After a new hotel is built, regular and ongoing maintenance and repairs that are required for the preservation and upkeep of the building are expected. But, for owners of newer properties, some repairs and maintenance may not be of the ordinary variety and could have been caused by defects that occurred during the construction process.
“For the owners of newer projects, some necessary repairs and maintenance may go beyond anticipated regular upkeep activities and procedures,” said Aaron Zimmerman, a partner at the construction defect law firm Berding & Weil. “Rather, they may result from the existence of construction defects attributable to deviations from sound building practices and can result in excessive maintenance and repair costs, unusable guestrooms and a sub-optimal experience for visitors. Additionally, these construction defects may remain hidden for years after the completion of the building.”
If there are construction defects, the builders and contractors responsible for building the property are liable for any defective conditions that occur under their watch, meaning that owners can recover money for repairs and lost revenue, but only if claims are pursued in a timely manner and if related evidence is preserved. If a claim for construction defects is not made timely, or if defective conditions are not properly documented during related repairs, the remedy opportunity is lost.
While construction defects present potential problems to owners of all buildings and real estate improvements, said Zimmerman, they are especially troubling in the hospitality space as the interruption to operations associated with repairs often lead to less than satisfactory experience for guests whose stay is inconvenienced by the necessary fixes.
“Additionally, specialized (more expensive) contractors may need to be retained and specific repair protocols (slower process) followed in order to preserve basic aspects of guest hospitality,” he said. “In turn, this can lead to a substantial loss of revenue and a blemish on the reputation of an otherwise beautiful and efficiently run property.”
When it comes to incidences of construction defects, Zimmerman said that is very important for hotel owners to know their rights.
The appropriate time to bring a claim for construction defects varies across jurisdictions, but typically falls into one of three classifications. The first is referred to as a statute of repose. “In this context, and again depending upon where the building is located, the claims period for latent (unknown) defects is limited to a specific number of years from the substantial completion of the building,” he said. “This means that even if an owner has no actual or constructive awareness of defects at their building, once that building reaches a certain age—10 years in California—the owner loses the ability to pursue any and all legal recourse related to construction defects.”
The second provides for statutes of limitation. “Unlike with statutes of repose, these are prompted by the discovery of the applicable defect and serve to start the clock on the owner’s claim period,” said Zimmerman. “The actual claim period will depend upon the location of the building. For example, in California, the Code of Civil Procedure provides that an owner has between two to four years, from the date of initial discovery, to pursue a claim for construction defects, depending upon whether that claim alleges breach of oral contract, damage to property (negligence) or breach of written contract. That clock can only be halted by way of a lawsuit or a written agreement to toll, or pause, the claims period.”
He said that it is important for owners to know that the date of discovery may be uncertain and subject to debate because courts do not require actual awareness of the defect. “Rather, if the builder/contractor can show that the building owner should have been aware that an issue existed, the owner may be charged with constructive awareness of the problem, thereby prompting premature commencement of the claims period,” he said. “While every situation is unique, seemingly innocuous yet incomplete recordkeeping related to routine maintenance and repairs could serve to unknowingly start a statute of limitation.”
Zimmerman said that keeping “careful and comprehensive” records is extremely important for owners. “For example, the existence of records identifying a roof leak, without corresponding records indicating that the leak and related defects were remedied, could serve to severely reduce the building owner’s legal rights,” he said. “Additionally, the impact of such incomplete documentation is often not revealed until significant investment in legal and consulting services have already taken place, thereby potentially exacerbating the financial damage to the owner.”
The third classification involves the language of the development/construction contracts, which are often written by the builders. The contract may be written in a way to minimize the legal rights of owners, sometimes significantly, according to Zimmerman. “Courts have regularly found that sophisticated parties—think builders, developers and building owners—are free to negotiate with one another, even where the results of those negotiations, and the contracts distilled therefrom, drastically reduce the parties’ respective rights,” he said. “As such, the legal stakes are significant, even before construction begins.”
While the contract may have been between the builders and the original developers of the property, when it comes to construction defects, all of the rights are transferred to any new owners when the property is sold during the period covered under the contract. “The rights under the law are fully transferrable,” said Zimmerman. “Nothing is cut off under the civil code or the code of civil procedure. It could have turned over 10 times. That 10th owner still has whatever legal rights the first owner had.”
Zimmerman recommends that any owner facing a construction defect problem work with experts in this area. “This is a complex field and owners should work with legal counsel and design professionals specializing in construction defect matters to protect their investment and to ensure that unknown construction defects do not spoil an otherwise flourishing hospitality venture,” he said.
Fixing construction defects at hotels is often a difficult process. However, it may well be essential to ensure that a property stays profitable. “As such, it is critical that any construction defects be identified as soon as possible and that a claim be pursued in a timely manner, so that those liable for the defects (and their insurance carriers) will be held responsible for their subpar building practices and lack of performance,” said Zimmerman.
