Construction contracts typically include arbitration and warranty provisions. It is important for all parties engaging in construction contracts to understand exactly what these agreements and provisions mean. If you have questions about your contract or are involved in a construction dispute, a Texas business lawyer from MehaffyWeber can help you find an appropriate solution to your construction issue.
The Elements of Construction Contracts in Texas
According to Texas law, a construction contract is an agreement entered into by an owner, architect, engineer, contractor, construction manager, subcontractor, or supplier for the design, construction, renovation, or repair of a building or structure on real property. There are several general topics that are covered in a construction contract, including each party’s obligations, rights, and remedies in the event of a breach of the contract. Also often included in construction contracts are arbitration agreements and warranty provisions, which must be read carefully to ensure understanding prior to signing and entering into the contract.
Understanding Arbitration Agreements in Construction Contracts
Arbitration is a form of alternative dispute resolution (ADR) wherein parties involved in a dispute present their arguments to a neutral third-party arbitrator who then decides the case and makes a binding decision, often consisting of economic damages. Pursuant to the Texas Arbitration Act, a court can compel arbitration even if one party does not want to participate if an arbitration agreement exists. It is important to know before you sign a construction contract whether it includes an arbitration clause.
Types of Warranty Provisions in Construction Contracts
Construction warranties can be express or implied. Express warranties are written into your contract and are typically legally binding. Implied warranties, on the other hand, are recognized by law and exist whether or not they are included in your contract.
The four main types of express warranties that are usually included in construction contracts are material, callback, vendor, and design-build; and, the primary types of implied warranties are workmanship and habitability. The duration of these warranties can vary based on the time specified in a contract, the applicable statute of limitations, and / or a statute of repose. These warranty provisions in construction contracts are discussed more below:
- Material Warranty: This warranty states a home will be properly constructed.
- Callback Warranty: During the specified warranty period, an owner can call the contractor to fix any work that was improperly performed.
- Vendor Warranty: This warranty is issued directly from the manufacturer or seller of a product used in a home’s construction.
- Design-Build Warranty: This warranty covers professional services used in a home’s design.
- Workmanship Warranty: This warranty states that a home will be built in a workmanlike manner that is free of major defects.
- Habitability Warranty: This warranty states that a home will be safe to live in and will meet the required codes.
Time Limits for Texas Construction Defect Claims
Texas recently shortened its statute of repose from ten years to six for residential homebuilders so long as the homebuilder provides a warranty that includes a one-year warranty for workmanship and materials, two years warranty for plumbing, electrical, heating and air-conditioning delivery systems, and a six-year warranty for major structural components.. This means that a claimant cannot bring a legal action against a construction contractor of their detached home or townhome more than six years after the substantial completion of the home, unless specifically stated otherwise in the contract. The statute of limitations gives claimants two additional years to file a lawsuit after the construction defects have been discovered if they presented a written claim within the time allowed by the statute of repose. However, for certain government/public projects, this statute was recently amended to 8 years in cases where a government entity may bring suit.
Confusion in Construction Contract Arbitration Agreements and Warranty Provisions
In instances wherein an arbitration provision is contained only within the warranty subsection of a construction contract, confusion and conflicts can arise. The question of whether the parties must arbitrate all claims arising out of construction or arbitrate only warranty-related disputes may emerge. An argument can be made that the parties to the contract should be bound to arbitration only on warranty issues, even if the contract was written with the intent to be read as a whole rather viewing it as isolated subsections.
The terms of your construction contract can become complex and confusing when its arbitration clause and warranty provision overlap or are unclear. For this reason, it is important that you read your contract carefully before signing it, preferably with the guidance of a construction attorney from MehaffyWeber.
Parties are Bound by Arbitration Agreements in Construction Contracts
The Texas Supreme Court has handed down two major decisions recently that discuss who can be bound by arbitration agreements in construction contracts. These decisions held that spouses and children are bound by such provisions despite being non-signatories, as are subsequent purchasers.
In an attempt to circumvent the arbitration clause in construction contracts, many subsequent home purchasers have brought defect claims under implied warranties instead of contractual warranties. In other words, they would argue that their purchase of a home was through a contract with the previous homeowner rather than the homebuilder or contractor. Until this year, many Texas courts allowed these claims to prevail and refused to compel arbitration.
However, the Court ruled that implied warranties are just as much a part of a construction contract as express warranties. The implied warranties of good workmanship and habitability are automatically assigned to subsequent purchasers. This means a subsequent purchaser of a home is bound to any arbitration provisions contained in the original construction contract and may be compelled to arbitrate even if you did not sign an arbitration agreement.
Texas Construction Lawyers
Every home buyer expects to purchase a safe home that is free from defects and built according to code. When these expectations are not met, buyers turn to the warranties specified in their construction contracts. However, when a builder or contractor can prove a home’s damages are not covered by a warranty, they can use the contract’s arbitration clause to resolve the dispute, potentially paying out less than what a jury would award. If you are involved in a construction dispute, contact the Texas alternative dispute lawyers at MehaffyWeber.