

By Thomas B. Snyder and Andriana Ledesma

In Landale-Cameron, the homeowner’s association of a condominium complex ("HOA"), discovered various water leaks to the building and subsequently sued the builder-developers Arnold and Helen Kaufman ("Kaufman") and Petri Ahonen dba Riteway Decking and Flooring ("Riteway") for negligence and contract causes of action.  Riteway moved for summary judgment on the grounds that the complaint was barred because it was filed after the expiration of the three-year statute of limitations for actions involving injury to real property under California Code of Civil Procedure Section 338.

Prior to filing suit, the HOA and Kaufman had entered into certain agreements in an effort to try to resolve the claim.  The HOA sent a letter to Kaufman providing notice of the defects and invoking the statutory tolling period under Civil Code Section 1375.  The HOA allegedly sent an additional letter purporting to toll the statute of limitations until the tolling was terminated by either Kaufman or the HOA.

The HOA argued in opposition to the motion that the statute of limitations was tolled pursuant to former California Civil Code § 1375.  Former § 1375(b)(3)(A) provided that with respect to common interest developments, such as condominiums, the statute of limitations would be tolled when notice of alleged defects was provided to the builder.  Such notice tolled all statutes of limitations "against all parties" for a period of 150 days, or longer if agreed to in writing.[1]

At trial, the HOA presented the two letters as evidence of such an agreement.  Riteway argued that the HOA’s two letters were inadmissible and therefore the tolling did not apply.  Riteway further argued that the tolling did not apply to it since it was not a party to the tolling agreement.

The trial court agreed with Riteway’s first contention and found the letters inadmissible because the documents were not properly authenticated.  As a result, the trial court granted Riteway’s motion for summary judgment on the ground that there was no evidence of an agreement to toll the statute of limitations.

The Court of Appeal disagreed, finding that the letters were properly authenticated when counsel for the HOA declared that they were "true and correct" copies of the documents, and thus admissible.  Finding evidence of a tolling agreement, the Court of Appeal also rejected Riteway’s contention that the tolling provision did not apply to it because Riteway was only a subcontractor and was not a party to the agreement.  The Court found that Riteway’s position was contrary to the plain language and intent of the tolling statute.  The court explained that the intent of the tolling provision is to provide additional time to resolve disputes before resorting to filing a lawsuit.  The court further explained that the plain language of the statute specifically includes "all parties" and therefore must include the builder, contractors and subcontractors so as to effectuate the tolling provision’s intent.

Finally, the Court rejected Riteway’s argument that the exhibits presented by the HOA were insufficient to properly invoke the tolling period because they failed to include the "preliminary list of defects" as required by former §  1375(b)(1)(A).  The Court noted that the letter invoking the tolling provision specifically stated that a list of defects was enclosed with the letter in compliance with former § 1375, even though the actual defect list was apparently not entered into evidence.  Furthermore, the Court stated that since the adequacy of the defect list was not at issue, reference to the list in the letter was sufficient to invoke the tolling provision.

As a result, the Court of Appeal found that the HOA properly invoked the tolling provision of the statute of limitations and reversed the grant of summary judgment.

The lesson to be taken from this case is that all subcontractors and contractors working on common interest developments need to be aware that the applicable statute of limitations may be tolled without their knowledge.  If the HOA and general contractor enter into a tolling agreement, it may result in a substantial expansion of the statute of limitations beyond that typically applicable to most defect claims.  Because the statute is tolled as to all parties potentially responsible, whether they are parties to the tolling agreement or not, a subcontractor may find their exposure substantially expanded by conditions outside of their control.  A subcontractor would be wise to consider including protections in their contracts from any such unknown and potentially open ended tolling provisions entered into by the general contractor.

For further information please contact Thomas B. Snyder and Andriana Ledesma. Thomas Snyder is an associate in the Construction, Environmental, Real Estate and Land Use Litigation Practice Group in the firm’s Del Mar Heights office. Andriana Ledesma is an associate in the Construction, Environmental, Real Estate and Land Use Litigation Practice Group in the firm’s Del Mar Heights office.

[1] The current statute regarding common interest developments provides that, notice to the builder "shall toll all applicable statutes of limitations . . . against all potentially responsible parties . . . [for] . . . a period not to exceed 180 days . . . which can be extended . . . upon mutual agreement."  Cal. Civ. Code § 1375 (b), (c) (2003).