Substantial Amendment to Chapter 558 – Construction Defects: Amendment Affects All Contracts Executed After October 1, 2009
The Florida Legislature recently made a substantial amendment to Fla. Stat. Chapter 558 – Construction Defects, that will significantly affect all construction contracts entered into after October 1, 2009.
When applicable, Chapter 558, Fla. Stat. requires owners to give contractors and professionals an opportunity to inspect and repair alleged construction defects prior to owners being able to file lawsuits. The intent of Chapter 558 is to foster amicable settlement agreements for construction defects and reduce unnecessary litigation.
Fla. Stat. § 558.005 controls the contractual notice provisions for Chapter 558, Fla. Stat. Specifically, for the past several years, this Section has required that a mandatory notice provision be inserted in construction contracts for Chapter 558’s procedures to apply.
Prior to these recent changes, for all construction contracts for improvement entered into on or after October 1, 2006, the following statutory notice was required in order for Chapter 558’s procedures to apply to the contracting parties:
CHAPTER 558, FLORIDA STATUTES, CONTAINS IMPORTANT REQUIREMENTS YOU MUST FOLLOW BEFORE YOU MAY BRING ANY LEGAL ACTION FOR AN ALLEGED CONSTRUCTION DEFECT. SIXTY DAYS BEFORE YOU BRING ANY LEGAL ACTION, YOU MUST DELIVER TO THE OTHER PARTY TO THIS CONTRACT A WRITTEN NOTICE, REFERRING TO CHAPTER 558, OF ANY CONSTRUCTION CONDITIONS YOU ALLEGE ARE DEFECTIVE AND PROVIDE SUCH PERSON THE OPPORTUNITY TO INSPECT THE ALLEGED CONSTRUCTION DEFECTS AND TO CONSIDER MAKING AN OFFER TO REPAIR OR PAY FOR THE ALLEGED CONSTRUCTION DEFECTS. YOU ARE NOT OBLIGATED TO ACCEPT ANY OFFER WHICH MAY BE MADE. THERE ARE STRICT DEADLINES AND PROCEDURES UNDER THIS FLORIDA LAW WHICH MUST BE MET AND FOLLOWED TO PROTECT YOUR INTERESTS.
With the recent changes, however, the inclusion of the above notice provision is no longer a statutory requirement for Chapter 558 to apply to contracts entered into after October 1, 2009, and a much shorter notice may now be used as described below.
The “Opt Out” Provision and Promoting Awareness
Effective for contracts entered into on or after October 1, 2009, Fla. Stat. Chapter 558 will apply unless the parties agree in writing to “opt out” of the procedures of Chapter 558; otherwise the procedures will automatically apply by default. In other words, the statutory procedures and strict deadlines of Chapter 558 will apply to all construction contracts entered into after October 1, 2009 – regardless of the inclusion of a notice provision – unless the parties “opt out” of Chapter 558 in writing.
In addition to the amendment identified above, Subsection (6) to Fla. Stat. § 558.005 was also added. Unless the parties have agreed to opt out, Fla. Stat. § 558.005(6) requires that any contract entered into after October 1, 2009, between an owner and a contractor/design professional, “must” contain the following notice:
ANY CLAIMS FOR CONSTRUCTION DEFECTS ARE SUBJECT TO THE NOTICE AND CURE PROVISIONS OF CHAPTER 558, FLORIDA STATUTES.
Although this amendment seems to require the parties to insert this limited notice provision into their contracts, the statute clearly states, “[t]he failure to include in the contract the notice provided in this subsection does not subject the contracting owner, contractor, or design professional to any penalty. The purpose of the contractual notice is to promote awareness of the procedure, not to be a penalty.” Therefore, the failure to include the notice identified in Subsection (6) will not affect the written “opt out” requirement set forth in Subsection (1). In fact, this notice is not required at all if the parties have elected the “opt out.”
Generally speaking, most contractors/design professionals favor the procedures of Chapter 558 because it requires owners to give them an opportunity to inspect, and under certain circumstances, even perform destructive testing of the alleged construction defect(s). Chapter 558 allows a contractor/design professional to demand discovery and expert opinions from the claimant. Complying with the Chapter 558 process is a condition precedent the claimant must satisfy prior to initiating litigation and, in many instances, creates potential settlement dialogue between the parties.
On the other hand, developers and owners should carefully consider whether or not to “opt out” of the Chapter 558 process. A claimant developer or owner who has not opted out cannot file an action until complying with the statutory requirements of Chapter 558. Again, this entails providing the potential defendant(s) an opportunity to inspect the defect(s), and may require the claimant to turn over any expert reports in its possession. As an alternative to the Chapter 558 process, a developer or owner may want to consider "opting out" and drafting an alternative dispute resolution provision in their contracts which can accomplish the underlying goals of Chapter 558 without placing on the developer/owner some of the strict requirements of the Chapter. Accordingly, owners, developers, contractors and design professionals should carefully consider during the negotiation and drafting of their construction contracts whether or not to include Chapter 558 “opt out” language.
The new amendment to Chapter 558 does not define what “opt out” contractual language is necessary to be enforceable. Is it enough to merely state in fine print on the reverse side of a terms and conditions section of a contract that Chapter 558 is inapplicable?
Basic contractual drafting requirements should be considered when drafting a Chapter 558 “opt out” provision. An attorney knowledgeable in this area can ensure a proper “opt out” provision is drafted so the provision is clear, unambiguous and accurately sets forth the intent of the parties. To learn more about how this amendment directly affects your rights, contact one of the authors of this alert or one of their colleagues in the Holland & Knight Construction Industry Practice Group.