Legal File
How Long Am I On The Hook For Building Defects? By R. Glen Boswall
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ou are a developer or contractor on a recently completed construction project. You are confident the work was done properly but the possibility of errors can never be completely ruled out. As a result, you may be wondering how long you are on the hook for latent defects and resulting damage that might be discovered in the future. The answer depends not only on your written warranties but also whether the project was residential, whether the defects are dangerous, and which claims limitation legislation applies.
Warranties You probably know the time limits on any written warranties you provided. For example, if you were the head contractor and used a CCDC 2 (2008) stipulated price contract, that document imposes a warranty in favour of the owner or developer running one year from substantial performance of the work unless you have provided longer warranties. If you are a residential developer, the British Columbia Homeowner Protection Act compels you to provide purchasers with two years warranty coverage for any defect in materials and labour, five years for the building envelope, and 10 years for structural components. Residential developers may not be aware they could also be liable under an unwritten but implied warranty of fitness. In the 1994 British Columbia Court of Appeal decision in The Owners, Strata Plan NW 2294 v. Oak Tree Construction Inc., it was held that for latent defects in a building intended for habitation but not completed when sold, the law imposes on the builder an implied warranty that “the work (both the work already 40 construction business
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done and the work not yet done) will be done in a good and workmanlike manner, that the materials will be suitable, and that the building will be fit for its purpose, namely, habitation.” The reference to buildings “not completed” is misleading because it suggests the warranty applies only to presold residences. In fact, it applies even when substantially complete units are sold if they have defects that affect their habitability. That is because, under British Columbia case law, such residences are not truly complete. The case law does not specify the duration of these implied warranties but one of the Court of Appeal judges in the Oak Tree case suggested they should only be in effect for a limited time, perhaps one year.
Tort Liability and the Limitation Act As a developer or contractor, you may also be liable to original purchasers and subsequent owners in tort. The duration of your liability in British Columbia is governed by the provincial Limitation Act and that Act is about to change. In its 1995 decision in Winnipeg Condominium No. 36 v. Bird Construction Ltd, the Supreme Court of Canada held that developers and contractors were liable to building owners in tort for the cost of repairing any building defects that posed a real and substantial danger to the health and safety of the occupants. In the 1996 case of Strata Plan VR 1534 v. Regent Development Corp., the British Columbia Supreme Court expanded the concept of dangerous defects to include those that are not presently dangerous but, if not corrected, might present a real and substantial danger in future. For example, missing window caulking
or faulty roof shingling might lead to water leaks that could eventually lead to rusting or rot in a building’s structural components. According to the British Columbia Court of Appeal’s decision in the 1996 case of Workers Compensation Board v. Genstar Corp., the current B.C. Limitation Act imposes a six year time limit on building damage claims arising from internal defects. However, the Act says the six year period does not commence until the claimant is or should be aware of the problem and the identity of the responsible party. This presents a long risk exposure for developers and contractors because it may take years for latent defects to manifest themselves and some time after that for the claimant to discover who was responsible. However, the risk does not run forever. While it probably gives little comfort to the building industry, the current Limitation Act does provide an ultimate limitation period of 30 years even if the claimant has not discovered the defect and the responsible party’s identity before then. The new Limitation Act, not yet in force, will reduce the duration of your risk exposure. The new act will establish a basic limitation period of two years from the date the claimant knew or should have known of the problem and the identity of the responsible party. Also, the ultimate limitation period will be reduced to 15 years. In cases where dangerous building defects pre-date the new act coming into force, transition provisions in the legislation will apply the old act time limits where the defects are discovered before the new act takes effect and the new act time limits if the defects are discovered after.
Protecting Yourself from Liability Besides taking care in your work, there are several things you can do to protect yourself from liability for building defects and resulting damage. For residential construction projects, you can draft your written warranties to specifically exclude implied warranties of habitability. You can try to insert indemnity provisions into your building contracts such that you are entitled to compensation from the other parties if their mistakes lead to you being held liable in warranty or tort. You can also get advice from your insurance broker to guide you in selecting the optimal liability insurance protection. Your exposure to liability for building defects is not forever but it may extend well beyond your warranty periods. It is wise to protect yourself accordingly. R. Glen Boswall is a partner at Clark Wilson LLP in Vancouver.