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Update Your Construction Contracts

11/24/2009

by Stephen L. Polozola

Given the Texas Residential Construction Commission is being sunsetted on August 31, 2009, now, more than any year prior, it is imperative that Builders update the residential construction contracts. Failure to do so can result in warranty obligations far more reaching than one might expect.

Prior to the implementation of the TRCC, Builders were subject to the “implied warranty of good and workmanlike construction.” This warranty was nebulous and difficult to satisfy as it meant that Builder was obligated to warrant the house according to the usual and customary standards. The problem, however, is no one knows how to identify these standards. In fact, the Courts and Arbitrators are forced to rely on expert testimony to determine the standards. The result of this problem is that the outcome of a construction defect lawsuit was dependent on the experts and Judge/Arbitrator, not a uniform building code or performance standards.

One of the primary purposes of the TRCC was to establish a uniform standard of construction by which all construction could be evaluated. Consequently, the State promulgated a Limited Statutory Warranty and Building and Performance Standards that identified the manner in homes were to be built and evaluated. Now that the TRCC is being abolished, this Limited Statutory Warranty will no longer be applicable for new construction and we will be forced to revert back to the implied warranty of good and workmanlike construction to evaluate construction defect cases.

As a result, Builders are encouraged to update their contracts to identify a clear, specific and sufficiently detailed warranty that establishes the only standards of construction. Further, Builders should consider attaching an express warranty (similar to the old TRCC Warranty) that satisfies this requirement. If the Builder fails to incorporate such a detailed warranty, it is likely that the implied warranty of good and workmanlike construction will continue to apply.

In addition to amending your warranty obligations, Builders should ensure their contract now contains the disclosure required by Chapter 27 of the Texas Property Code (RCLA Disclosure) but omits the previously required TRCC disclosure language and TRCC builder number. These new changes should be incorporated into the Builder’s contracts by September 1, 2009. While this article cannot address each issue that should be updated this year, it does identify the main points that should be amended.

Construction