New Legislation Affecting Allocation Of Risk In Residential Construction Contracts
Legislation effective January 1, 2006 (AB 758) creates a new exception to parties' ability to negotiate indemnity terms in residential construction agreements. AB 758 amends California Civil Code Section 2782 to generally limit subcontractors' indemnity obligations to builders in connection with construction defect claims on contracts entered into on or after January 1, 2006. The new legislation applies only to "original construction intended to be sold as an individual dwelling unit." Thus, the legislation does not apply to condominium conversions or apartment construction, nor does it apply to any commercial construction. However, arguably, it does apply to mixed use projects in which single family units are included. Under the new legislation, a "builder" is defined as "a builder, developer, general contractor, contractor, or original seller, who, at the time of sale, was also in the business of selling residential units to the public . . . or was in the business of building, developing, or constructing residential units for public purchase . . ." The term "builder" does not include general contractors who are "not a partner, member of, subsidiary of, or otherwise similarly affiliated with the builder."
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For more information please contact Candace L. Matson. Candace L. Matson is a partner in the Real Estate, Environmental and Construction Practice Group of Sheppard Mullin's Los Angeles office where she specializes in construction law.
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