How time limits for construction-defect claims can hurt profits

All hotel and lodging owners know how important it is to budget for the regular and ongoing maintenance and repairs that are required to keep their buildings in good shape. However, for the owners of newer hotels, some necessary repairs and maintenance may not be “normal.” Rather, they may be due to the existence of construction defects that represent a departure from proper building methods and can result in unexpected maintenance and repair costs, rooms that are unusable and a subpar experience for guests. These defects may not show themselves for years after the building was completed.


The builders and contractors responsible for the construction of buildings have liability for defective conditions that occur under their watch, meaning that owners typically have the opportunity to obtain compensation for repairs and lost revenue, but only if their claims are pursued in a timely manner and if related evidence is preserved. If a claim for construction defects is not timely made or if defective conditions are not properly documented during related repairs, the chance for a monetary recovery is forfeited.

The time to bring a claim for construction defects varies across jurisdictions, but typically falls into one of three groups. The first is often known as a “statute of limitation.” These are prompted by the discovery of the applicable defect and serve to start the clock on the owner’s claim period. The actual claim period will depend upon the location of the project. For example, in California, the Code of Civil Procedure provides that an owner has between two to four years from the date of discovery to pursue a claim for construction defects, depending upon whether that claim alleges breach of oral contract, damage to property (negligence) or breach of written contract. That “clock” can only be stopped by way of a lawsuit or a written agreement to toll, or pause, the claims period.

Importantly, the date of discovery may be less than clear and subject to dispute because courts do not require actual awareness of the defect. Rather, if the builder/contractor can show that the building owner should have been aware that an issue existed, the owner may be charged with constructive awareness of the issue, thereby prompting premature commencement of the claims period. While every situation is different, seemingly innocuous yet incomplete recordkeeping related to ongoing maintenance and repairs could serve to unknowingly start a statute of limitation. 

For instance, the existence of records identifying a roof leak without corresponding records indicating that the leak and related defects were remedied, could serve to severely reduce the building owner’s legal rights. Additionally, the impact of such problematic recordkeeping is often not revealed until significant investment in legal and consulting services have already taken place, thereby potentially compounding the financial damage to the owner. Thus, the importance of adequate record keeping cannot be overemphasized. 

Statutes and Contracts

Next, the law also provides for an outside “statute of repose.” In this context, and again depending upon the location of the building, the claims period for latent (unknown) defects is capped at a certain number of years from the substantial completion of the building. This means that even if an owner has no actual or constructive awareness of defects at their building, once that building reaches a certain age (10 years in California), the owner loses the ability to pursue any legal recourse related to construction defects.

Finally, development/construction contracts, which are often drafted by the builders of hotels and lodgings, may contain language that serves to reduce the otherwise applicable legal rights (sometimes significantly) of owners. Courts have regularly found that sophisticated parties (think builders, developers and building owners) are free to contract with one another, even where the results of that contract drastically interfere with or reduce the parties’ respective rights. Therefore, the legal stakes are significant, even before ground is ever broken.

Construction defects present obstacles to all owners of buildings and real estate improvements. However, they are especially problematic in the hospitality context because the inconvenience and disruption associated with repairs may lead to a subpar experience for guests whose stay is disrupted by repair activities. Additionally, specialized (more expensive) contractors may need to be retained and specific repair protocols (slower process) followed as a means to preserve basic tenets of guest hospitality. In turn, this could lead to a significant loss of revenue and a stain on the reputation of an otherwise attractive and well-run property.

Resolving construction defects at hotels and lodgings usually is an intrinsically challenging process. However, it may ultimately prove necessary to ensure the financial viability of the project. As such, it is critical that construction defects be identified as early as possible and that a claim be pursued in a timely manner so that those liable for the defects (and their insurance carriers) will be held responsible for their mistakes. This is a complicated field and owners should work with legal counsel and design professionals specializing in construction defect matters to protect their investment and to ensure that unknown construction defects do not ruin an otherwise thriving hospitality venture.

Aaron Zimmerman is a partner in the construction defect department at Berding/Weil.