Wednesday, August 22, 2012

Texas Contractors Can Use the RCLA to Their Benefit: Here's How

The Residential Construction Liability Act (RCLA) is the governing law for both residential construction disputes and the procedure to follow before there is litigation. The law provides a lot of guidance, but most contractors know little about it or how to use it. The RCLA can be used by contractors to limit liability and resolve issues out of court.

The process is all about communication between the homeowners and contractors, as governed by the terms of the RCLA. The RCLA most frequently concerns only builders, large remodelers, and warranty companies. It applies to any action to recover damages arising from a construction defect, but it does not apply to personal-injury, wrongful-death, or damage-to-goods claims.

The RCLA provides a great opportunity to limit exposure if the contractor makes a “reasonable” offer of settlement to a homeowner. The ultimate decision-maker (judge, jury, or arbitrator) will determine if the offer was reasonable. Most importantly, if the homeowner rejects a reasonable offer, in a later lawsuit he can recover only the cash value of that offer plus any legal fees incurred up to the date of the offer was rejected.

Here’s how it works. The homeowner must notify the contractor, describing in reasonable detail the nature of the complaint, 60 days before filing suit. After receiving that letter a contractor has 35 days to inspect the home and 45 days in which to make the offer. The homeowner has 25 days to accept or reject the offer and must state in reasonable detail why it is unreasonable. The contractor then has 10 days in which it may make a supplemental offer.

The categories of damages the offer should address (if they are justified) are the categories of damages available under the RCLA: (1) the reasonable cost of repairs necessary to cure any construction defect; (2) the reasonable and necessary cost for the replacement or repair of any damaged goods in the residence; (3) reasonable and necessary engineering and consulting fees; (4) the reasonable expenses of temporary housing reasonably necessary during the repair period; (5) the reduction in current market value, if any, after the construction defect is repaired if the construction defect is a structural failure; and (6) reasonable and necessary attorney's fees. The offer does not need to include all of these categories. But, since these are the types of damages available under the statute, it is good practice to include an amount for each category to the extent it is justified.

The statute can be confusing, as such it is always a good idea to engage competent legal counsel at the outset of this process to ensure you’re following the statute and doing everything possible to limit exposure.

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