Governor Rick Scott recently signed into law Florida legislation that clarifies the time limitations for filing actions based on design, planning, or construction. The new law specifically clarifies when the time limitations may begin to run based on completion of the contract. Although the new law expressly prevents an owner from extending the limitations period through non-payment, the limitations period largely remains a matter of contract interpretation based on the parties’ respective obligations under the contract. It is imperative that contracting parties understand the revisions to the law and use it to their advantage to best manage and control the risk and exposure to actions that may be brought years after the project is complete.
The time limitations for filing law suits are commonly referred to as the statute of limitations and statute of repose. Florida has a four-year statute of limitations on actions based on design, planning, or construction. The statute of limitations requires that any action be commenced within four-years from the latest one of four events: actual possession by the owner, issuance of a certificate of occupancy, abandonment of construction, or completion or termination of the contract. There is one exception for actions involving a latent defect. In latent defect actions, the limitations period does not begin to run until the latent defect is discovered or should have been discovered. However, the latent defect exception is limited by Florida’s ten-year statute of repose. The statute of repose requires that, in any event, any action based on design, planning, or construction be commenced within ten-years from the latest one of the same events as the statute of limitations.
In 2015, a Florida court ruled that “completion of the contract” occurred when the owner issued its final payment to the contractor. The court found that completion of the contract in the statute meant completion of performance by both sides of the contract, not merely performance by the contractor. The court ruling exposed an ambiguity in the statute that potentially permitted owners to pursue lawsuits for construction defects well beyond ten years from the completion of construction. Exposure to latent defect claims for an undefined period of time beyond ten years from completion of construction poses significant risks to contractors, particularly with respect to insurance coverage.
The new law clarifies the ambiguity in the statute and expressly defines “completion of the contract” as the later of the date of final performance of all the contracted services or the date that final payment for such services becomes due without regard to the date final payment is made. While the new law specifically addresses the owner’s failure to make final payment, the new law largely defers to the contracting parties to define the scope of “all contracted services” and the date when final payment becomes due. Therefore, it is important for contracting parties to specifically address these issues in their contracts to recognize the benefit of the new law and control the time limitations for actions. Contracting parties should specifically address, among other things, the interplay between contracted services for punch list work, warranty work, and other continuing obligations, as well as the conditions precedent for final payment. It is likewise critical that contracting parties ensure their insurance coverage is consistent with the language of the contract and covers the potential exposure to latent defect claims based on the current statute of repose. By understanding the changes to the law and conforming their agreements accordingly, contracting parties will be able to use the law to their advantage and better manage and control ongoing risks that often arise from construction projects.