Construction Contract Drafters Beware

Washington Supreme Court Voids a Contractual One Year Limitations Period

In a recent 5-4 decision, the Washington Supreme Court ruled that a 1-year contractual limitation period on a residential construction defect claim is unenforceable as “substantively unconscionable.” In the case, Tadych v. Noble Ridge Construction, Inc., property owners (the Tadychs) entered into a contract with Noble Ridge Construction, Inc. to build a custom home. The contract includes a warranty provision with a 1-year deadline to file claims:

Any claim or cause of action arising under this Agreement, including under this warranty, must be filed in a court of competent jurisdiction within one year (or any longer period stated in any written warranty provided by the Contractor) from the date of Owner’s first occupancy of the Project or the date of completion as defined above, whichever comes first.

Soon after the home was completed, the Tadychs discovered alleged defects in their home, including water intrusion, building code violations, poor structural framing, and poor structural ventilation.  Even though the Tadychs discovered the defects within the 1-year period, they did not file a claim against Noble Ridge until more than 3 years after occupancy. The Court ruled that the 1-year limitation in this circumstance was void and unenforceable and permitted the Tadychs to move forward with their claim against Noble Ridge.

Specifically, the Court found the 1-year limitation “unconscionable” because it significantly shortened Washington’s otherwise lengthy statute of limitations period and was “hidden in a maze of fine print” in a provision that had little to do with a contractual limitation period. Importantly, the Court did not expressly hold that all 1-year contractual limitation periods are unenforceable, nor did it establish a bright line rule establishing an enforceable length of time to limit an owner’s right to bring a construction defect claim.

At a micro level, contractual claims periods in form residential owner contracts—and the contractor’s associated contracting process—will now be evaluated through the lens of the Tadych case.  At a macro level, it is possible the Tadych case will be used by owners to call into question other common construction contract terms that limit a contractor’s risk if, for example, the terms are found to be “hidden in a maze” and/or not prominently set out or named in the contract (e.g. bolded, capitalized, underlined, etc.).  Tadych does not specifically prohibit parties from contractually agreeing to a claims limitation period that is shorter than the default statutory time periods; but raises concerns about customary construction contract terms and the contracting process.

This blog post is intended to provide general information to contractors, not property owners. If you would like to discuss how this ruling may specifically impact your business or would like our firm to review your form contracts in light of this ruling, please do not hesitate to contact any of the attorneys in our Construction Law Practice Group.

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