On February 24, 2015, Governor Brian Sandoval signed Assembly Bill 125 (“AB 125”) into law. Dubbed the “Homeowner Protections Act of 2015,” AB 125 makes substantial changes to Nevada’s construction defect laws, particularly regarding the burdens placed on homeowners and their counsel during pre-litigation NRS Chapter 40 proceedings. The changes set forth in AB 125 are effective immediately (and in some instances, retroactively). Highlights of relevant revisions are as follows:

  • Contractual Indemnity. Contractual indemnity provisions are now void and unenforceable if they require a subcontractor to defend and indemnify a “controlling party” from liability resulting from: (1) the intentional act or omission of the controlling party; or (2) another trade’s modification of the subcontractor’s work.
  • OCIP Disclosures. Developers must now disclose certain information regarding Owner Controlled Insurance Policies in a subcontractor’s contract documents.
  • Offers of Judgment. Parties may now serve Offers of Judgment (“OOJ”) at any time after a homeowner serves his NRS Chapter 40 Notice. If the homeowner reject the OOJ and fails to obtain a more favorable judgment during trial, he will be precluded from recovering his attorneys’ fees and costs from the date of service of the OOJ to the date of entry of judgment. He may also be required to pay for the offering party’s reasonable fees and costs.
  • Definition of a Constructional Defect. AB 125 limits the definition of a constructional defect to a defect which: (1) presents an unreasonable risk of injury to a person or property; or (2) is not completed in a good and workmanlike manner and proximately causes physical damage to the residence, appurtenance, or real property to which the appurtenance is affixed.
  • NRS Chapter 40 Notices. Homeowners are now required to identify in specific detail each defect that is the subject of their claim, including its exact location. They must also describe the cause of the defect, and the nature and extent of any damage or injury resulting from the defect. Additionally, homeowners must include a signed statement verifying the existence of each defect listed in the notice. If a notice is sent by an HOA, the statement must be signed by a member of the HOA’s executive board or an officer under penalty of perjury.
  • Visual Inspections. Homeowners must be present during visual inspection of their properties, and must identify the exact location of each alleged defect verified in their NRS Chapter 40 Notice. AB 125 imposes the same requirements on experts if the NRS Chapter 40 Notice was based upon an expert opinion.
  • Homeowners’ Warranties. Before serving a NRS Chapter 40 Notice, homeowners must submit their claim under their homeowners’ warranty, and may only include claims in the NRS Chapter 40 Notice that were denied by their insurer.
  • Removal of Attorneys’ Fees. AB 125 eliminates attorneys’ fees as recoverable damages under section 40.655.
  • Changes to the Statute of Limitation. The statute of limitation for constructional defect claims is now six years after substantial completion of the improvement. Additionally, the statute of limitations tolls from the time a NRS Chapter 40 Notice is given until: (1) one year after the notice of claim; or (2) thirty days after NRS Chapter 40 mediation is concluded or waived. Statutes of limitation and repose may be tolled for longer than one year only if a claimant demonstrates “good cause.”
  • Standing of Homeowners’ Associations to Sue. Homeowners’ Associations may not bring actions in its own name or on behalf of its unit owners’ for any constructional defect unless the action pertains exclusively to common elements.

While the full implications of AB 125 will not be known until it is put into practice, it is clear that the law creates new obligations for almost every party involved in a constructional defect lawsuit. It is essential that companies review AB 125 carefully to determine the impact on their business practices. To discuss how this law will impact your construction practice, please contact Robert E. Schumacher at rschumacher@gordonrees.com.

For a complete text of all revisions, click here.

For a comparative analysis of the new and old versions of NRS Chapter 40, click here.