completion, was conclusive evidence of the date of substantial completion and that the property owner’s action was barred accordingly.  In response, the property owner claimed the statutory substantial completion date was later because the project had not passed a number of important city inspections by the date of architect’s certificate, including certain structural, fire and electrical inspections.  The trial court rejected the contractor’s argument and ruled that there were triable issues of fact on what constituted the actual date of substantial completion for purposes of the California statute.   The Court of Appeals agreed stating that the California statute of repose does not simply adopt the “date determined by private parties to a contract for their own purposes” as the date when a statutory limitations period begins to run.   While the Court acknowledged that industry custom and practice embodied in private construction contracts could be persuasive evidence of the state of construction relevant to the statutory standard, it is not dispositive on the issue.

Note:  The California court may have been swayed by the fact that the property owner which brought the defect claim was not the same owner that developed the property and who was party to the original construction contract.  The Court stated that Phelps’ interpretation would confer upon “private parties the ability to determine when the limitations period begins to run on another party’s claim.”  Washington’s statute of repose, RCW 4.16.310, is similarly tied to the date of “substantial completion of construction” as well as “termination of services” and bars actions not “accrued” within six years of those milestone dates.  Unlike the California statute, the Washington statute defines “substantial completion of services” as “the state of completion reached when an improvement upon real property may be used or occupied for its intended use”.      

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