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May 29, 2014

Sunset Presbyterian Church v. Brockamp & Jaeger, Inc., __ P.3d __ (2014) (2014 WL 1641728)
PIH Beaverton v. Super One, In., __ P.3d __ (2014) (2014 WL 1661341)

Why These Cases Are Important

Contractors and their counsel should take note of these two decisions, as they will affect the duration of contractors’ exposure to construction defect claims under Oregon’s statute of repose. In the absence of written acceptance, the ten year limitations period of Oregon Revised Statute (“ORS”) 12.135 begins to run on the date on which the contractee accepts construction as “fully complete” as opposed to accepting the construction as “sufficiently complete for its intended use or occupancy.”

The following decisions suggest caution for general contractors and their subcontractors when negotiating contract terms regarding what constitutes written acceptance of the date of substantial completion. Contractors should be clear in stating exactly what will constitute written acceptance, and they should make sure to get that written acceptance before assuming the statute of repose is triggered.

Contractors should also be wary when property owners occupy a project site or use it for its intended purpose prior to total completion. Under the above cases, even occupancy and use, as a matter of law, do not amount to an acceptance of the work as substantially complete.

Procedural History

The Oregon Court of Appeals decided the above cases within a month of each other, and both address what constitutes “substantial completion” for the purpose of triggering the statute of repose under ORS §12.135 in actions for damages from construction, alteration or repair of an improvement to real property.

Separate trial courts had granted summary judgment for defendants based on their claims that the suits were time–barred; the Court of Appeals reversed and remanded both decisions.

On August 15, 2013, the Supreme Court of Oregon consolidated the cases and granted review to consider and interpret the term “substantial completion” under ORS 12.135.

Holdings

Sunset Presbyterian establishes that, as a matter of law, a plaintiff’s occupancy and use of a property for its intended purpose does not, by itself, establish the date upon which a plaintiff’s claims accrue for purposes of the ten year statute of repose. In the absence of evidence that an architect issued a Certificate of Substantial Completion, the defendant could not rely on the plaintiff’s occupancy and use to establish that construction was substantially complete for purposes of summary judgment.

Beaverton establishes that a completion notice under ORS 87.045 does not necessarily establish that the owner accepts construction as complete for occupation and, therefore, that the posting of that document alone does not establish the date triggering the ten year statute of repose. Notice combined with other facts, however, when considered in their entirety, that demonstrate written consent or assent to construction as sufficiently complete for its intended use or occupancy will satisfy the requirements of ORS 12.135 and trigger the ten year statute of repose.

Facts

Sunset Presbyterian v. Brockamp & Jaeger

Plaintiff Sunset Presbyterian, a Portland church, contracted with Brockamp & Jaeger, a general contractor, for the construction of the first phase of a new church facility. Sunset began holding religious services in the new facility in February 1999 and held a dedication event for it the weekend of March 13 and 14 of that year. After that weekend, construction work continued on the facility, including changes to the electrical system, fire-alarm system, and landscaping.

On March 16, 2009, Sunset filed actions for negligence and negligence per se against Brockamp & Jaeger and various subcontractors based on alleged construction defects. The trial court granted summary judgment for defendants on the ground that the claims asserted against them were time-barred.

The primary issue on appeal was what constituted the “date of substantial completion” of the facility for purposes of triggering the repose period under ORS 12.135, which imposes a ten year limitation on all claims arising from the construction, alteration, or repair of an improvement to real property.

All parties agreed that the “date of substantial completion” triggered the repose period, but they differed on what that phrase meant. Defendants contended that it meant the date when improvement reached the state of completion at which the plaintiff could occupy and use the property for its intended purpose. Sunset contended that the language of the statue required that parties must agree to a date of substantial completion in writing, or, in the absence of any such writing, substantial completion occurs at a later date, i.e. when a contractee accepts the completed construction by taking responsibility for the maintenance, alteration, and repair of the improvement.

The trial court granted summary judgment, finding that the March 14, 1999 date marked the trigger for the repose period. Sunset appealed.

The court of appeals reversed and remanded, noting that in the absence of a written acceptance of a date of substantial completion, the case turned on whether Sunset had accepted completed construction. The court held that acceptance of completed construction occurs at the point at which little or no work remains to be done by the contractor, i.e. when there is no remaining shared responsibility for maintenance, alteration, or repair. Where there was no written acceptance and plaintiff submitted evidence that construction work continued after March 14, 1999, there existed a genuine issue material fact as to when acceptance of substantial completion occurred.

The Supreme Court of Oregon affirmed the appellate court, finding that a genuine issue of fact did exist, and the Court remanded to the trial court for further hearing.

PIH Beaverton v. Super One

VIP’s Motor Inns, Inc. contracted with Super One in December 1995 to build a hotel. On February 13, 1997, VIP’s filed a notice of completion pursuant to ORS 87.045, a statute applicable to perfecting construction liens which provides that completion of construction occurs when construction is “substantially complete.” On that same date, Washington County issued a notice of temporary occupancy from February 13 through March 3, 1997. VIP’s opened its doors and began accepting guests on or around February 13.

Super One continued performing certain unspecified construction work after the hotel was operational. Washington County issued a notice of completion and certificate of occupancy for the hotel on September 24, 1997.

Plaintiff PIH Beaverton purchased the hotel from VIP’s in 2006 and allegedly thereafter discovered multiple construction defects. Beaverton filed suit against Super One for negligent construction on May 23, 2007—more than ten years after VIP’s filed the February 13, 2007 notice of completion, but less than ten years after Washington County issued its final notice of completion and certificate of occupancy.

Super One moved for summary judgment, arguing that Beaverton’s claims were time–barred under ORS 12.135(1). Specifically, Super One argued that VIP’s February 13, 1997 notice of completion constituted written acceptance under ORS 12.135(3) that, standing alone, was sufficient to trigger the ultimate repose period. In the alternative, Super One argued that VIP’s acceptance of customers and operation as a functioning hotel as of February 13, 1997 amounted to acceptance of substantial completion.

The trial court rejected Super One’s argument regarding written acceptance but granted summary judgment on other grounds. The court reasoned that the notice, together with contract terms, VIP’s occupancy and use of the hotel as of February 13, 1997, and a lack of specific evidence as to the work performed after that date meant that the project was, in fact, substantially completed by February 13, 1997, thus triggering the repose period.

Beaverton appealed, arguing that a genuine issue of material fact existed regarding the date of substantial completion for the ultimate repose period under ORS 12.135(1).

The Court of Appeals agreed that VIP’s notice of completion did not constitute written acceptance of substantial completion under ORS 12.135(1), but rather the Washington County notice of completion was the proper written document for that purpose.

The court reversed the trial court, however, on the issue of when Beaverton had actually accepted construction as substantially complete. Citing Sunset Presbyterian v. Brockamp & Jaeger, the court ruled that the second clause of ORS 12.135(3) applies only when a contractee accepts construction that “actually has been completed,” i.e. the point at which “little or no work remains to be done” by the contractor. Thus, a contractee might not accept construction as “complete” until some time after the date on which it occupied or began using the property for its intended purpose.

The Supreme Court of Oregon affirmed the appellate court, finding again that there were genuine issues of material fact, and that the trial court’s grant of summary judgment was in error.

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