Residential Construction Contracts

Legal Bulletin – New Ohio Revised Code Section 1312

Without much fanfare or press, in late Spring of this year, a new law, Section 1312 of the Ohio Revised Code, went into effect. The original version of this law was proposed several years ago by the home building industry for the purpose of enabling a contractor to attempt to rectify an alleged construction defect prior to being forced to defend a costly lawsuit.

The new law applies to all contractors who contract for the construction of or the substantial rehabilitation of a one-family, two-family or three-family dwellings in the State of Ohio. The contractor is required, either in its construction contract or in a separate written instrument signed by the owner at the time the contract is signed, to include the following notice in substantially the following form:

OHIO LAW CONTAINS IMPORTANT REQUIREMENTS YOU MUST FOLLOW BEFORE YOU MAY FILE A LAWSUIT OR COMMENCE ARBITRATION PROCEEDINGS FOR DEFECTIVE CONSTRUCTION AGAINST THE RESIDENTIAL CONTRACTOR WHO CONSTRUCTED YOUR HOME. AT LEAST SIXTY DAYS BEFORE YOU FILE A LAWSUIT OR COMMENCE ARBITRATION PROCEEDINGS, YOU MUST PROVIDE THE CONTRACTOR WITH A WRITTEN NOTICE OF THE CONDITIONS YOU ALLEGE ARE DEFECTIVE. UNDER CHAPTER 1312 OF THE OHIO REVISED CODE, THE CONTRACTOR HAS AN OPPORTUNITY TO OFFER TO REPAIR OR PAY FOR THE DEFECTS. YOU ARE NOT OBLIGATED TO ACCEPT ANY OFFER THE CONTRACTOR MAKES. THERE ARE STRICT DEADLINES AND PROCEDURES UNDER STATE LAW, AND FAILURE TO FOLLOW THEM MAY AFFECT YOUR ABILITY TO FILE A LAWSUIT OR COMMENCE ARBITRATION PROCEEDINGS.

The new law basically requires an owner of a residential property to take certain action prior to commencing a lawsuit or arbitration against the contractor for defects. The law provides, for example, that the owner may not commence arbitration or file a lawsuit based on or arising out of any construction defects without first giving written notice to the contractor of the defect that would be the basis of the arbitration or lawsuit. Such owner’s notice (“Notice of Defect”) must include each of the following: (i) itemization and description of the construction defects; (ii) include a copy of any documentation concerning the construction defect prepared by a person who inspected the building for the owner; and (iii) the name, address and telephone number of the owner and the contractor and address of the building that is the subject of the claim.

After receipt of Notice of Defect, the contractor may request additional information from the owner. It is important to note that, if the contractor files a mechanics’ lien or commences any type of arbitration proceeding or legal action against the owner, then the owner is not required to give a Notice of Defect, and the owner may immediately counterclaim or commence arbitration or file its own legal action against the contractor.

The contractor is required to respond to the owner within twenty-one (21) days after the date of the Notice of Defect. The contractor’s response must take one of the following actions: (i) inspect the building that is the subject of the claim; (ii) compromise and settle the claim without an inspection; or (iii) dispute the claim in writing. If the contractor fails to so respond (i.e., inspect, settle or dispute) within such twenty-one (21) day period, then the owner is deemed to have complied with the statutory requirements and may commence arbitration proceedings or the legal action. If the owner rejects the contractor’s offer to inspect the property or to compromise or settle the claim, then the owner must notify the contractor of such rejection within fourteen (14) days after receiving the contractor’s offer. After rejecting the contractor’s offer, the owner may then file the arbitration or lawsuit.

If the owner accepts the offer to inspect the property, then the owner must notify the contractor of its acceptance within fourteen (14) days after the offer. Thereafter, the contractor has fourteen (14) days to inspect the building and the alleged defect. Within ten (10) days after completing the inspection, the contractor is required to provide the owner with one of the following: (i) a written offer to remedy the defects, which offer must include an inspection report, a prediction of the additional construction work necessary to remedy the defect, and a timetable for completing the work necessary to remedy the defect; (ii) a written offer to settle the claim; or (iii) a written statement asserting that the contractor does not intend to remedy the defect.

If the contractor (i) does not inspect the building within fourteen (14) days after the owner has accepted the offer of inspection, (ii) does not provide a written response to the owner within ten (10) days after the inspection, (iii) notifies the owner that the contractor does not intend to remedy the defects, or (iv) fails to remedy the defects in the manner or within the period of time stated by the contractor, then the owner may commence arbitration proceedings or a lawsuit. If the owner accepts an offer by the contractor to compromise and settle this claim or to remedy the defects, then the owner is barred from bringing a lawsuit or arbitration proceeding with regard to such defect. While the statute does not specifically address the point, it is probably accurate to assume that the owner will not be precluded from instituting judicial or arbitration proceedings based on the insufficiency of the contractor’s remedial/corrective action.

The contractor should note that the applicable statute of limitations will be tolled or suspended from the time the owner sends a Notice of Defect to the contractor, until the owner complies with the requirements of the statute.

This is a good time for contractors who construct residential dwellings (including models) to review their form construction documents and make necessary changes to comply with this new law and to make other modifications or improvements to the forms.

This letter is a summary only, prepared for general informational purposes, and is not an exhaustive description of the statute or the statutory nuances and requirements. Further, since the law is new, its application is untested and subject to judicial interpretation and discretion in enforcement. Nothing in this letter is intended or is to constitute a legal opinion of the undersigned or Meyers, Roman, Friedberg & Lewis.

If you need any assistance with your construction documentation or with regard to compliance with the statute, please do not hesitate to contact us.

To the extent that this written communication may address certain tax issues, this written communication is not intended and cannot be used to avoid any potential tax penalties.