General contractor’s consent tolls statute of limitations for subs — notice is not required

The statute of limitations in building defect cases begins to run when the Home Owners Association knows that something is wrong — not when they know there is a legal cause of action.  Thus, once an HOA official sees water damage, the statute begins to run.  It does not start when the HOA’s inspector returns a report identifying potential causes of the damage.

Under California Civil Code §1375, the running of the statute of limitations for defects to common interest developments (such as condominiums) is tolled for a set period of time by service of a notice to the general contractor.  The purpose of the tolling is to allow the parties to come to an agreement without litigation for repair of the defects.  Thereafter, the general contractor and the HOA can agree to extend the period of tolling while they work through the issues raised by the HOA.

In Landale-Cameron Court v. Ahonen, the issue before the court was whether this tolling arrangement also tolled the statute of limitations for actions against the subcontractors who had no notice of the defects or the extended tolling agreement signed by the general contractor.  The court ruled that the tolling must extend to actions against the subs in order for the statutory scheme to work.  “Indeed, if the statute of limitations were tolled only against the builder and not also against party contractors and subcontractors, it would wreck havoc with the obvious intent of the tolling provision to provide additional time to resolve disputes prior to filing a lawsuit.”

This ruling is important for the HOA since the court also ruled that the HOA had no cause of action for breach of contract under a third party beneficiary theory.  Since the HOA was not in existence at the time of the contract, it could not be a third party beneficiary to the agreement.  That left the HOA with only the negligence cause of action, and the need to rely on the tolling provision of section 1375.

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