California Decision Approves Shortening Statutes Of Limitation And Eliminating The Discovery Rule Via Contract

In Brisbane Lodging, LP v. Webcor Builders, Inc., No. A132555 BL 146042 (June 3, 2013), the California Court of Appeal (First District, Division Four) recently confirmed that parties can contractually agree to limit not only statutes of limitation, but can also agree to the date from which the statute of limitation will commence. This represents an important clarification to any party entering into a construction agreement where the statute of limitation is generally tolled for unknown (latent) defects until such time as the defects are discovered or should have been discovered through reasonable diligence (the "discovery rule").

Background and Significance of Brisbane Lodging

Construction defect cases in California have long operated under the statutes of limitation and repose dictated in California Code of Civil Procedure sections 337.1 and 337.15. These sections provide a four-year window to bring suit for a "patent" defect and a 10-year window to bring suit for a "latent" defect—both periods commencing at the date of substantial completion. Patent and latent defects are defined in the Code of Civil Procedure:

CCP § 337.1(e): As used in this section, "patent deficiency" means a deficiency which is apparent by reasonable inspection. CCP § 337.15(b): As used in this section, "latent deficiency" means a deficiency which is not apparent by reasonable inspection. When a latent defect manifests itself (becomes patent to a reasonable observer), the statutory framework requires a suit to be filed on the newly discovered defect (arising out of a breach of contract) within four years of discovery. Regents of the University of California v. Hartford Accident & Indemnity, Co., 21 Cal.3d 624, 630; see also CCP § 337 (four-year statute of limitation for breach of contract). This "discovery rule" effectively acts to toll the statute of limitation period on construction defects until they become reasonably apparent. Id.

The court in Brisbane Lodging, accepting the limitation periods identified above, has now held that parties can contractually manipulate the statute of repose on latent defects. The court validated a contractual clause that effectively eliminated the discovery rule tolling period for latent defects by stating that all statutes of limitation would run from the date of substantial completion for work performed prior to the substantial completion of the project. The relevant portion of the clause, cited by the court and taken from AIA A201...