Beginning January 1, 2026, Oregon will enter a new era of construction defect law. House Bill 3746, touted as "major construction reform," marks one of the most significant shifts in the state's approach to condominium and planned community liability in decades.
Backed by developers, builders and insurers, HB 3746 seeks to reignite condominium construction by shortening long-tail exposure, mandating early defect detection, and introducing new procedural safeguards for homeowner associations (HOAs). The measure is intended to strike a careful balance, stimulating development while maintaining basic consumer protection.
Shorter Statute of Repose: Predictability Over Prolonged Risk
At the heart of HB 3746 lies a decisive change. For condominiums and planned communities created on or after January 1, 2026, the statute of ultimate repose for construction defect claims will drop from ten years to seven years. Unlike the statutes of limitation, which relies on when a defect is discovered, a statute of repose serves as a hard stop. Once the repose period expires, no claim may be brought, regardless of whether the alleged defect has surfaced.
This three-year reduction represents a positive development for developers, contractors, and their insurers. The shorter window reduces uncertainty, simplifies actuarial projections, and may lead to lower insurance reserves and litigation costs.
Some limited exceptions remain, such as for owners still in possession or narrowly defined discovery extensions, but the general rule is bright line. Defect claims must be brought within seven years of substantial completion.
Mandatory Moisture Inspection Regime: From Reactive to Proactive
To offset the shorter repose period, HB 3746 introduces an innovative moisture intrusion inspection regime. Independent inspections must occur at roughly the two-year and six-year marks following construction.
Condominium boards will be required to commission these inspections and share findings with unit owners, including potential defects and applicable claim deadlines.
The purpose is preventive aimed at identifying water intrusion issues early before they escalate into systematic failures or expensive litigation, Developers and insurers stand to benefit from timely detection, while associations gain a framework for ongoing maintenance oversight. However, the law also imposes new administrative duties on boards, which must now budget for inspections, ensure compliance, and communicate results.
In practice, these inspection requirements may shape how policies are written, how claims are reported, and how reserves are allocated- shifting the emphasis from post-construction blame to early life cycle risk management.
Procedural Safeguards for HOAs: Transparency and Owner Choice
HB 3746 also tightens the procedural prerequisites for HOAs initiating defect litigation. Before filing suit, an association must:
- Notify all unit owners at least 10 days before filing.
- Describe the nature of the litigation and damages sought.
- Disclose the terms under which the association will represent owners, and
- Offer each owner the right to opt out of the action.
Additionally, the board must formally approve litigation in a properly noticed meeting following these disclosures.
These measures enhance owner awareness and protect individual choice but add procedural complexity. Associations and their counsel will need standardized forms and board governance protocols to ensure compliance and avoid procedural challenges that could derail claims.
Policy Rationale and Legislative Intent
Oregon's condominium market has stagnated in recent years, due in part to the perceived litigation risks associated with multifamily construction. Developers have long cited the state's expansive ten-year response period and unpredictable defect litigation as deterrents to entering the condominium market.
The Home Builders Association of Metropolitan Portland and other stakeholders pushed for reform, supported by insurers who argued that long-tail liability inflated premiums and discouraged underwriting new condo projects.
A Broader Trend: States Reconsider Long-Tail Liability
Oregon's reform reflects a national trend toward tightening statutes of repose in the name of housing expansion and insurance affordability.
Several states- including Colorado, Utah, and Washington- have debated or enacted similar measures in recent years. Proponents argued that long liability tails discourage builders from entering the multifamily market, constraining housing supply and driving up prices. By reducing exposure periods, legislators hope to incentivize developers to "flood the market" with new projects, stabilize insurance rates, and boost middle-income housing options.
Critics, however, question whether these shortened windows will truly deliver affordability or simply shift risk from builders to homeowners. Condominium construction remains highly technical, and latent defects, particularly those involving moisture and envelope systems, often manifest years after completion. Whether a seven-year cap strikes the right balance between fairness and market stimulation remains to be seen.
Still, Oregon's move aligns with a broader shift toward predictability over open-ended liability, signaling that long-tail construction risk is increasingly seen as a structural barrier for housing growth.
Practice Pointers for Stakeholders
Developers and contractors:
- Integrate mandatory inspection scheduling into turnover and maintenance documentation.
- Update contracts, warranties, and indemnity provisions to align with the seven-year repose limit.
- Educate project teams on inspection obligations and disclosure timing.
Insurers:
- Reassess underwriting assumptions and reserve allocations for projects.
- Adjust policy language to reflect inspection-based discovery triggers.
- Monitor emerging claims data post-implementation to recalibrate pricing models.
Homeowner Associations and Counsel
- Establish compliance procedures for inspection, notice, and litigation approval requirements.
- Communicate inspection results promptly and transparency to members.
- Consider proactive repair strategies to mitigate potential claims within the shorter window.
Looking Ahead: A Shorter, Clearer, and More Proactive Landscape
HB 3746 represents a decisive policy shift in Oregon construction law, one that trades prolonged uncertainty for structured, time-bound responsibility. If successful, the reform could revitalize condominium development by providing developers, insurers, and lenders with the predictability they have long sought. Yet, its ultimate test will lie in the marketplace. Whether the combination of early inspection and reduced liability genuinely spurs new projects or merely compresses risk into a narrower timeframe.
Either way, come January 2026, Oregon's construction defect landscape will look markedly different- shorter, clearer, and decidedly more proactive.
The full text of the bill may be found here: https://olis.oregonlegislature.gov/liz/2025R1/Measures/Overview/HB3746.
