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The Texas Residential Construction Commission Act, effective Sept. 1, 2003, fundamentally changed the rights and obligations of homeowners and builders relating to the construction or material improvement of a new single-family home or duplex. The act is intended to minimize the number of residential construction disputes by 1. creating a registration and enforcement mechanism for homebuilders; 2. ensuring that builders construct new homes to heightened standards; and 3. providing an efficient and cost-effective investigation and dispute resolution process. To accomplish this, the act created a nine-member Texas Residential Construction Commission, intended to reflect consumers’ and builders’ interests. It must also include at least one licensed professional engineer and one licensed architect who practice in residential construction. Since November 2003, the commissioners have held public meetings throughout the state to adopt rules and procedures to implement the act. The act grants the commission broad rule-making powers, which encompass creating a state-sponsored inspection and dispute resolution program; setting building and performance standards and administrative regulations; establishing minimum limited statutory warranty and building and performance standards for residential construction; and governing third-party inspectors. The act further tasks the commission with establishing a mandatory builder registration program. Under the new regulations, all residential builders within the state of Texas must submit an application and annual fee of $125 on or before March 1. A person or entity cannot act as a builder unless registered under the act. As of mid-February, more than 750 builders submitted applications to the commission, which is empowered to fine unregistered builders up to $5,000. In addition to registration requirements for residential builders, the act requires builders to register each new home constructed after Jan. 1. A builder must remit a $30 per home fee to the commission within 15 days of the month following the month in which the builder transfers title to the new owners. The fee should generate more than $3 million annually to help fund the commission’s expenses. Because the act does not require municipalities to ask for proof of a builder’s registration when issuing building permits or obligate them to provide the commission with an accounting of new residential construction permits issued by the county, unsatisfied homeowners will likely initiate most enforcement efforts. The act also creates the State-Sponsored Inspection and Dispute Resolution Process, which applies to construction defect disputes between owners and contractors on residential projects built after Sept. 1, 2003. It’s limited to disputes brought within 10 years of the initial transfer of title to the home or, if there’s no title, within 10 years of the date of the contract for the improvement. If a dispute between a homeowner and a builder arises out of an alleged construction defect, the homeowner or builder may submit a written request for state-sponsored inspection and dispute resolution to the commission. While submission to the dispute resolution process is not mandatory, the process is a condition precedent to a homeowner’s right to initiate legal action for a construction defect. On the Horizon With certain exceptions, the request for the commission to conduct a state-sponsored inspection and to initiate a dispute-resolution proceeding must be made on or before the second anniversary of the date of discovery of the conditions claimed to be evidence of the construction defect, but not later than the 30th day after the date the applicable warranty period expires. The homeowner must provide the builder with written notice of each defect at least 30 days before submitting a request for the inspection and dispute resolution process. Equally compelling is the commission’s directive to adopt universal minimum limited statutory warranties and building and performance standards for residential construction. Limited warranties are the exclusive implied warranties for residential construction. They’re effective for one year for workmanship and materials; two years for plumbing, electrical, heating and air-conditioning delivery systems; and 10 years for major structural components. The act also mandates a warranty of habitability for new homes and home improvements. Moreover, homeowners can’t take action on a construction defect based on a breach of the warranty of habitability unless 1. the defect directly and adversely affects habitable areas of the home; and 2. a reasonably prudent inspection of the home within the applicable warranty period would not have revealed the defect. Aside from any express warranty created by contract, the warranties established by the act shall be the exclusive warranties for new home construction or home improvements. The commission will soon commence its efforts to define these warranties and establish detailed minimum standards for residential construction. It also will develop performance standards consistent with the applicable non-electrical standards in the International Residential Code for One- and Two-Family Dwellings published by the International Code Council and with the electrical standards in the National Electrical Code. Other tasks facing the commission include developing standards for mold reduction and remediation and for the performance of interior and exterior components of the home, including foundations, floors, ceilings, roofs, drainage, landscaping, heating, cooling, and electrical and plumbing components. The standards to be set by the commission can’t be less stringent than the standards required by the Housing and Urban Development for Federal Housing Administration programs. More changes are on the horizon. The commission established a subcommittee specifically to develop universal residential construction standards for Texas, and the subcommittee is evaluating the merits of retaining consultants with expertise in promulgating construction standards. The commission set a goal of late summer 2004 to begin issuing these standards, but has committed to hosting numerous statewide public hearings to obtain public input on its content. Sean McNelis is a shareholder in the San Antonio office of Matthews and Branscomb. He’s the practice team leader for the firm’s construction law practice and serves as an officer of the San Antonio Bar Association’s construction law section.

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