Governor Perry has signed HB 1038, approving changes to the Texas Property Code that will impact homebuilder purchase agreements. The changes to the Property Code will become effective Sept. 1, 2007. Here is what you need to know:

New disclosure requirements in contracts. The formerly mandated RCLA disclosure statement under Chapter 27.007 has been replaced. A new Chapter – 420. Building Contract Provisions – has been adopted, imposing new disclosure and notice requirements on residential construction/purchase contracts. Highlights of Chapter 420 include:

  • The new disclosure language must be in at least 10-point bold type and must include the telephone number of the Commission. Unlike 27.007, the new statute does not permit substantial compliance with the disclosure language and does not indicate with particularity where the disclosure must be provided;
  • Binding arbitration provisions must be conspicuous and in at least 10-point bold type; and
  • The contract must state the builder’s name and certificate of registration number.

The new statute provides that contracts without these new provisions are “not enforceable” against a homeowner. It is unclear at this point how “not enforceable” may be interpreted after a closing occurs.

The Commission has been granted enforcement powers. Upon reasonable belief of a violation, the Commission may issue cease and desist orders and/or order affirmative action to enforce compliance with the Act. The Commission is authorized to seek injunctive relief and collect administrative penalties (up to $1,000 per day) for violations of its orders.

Continuing education requirement. The Commission will establish a continuing education program. Registered builders will be required to complete five hours of approved continuing education every five years.

Joint and several liability for administrative penalties. Builders, their designated agents, and persons who own or control a majority interest in privately-held builders are subject to joint and several liability for administrative penalties. Some of the new bases for disciplinary action include:

  • Repeated failure to participate in the SIRP process;
  • Failure to reasonably perform on an accepted offer of repair; and
  • Repeated failure to make an offer of repair based on the recommendations of the third-party inspector.
  • The maximum penalties for these violations has been increased to $10,000. There are many more changes being implemented that will likely impact your business.