In construction law, statues of repose and statutes of limitation both impose time bars that prevent a party from asserting a claim after the passage of some period of time. However, there are significant differences in these two types of statutes which are important to understand, whether you find yourself bringing or defending a claim.
Statutes of Limitation
People are typically more familiar with statutes of limitation. Generally speaking, every type of claim and every cause of action is subject to a statute of limitation. A statute of limitation sets a time limit after which a party cannot recover on a particular claim (technically, a statute of limitation does not extinguish a cause of action, it bars the remedy). The time period applicable to statutes of limitation vary from claim to claim. In Oklahoma, some examples that are common to construction claims are as follows:
Breach of written contract – 5 years
Breach of oral contract – 3 years
Foreclosure of M&M lien – 1 year
Negligence and other torts – 2 years
The time limit for bringing an action under the various statutes of limitation begins to expire when a cause of action accrues. Each type action has a number of elements. A cause of action does not accrue until all of those elements exist. Another way to conceptualize the limitation imposed by a statute of limitation is that it does not begin to expire until a party has a legal right to sue on a particular claim. However, it is not always clear when all the elements of a cause of action for a particular claim exist. Consequently, that question is often the subject of litigation as its answer determines whether litigation of the claim/cause of action can move forward. Once all the elements of a claim exist, the limitations period defined by the statute of limitations for that particular claim begins to expire. As a general rule, a claim can only be pursued to judgment if an action on the claim is commenced within the limitations period.
There are, however, exceptions to the general rule. Various things can happen that will extend or “toll” a limitations period. The “discovery rule”, for example, often operates to keep the limitations clock from starting to tick. The discovery rule tolls the limitations period until the injured party knows, or with reasonable diligence should have known, of an injury giving rise to a claim/cause of action. The discovery rule recognizes it would be unfair to start the limitations period running when a party does not know and has no way of knowing of the injury giving rise to a claim until years after the limitations period has expired. In the construction industry, the unknown injury is often a latent defect. On the other hand, if the discovery rule were to toll the ticking of the limitations period until the discovery of a latent defect, a contractor would forever be potentially exposed to defect claims. Enter the statute of repose.
Statutes of Repose
Like statutes of limitation, statutes of repose create a time bars to the right to assert claims. To address the unlimited duration a builder would be exposed to liability for a latent defect, Oklahoma has a statute of repose particular to injuries arising from construction defects. Oklahoma’s statue of repose provides that no tort action for: (1) any deficiency in the design, planning, supervision or observation of construction or construction of an improvement to real property; (2) injury to property, real or personal, arising out of any such deficiency; or (3) injury to the person or for wrongful death arising out of any such deficiency, can be brought against any person owning, leasing, or in possession of such an improvement or performing or furnishing the design, planning, supervision or observation of construction or construction of such an improvement more than ten years after substantial completion of such improvement. Note the event which triggers the statute of repose to begin running and the number of years it must run before claims are barred, can vary from state to state. The statute of repose in the state in which a project is built will control.
Statutes of repose operate differently from statutes of limitation in two important respects. First, a statute of repose begins to run from the occurrence of a particular event. With respect to Oklahoma’s construction statute of repose, that event is substantial completion of the project. In larger project a certificate of substantial completion is issued when substantial completion is achieved. A certificate of substantial completion will fix the date for the beginning of the running of the statute of repose. On smaller projects where no certificate of substantial completion is issued, substantial completion may be the subject of some debate. It is a good practice to have some acknowledgment by the owner that substantial completion has been achieved on every project for various reasons, including fixing a time for the start of the running of the statute of repose.
Second, unlike statutes of limitation, statutes of repose are not subject to tolling or extension. As one Oklahoma court put it, the statute of repose “sets an outer boundary beyond which no cause of action may arise.” Significantly, the discovery rule does not apply to the statute of repose. As such, once a statute of repose has run on a project, a builder (and others protected by the statute) is generally in the clear with respect to latent defect claims.
Both statutes of limitation and statutes of repose can be modified by contract. However, the only parties that will be bound by those modifications are the parties to the contract. For example, if an owner and builder modify the statute of repose in their contract, a third party who is injured by a construction defect would not be bound by that modification and would still be able to bring a claim against the builder for the injury suffered due to the construction defect, so long as that claim is brought within the ten year statute of repose.
Statutes of limitation and statutes of repose provide overlapping protections. The purpose of statutes of limitation are to force parties to bring claim they are aware of or should be aware of within a reasonable time. The purpose of a statute of repose is to provide an outside boundary at which time a builder (and others protected by the statute) can rest assured that no claim can be maintained against him for injuries suffered from defects in construction. Because Oklahoma’s statute of repose runs for ten years, it is recommended that builders keep their files on a project for ten years following substantial completion of a project.
William H. Spitler, Esq.