The Georgia Court of Appeals recently issued a decision that applied a Georgia statute of repose, O.C.G.A. § 9-3-51, to broadly foreclose actions based on deficiencies in construction brought over eight years after substantial completion of the construction, regardless of whether those actions sound in tort or contract. This decision could have the far-reaching effect of imposing an eight-year cutoff on all construction warranties – including warranties already in existence at the time of the decision.
In Southern States Chemical, Inc. v. Tampa Tank & Welding, No. A19A0960 (Ga. Ct. App. Oct. 31, 2019), the Georgia Court of Appeals considered an action by a plaintiff manufacturer against a company that renovated its storage tank to allow that tank to be used to store sulfuric acid. The defendant contracted with a third-party subcontractor to perform a portion of this renovation. The construction contract between the plaintiff and the defendant contained an undisputed one-year warranty. The plaintiff also argued that it was the intended third-party beneficiary of the contract between the defendant and the subcontractor. In that subcontract, the subcontractor estimated the life expectancy of the renovation at 43-45 years; the plaintiff argued that this amounted to a 43-45-year warranty that the plaintiff had standing to enforce.
Because the plaintiff waited ten years after substantial completion of the storage tank to file its complaint, the defendant invoked a statute of repose defense under O.C.G.A. § 9-3-51. That statute, in relevant part, provides that no action to recover damages “[f]or any deficiency in the . . . construction of an improvement to real property” may be brought “more than eight years after substantial completion of such improvement.”
Before considering the defendant’s statute of repose argument, the court addressed the alleged 43-45-year warranty. Rather than deciding whether the subcontractor’s estimated life expectancy constituted an express warranty, the court determined that the plaintiff was not an intended third-party beneficiary of the subcontract between the defendant and the subcontractor. It reached this conclusion by examining the subcontract, which “included no promises to or from [plaintiff] regarding [subcontractor’s] services.” Because “the contracting parties’ intention to benefit the third party must be shown on the face of the contract,” the court held the plaintiff had no standing to enforce the alleged warranty.
Accordingly, the court went on to consider Section 9-3-51 only in the context of determining whether an action could be maintained on the express one-year warranty provided by defendant. After concluding that the tank renovation constituted an “improvement to real property,” the court rejected plaintiff’s contention that Section 9-3-51 applied only to negligence actions and held broadly that “[w]hether in tort or in contract, the statute broadly precludes any action to recover damages brought outside the eight-year period of repose.” Consequently, the court affirmed the dismissal of plaintiff’s breach of warranty action.
The broad language used by the Court of Appeals, if applied in subsequent cases, could result in the termination of all construction warranties in excess of eight years, regardless of the length of the warranty provided. This would represent a drastic reduction in the ability of real estate owners to contract for long-term security for construction projects and could disincentivize out-of-state entities from engaging in construction projects in Georgia. However, it is also possible that future cases will narrowly construe the Court of Appeals decision. Though the language employed by the court was broad, the facts on which the opinion was rendered were narrow, given that the holding was applied to invalidate an express warranty of only one year. A subsequent court relying on this decision could emphasize the limited application of Section 9-3-51 in this case and decline to follow this decision on that basis. Or, the Georgia Supreme Court may grant certiorari on the basis that this represents a matter of important public policy and clarify the application of Section 9-3-51 to construction warranties.
In sum, Southern States Chemical, Inc. v. Tampa Tank & Welding may represent a substantial shift in Georgia construction law, with far-reaching effects on the ability of real estate owners to obtain long-term warranties. However, as yet, it is too early to tell whether, and to what extent, subsequent courts will embrace the breadth of this decision.