House Bill 377 Clarifies Date of Completion of the Contract for Statute of Repose—a Legislative Win for Contractors

On March 30, 2017, the Florida House of Representatives unanimously passed House Bill 377.  The Bill is still working its way through the Senate, but has received a favorable response and is predicted to pass.  If it becomes law, HB 377 will amend the construction defect statute of repose to clarify that the “date of completion of the contract” is the date that final payment becomes due, and not the date final payment is actually made.  This will be a legislative win for contractors.

In Florida, there is a 10-year statute of repose to sue for construction defects.  That means a contractor is free and clear from liability for construction defects if it was not sued by the property owner within the 10-year period.  To calculate when the 10-year clock ends, you must first determine when it begins.  What triggers the start of the 10-year clock is the critical question.  The answer is provided by Section 95.11(3)(c), Florida Statutes.  For the last few years, however, there was a leak in the Statute that was unfavorable to contractors.  HB 377 will fix that leak.  If it becomes law, HB 377 will become effective on July 1, 2017 and apply to causes of action that accrue on or after July 1, 2017.

Florida’s 10-year statute of repose for actions founded on the design, planning, or construction of an improvement to real property starts to run on the latest of:

• 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 termination or completion of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer.

The latter of these four conditions began to leak a few years ago, when a court determined that the date the owner “actually pays the final payment” is the date of completion of the contract.  See Cypress Fairway Condo. v. Bergeron Constr. Co., 164 So. 3d 706 (Fla. 5th DCA 2015).  Under the holding of Cypress Fairway, the 10-year statute of repose start date could be drawn out by the owner by delaying payment.  The owner could simply withhold final payment and keep the statute of repose from starting to run.  Dragging out the start date pushes back the 10-year end date.  The contractor could be on the hook for latent defects for more than 10 years past the date the contractor finished construction.  Good for the owner, but bad for the contractor.

Thanks to HB 377, that should no longer be the case.  HB 377 amends Section 95.11(3)(c) so that the date the owner actually pays the final payment is irrelevant to “completion of the contract.”  The Bill adds the following definition for completion of the contract:  “Completion of the contract means 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.”  The owner will no longer be able to drag out the statute of repose by withholding final payment.  The ball will be in the contractor’s court to start the clock.

To be sure, the contractor cannot merely complete the construction work and sit back on its laurels.  The “date final payment becomes due” is critical.  Merely completing the work may not be enough by itself to start the statute of repose running.  There may be more to it than that.  A contractor needs to examine the final payment clause in its contract to ensure that it satisfies all conditions precedent to final payment becoming due.  For example, there may be “final lien waivers” or “closeout documents” that need to be delivered before the final payment becomes due.

Without a doubt, HB 377 is a win for contractors.  However, contractors must remain diligent in their project closeout to ensure the statute of repose starts to run as early as possible.  A wise contractor will develop a closeout checklist based on the final payment conditions precedent defined in the contract, and make sure to satisfy every item on the checklist as early as possible.  In addition, a contractor should close the loop with a written correspondence to the owner verifying and setting in stone the date final payment becomes due.  Proper documentation could be very helpful 10 years and 1 day down the road when the owner comes knocking with a defect claim.

By: Austin B. Calhoun, Esq. and Hana Eldick, J.D. Candidate