This is the second in a three-part series of alerts about latent construction defects.
Statute of Limitations Issues in Latent Defect Cases
There are several statute of limitations provisions that a practitioner must be concerned with in dealing with latent defects, the four-year limitations period set forth in Section 95.11(3)(c) for actions “founded on the design, planning, or construction of an improvement to real property,” and the five-year limitations period for Section 95.11(2)(b), for actions on a contract or written instrument.”1 Under the former, the existence of a latent defect can delay the accrual of a cause of action for a latent defect while, under the latter, the existence of a latent defect does not delay the accrual of a cause of action.
Section 95.11(3)(c) provides that the following action shall be commenced within four years:
An action founded on the design, planning, or construction of an improvement to real property, with the time running from the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest; except that, when the action involves a latent defect, the time runs from the time the defect is discovered or should have been discovered with the exercise of due diligence. In any event, the action must be commenced within 10 years after the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest.2
This statute applies to any action against a professional engineer,3 registered architect,4 or licensed contractor5 where that action is founded on the design, planning, or construction of an improvement to real property. The statute therefore supersedes the more general two-year statute of limitations under Section 95.11(4)(a) for actions for professional malpractice,6 or the five-year limitations provision of Section 95.11(2)(b) which applies to contract actions generally.7
Under Section 95.11(3)(c), when the action involves a latent defect, “the time runs from the time the defect is discovered or should have been discovered with the exercise of due diligence.” However, this delayed discovery provision does not run into perpetuity. Regardless of when a defect is discovered, the statute provides that, at the latest, it must be brought within 10 years after the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest.
The most common type of latent defect are those defects resulting in water intrusion to a building envelope. In some states, such as Florida, not every defect leading to water intrusion is considered latent. The determination of whether the defect is latent depends on whether the water intrusion is from the roof of the building or from other entry points.
Known Roof Leaks – Statute of Limitation Not Tolled by Attempted Repairs
The seminal case for roof leaks is the Florida Supreme Court case of Kelley v. School Board of Seminole County in which the Supreme Court held that the cause of action for a defective roof accrued upon the first occurrence of leaks and therefore the “delayed discovery” provisions of Section 95.11(3)(c) would not apply. In that case, the school board contracted with an architect for the design and construction of several elementary schools in 1969 and 1970. The roofs of the schools started leaking in 1970 and 1971, however the school board did not file suit until 1977.8 The Supreme Court held the suit to be time-barred under Section 95.11(3)(c) because, “when a newly finished roof leaks it is not only apparent, but obvious, that someone is at fault.”9 Therefore, “regardless of the school board’s lack of knowledge of a specific defect, the school board knew more than four years prior to August 1977 that something was wrong with the roofs of these three schools.”10 Therefore, in the case of roof leaks, Florida courts have uniformly recognized that the cause of action accrues upon the first leak, regardless of whether the owner has knowledge of the specific defect.
Non-Roof Leak Cases
Cases not involving roof leaks, however, have distinguished themselves from Kelley and have refused to infer notice of the existence of a cause of action upon the first happening of the leak. In another Florida case, Sante Fe Community College v. Caudill Rowlett Scott, Inc., 461 So. 2d 239 (Fla. 1st DCA 1984), the First District held that in non-roof leak cases, the existence of a defect is not as obvious as it is when there is a roof leak. There, the board of trustees of a community college were not time-barred from bringing suit for leaks due to corrosion in an underground piping system even though there had been leaks more than four years before suit was filed.11 The court reasoned that in order for the action to be barred, there would have to be evidence that the board knew the underlying cause of the leaks, i.e., that the pipes were corroded.12 The court determined that the existence of leaks alone was not enough to trigger the statute of limitations because, unlike with a roof leak, the leaks could have been due to other causes other than an actionable defect.13 In subsequent decisions, courts throughout Florida continue to recognize that in non-brand, new known roof leak cases, the statute of limitations is not triggered until the owner knows of the underlying cause of the leak.14
The Florida Supreme Court has recognized that Section 95.11(3)(c) also applies to actions by condominium associations for breach of the implied warranties set forth in Chapter 718, Florida Statutes.15 However, an action by a condominium association can be further tolled by operation of Section 718.124. Section 718.124 provides that “the statute of limitations for any actions in law or equity which a condominium association or a cooperative association may have shall not begin to run until the unit owners have elected a majority of the members of the board of administration.” The Supreme Court has recognized that the purpose of this provision is to prevent a developer from retaining control over an association long enough to bar a potential cause of action by unit owners.16 Thus, the commencing of the limitations period under section 95.11(3)(c) shall be tolled as to the condominium association until control of the association passes from the developer to the unit owners.17
