The Oregon Court of Appeals recently issued a surprising decision regarding the ultimate timeline to file a construction defect claim involving a “spec home.” (A “spec home” is a house which a builder or developer constructs not for a specific owner but on speculation that the home will sell to the general public upon completion.) In Shell v The Schollander Companies, Inc. (September 24, 2014), the Court of Appeals decided that ORS 12.115, as opposed to ORS 12.135, supplies the appropriate ten-year statute of repose for an owner seeking a negligent construction claim where the owner does not have a traditional “construction contract” with the builder. The plaintiff in Shell was the original owner of the home. She purchased the property midway through construction from the original developer/builder using a real estate sales agreement to complete the transaction.
According to the Court of Appeals in Shell, because the plaintiff did not have a traditional “construction contract,” ORS 12.135, the ten-year statute of repose for claims arising out of the construction, alteration, repair, or improvement to real property, did not apply. Instead, the Court decided that ORS 12.115 supplies the more appropriate statute of repose for the plaintiff’s claim. ORS 12.115 provides for a ten-year statute of repose, which runs from “the act or omission complained of.” Using ORS 12.115, the Court of Appeals in Shell concluded that plaintiff’s negligence claim was time-barred ten years from the alleged negligent conduct of the developer/builder. The Court went on to find that the alleged negligent conduct was the construction of the outer shell of plaintiff’s home. Because the outer shell was completed more than ten years from when she filed her claim, her negligent construction claim was untimely.
The decision in Shell appears narrowly tailored to the situation of “spec homes,” where an owner has a sales agreement as opposed to a more formal construction contract (in which case, ORS 12.135 should apply). However, uncertainty remains as to how courts will apply Shell in light of the many variables which occur in the context of new construction. For example, what if an owner has a real estate sales agreement which allows them to select certain finishes or materials for use in the construction of their home – another common occurrence in the context of new construction/spec homes? Arguably under that scenario the owner has a hybrid real estate sales agreement and construction contract. In that situation, which statute of repose would apply?
Additionally, what if the conduct of the parties suggests a construction contract relationship, but the documents between the parties look more akin to a traditional sales agreement? Will we start to see custom home builders abandoning their construction contracts in favor of real estate sales agreements for the sole purpose of trying to shorten the timeline for exposure to potential future claims? Likewise, how does the holding in Shell impact an owner’s claim against subcontractors, where there is likely no contract at all between the parties? Will owners of all types of construction projects, not just spec homes, have to start analyzing their claims against subcontractors on a defect-by-defect basis? If that is case, the Court’s reasoning in Shell seems directly contrary to its prior decision in Sunset Presbyterian Church v. Brockamp & Jaeger, Inc., 254 Or App 24, 32 (2012), aff’d on other grounds, Sunset Presbyterian Church v. Brockamp & Jaeger, Inc., 355 Or 286 (2014). In Sunset, the Court of Appeals rejected an argument posed by several subcontractors that an owner’s negligent construction claim should run from when the subcontractor completed their specific work on the project. Although the Court of Appeals analyzed the timeliness of the owner’s claim under ORS 12.135, the policy reasons behind the Court’s decision apply equally to claims under ORS 12.115. In Sunset, the Court of Appeals noted as follows: “If the subcontractors were correct *** rather than establishing a single repose period for claims for the construction, alteration, or repair of an improvement, [it] could create a number of them, including competing periods.”
The reasoning in Shell arguably allows for the exact kind of problem the Court of Appeals rejected in Sunset: Multiple possible statutes of repose for a single project. For example, does ORS 12.115 run from when each specific negligent act by a subcontractor was completed or the subcontractors’ overall work? Does application of ORS 12.115 to subcontractor claims hinge on what kind of contract the original owner had with the original developer/builder? One would think so; otherwise, the decision in Shell really is contrary to the Court’s prior holding in Sunset. Decisions from appellate courts are supposed to provide greater clarity; however, after Shell, the only thing that is clear is that the law on statutes of repose for construction claims is decidedly unclear.