As stated previously, the general rule is that actions founded on the design, planning or construction of an improvement to real property, whether based in contract or tort, are governed by Section 95.11(3)(c). In fact, the case of Suntrust Banks of Florida, Inc. v. Don Wood, Inc. expressly recognized that even when the action is contractually based, it should be governed by the more specific section (3)(c) over (2)(b), which governs breach of contract actions generally, when the action involves the design, planning or construction of an improvement to real property.18 However, in a surprising stipulation, the two lawyers in Federal Insurance Co. v. Southwest Florida Retirement Center, Inc., 707 So. 2d 1119 (Fla. 1998) apparently agreed the five-year breach of contract statute of limitation applied to an action on a performance bond. The Florida Supreme Court adopted this stipulation and made suits on performance bonds involving construction property an exception to the general rule when the action is one against the surety on a performance bond. In Federal, the Florida Supreme Court held that an action against a surety on a performance bond is governed by the five-year limitations period of Section 95.11(2)(b), governing breach of contract actions, even if the action is one concerning construction defects. Why should the AIA contractor and owner and surety all working on the same project have two different statutes of limitations? Doesn’t the surety stand in the shoes of the contractor? Isn’t the owner contractor agreement incorporated on the contract?
In Federal, the performance bond was an AIA Document A311 issued in connection with the construction of a retirement center. Construction was completed in 1984.19 In 1994, the retirement center sued the general contractor and the surety based on allegations that in 1993, it discovered latent defects in the project. The trial court granted the surety’s motion for judgment on the pleadings that any claim against the performance bond was time-barred under Section 95.11(2)(b) because the retirement center filed its action more than five years after acceptance of the project. Why the retirement center stipulated that the Section 95.11 (2)(b) was the applicable limitations provision is unknown. It could be argued that the limitations period did not begin to run until discovery of the latent defects.20 On appeal, the Second District agreed with the retirement center but on second-tier review, the Florida Supreme Court reversed, and therefore affirmed the trial court’s position.
In reaching its decision, the Supreme Court relied on a decision from the Fifth District Court of Appeal21 and the important parties’ stipulation that Section 95.11 (2)(b) applied. The Court never addressed whether Section 95.11 (2)(b) (without a discovery rule) should apply over Section (3)(c)(with a discovery rule). There being no dispute between the parties that Section (2)(b) applied, the Supreme Court held that, because “Section 95.11(2)(b), Florida Statutes (1981), makes no reference to a discovery rule for latent defects” that the limitations period ran five years from the date of acceptance of the project and therefore the retirement center’s action was time-barred.22
Why Does (2)(b) Apply to Performance Bonds Rather Than (3)(c)?
Because the parties in Federal stipulated that Section (2)(b) applied, the Florida Supreme Court did not explain or otherwise provide an analysis of why (2)(b) applied rather than (3)(c). The case of The School Board of Volusia County v. Fidelity Company of Maryland, on which the Supreme Court relied, likewise provided no analysis and only stated, in a conclusory fashion, that Section (2)(b) applied to actions on a performance bond because such an action was an action on a “contract, obligation, or liability founded on a written instrument.”23 This statement however, ignores the fact that most actions involving construction defects are contract-based, yet the courts of this state routinely apply Section 95.11(3)(c).24 Moreover, when two or more limitations provisions apply, the Florida courts have recognized that Section 95.11(3)(c) is the more specific, and therefore controlling provision, when it comes to construction defect cases.25 There is no patent reason why actions against a surety performance bond for construction defects should be treated differently. A surety is, through its principle, directly involved in the design, planning, or construction of real property typically as a contractor or subcontractor. Therefore the surety does obligate itself to the extent the contractor or subcontractor fails to properly design, plan, or construct the subject real property. Nevertheless, for now, a practitioner may find itself in the precarious position of maintaining a viable action for latent defects against an insolvent contractor or subcontractor, but an action against a presumably solvent performance bond surety for the same latent defect would not be within the statute of limitation. It remains to be seen if someone will challenge the logic behind the much cited Federal decision, and the adopted stipulation, as to whether or not the wrong section of 95.11 was applied.