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Utah's Construction Vital Signs - Is the Patient Still Alive? Utah's residential construction decline in 2008 and 2009 was the most severe on record. An analysis by Ivory Company of the number of active builders in the first quarter of each year from 1990 to the present shows a peak of 719 homebuilders in 2003. By the first quarter of 2009 only one out of five of those was still active. The number of single-family and multifamily building permits issued for new dwelling units fell 48.4 percent during 2008=2009, breaking the 1987 record decline of 47.7 percent. The single-family sector was even worse. Single-family permits were down 59.2 percent, breaking the previous record decline of 38.3 percent set in 1980. Particularly hard hit have been many of Utah's high-growth cites. From the peak year, in most cases 2005, single-family permits have fallen over 80 percent. The worst declines were recorded in Herriman, with a drop of 95 percent, followed by Draper's 93 percent drop. Prior to 2000 condominiums/twin homes accounted for 8 percent of new residential construction while the share of apartment units was generally nearly twice as high. Since 2000 that pattern has reversed, with the share of condominiums/twin homes at 16 percent of residential construction compared with a 9 percent share for apartments. During the recent housing bubble, construction employment as a share of total employment rose to a peak of 8.3 percent in 2007. In 2008 construction's share of employment dropped to 7.2 percent and is expected to decline to 5.5 percent by 2010. From 2007 to 2010 the construction industry is expected to lose 38,450 jobs. The four-year decline would represent a 37.2 percent drop. In recent months there has been some moderation in the rate of decline for the homebuilding industry. However, the diminished weakness in recent months allows for some hope that the bottom of the housing cycle in Utah is near. In the housing cycle only 15 states have had steeper declines than Utah. Residential construction in Utah peaked in 2005 when 28,500 building permits were issued for new dwelling units. By 2008, the number of permits had dropped by 61.2 percent to 10,912 units. The residential construction decline in 2008 and 2009 was the most severe on record. In 2008 the number of building permits issued for new dwelling units fell 48.4 percent statewide, breaking the 1987 record decline of 45.7 percent. There is hope on the horizon. Utah is a growth state. People are still moving to Utah. Jobs are more plentiful. The cost of living is relatively moderate compared to other states. As we rise from the ashes of 2008 and 2009, we will want to discover "lessons learned" in order to be better prepared for the next inevitable decline. For those of you who have survived the decline - Congratulations. There will be more work in store for you with less competition. Translation? Better profit margins.
Davencourt at Pilgrims Landing Homeowners Assoc. v. Davencourt at Pilgrims Landing, LC; et al., 2009 UT 65. In a recent decision the Utah Supreme Court has: (1) upheld the economic loss rule; (2) determined that a Developer/Builder owes a limited fiduciary duty to the Home Owners Association and its members; and (3) recognized that a Builder and Developer owes to a purchaser of new construction an implied warranty of good workmanship and implied warranty of habitability (previously recognized by all other forty-nine states). The Developer planned to sell the 145 units to individual owners, but before doing so, it organized and established the Davencourt at Pilgrim's Landing Townhome Owners' Association ("the Association"), which had a duty to maintain and repair common areas of the Project. Initially, the Developer was the owner of all of the units and controlled the Association. The Developer's control of the Association continued until it sold a certain percentage of the units, at which point the Developer turned over control of the Association to the owners of the units ("Unit Owners"). A few years after the Developer turned over the Association to the Unit Owners, the Association discovered significant problems with the Project, including water intrusion into units resulting in dryrot, mold, staining and degradation of the stucco. The water intrusion was allegedly caused by faulty design, faulty workmanship, defective materials, improper construction and noncompliance with building codes and land subsidence. The Project had also sustained damages to the stucco and cement work resulting from land subsidence. The Association discovered that before construction began, the Developer and Builder had obtained a soils study that warned that the Project was being constructed on collapsible subsurface soils that would cause land subsidence without proper preparation. The Association filed suit against the Developer and Builder. The Court dismissed the Association's claims for negligence, negligent misrepresentation, nuisance, breach of implied warranties and breach of express warranties base upon the economic loss rule that states that an injured party cannot sue another with whom he has not contract for purely economic damages. On appeal, the Court found that that the economic loss rule would bar the Association's negligence claims unless the Developer and Builder owed an independent duty to the Association outside of any contractual duties it may have to the Association. The Court, in upholding the Economic Loss Rule, found that the Developer and Builder did not have independent duties towards the Association and its members because there was no privity of contract or direct relationship between the Association and the Developer and Builder. The only contractual relationship as it related to the sale of the individual units was between the Developer and Unit Owners, not the Association. The Court did find, however, that the Developer owed a limited fiduciary duty to the Association because the Developer established and initially operated the Association. While the economic loss rule barred the Association's negligence claims against the Builder, the Court found the economic loss rule did not bar all of the Association's negligence claims against the Developer because of the limited fiduciary duty the Developer owed to the Association. The Court found that the Association and its members could bring negligence claims in relation to the Developer's (1) failure to use reasonable care and prudence in managing and maintaining the common property of the Project, (2) failure to establish a sound fiscal basis for the Association by imposing and collecting assessments and establishing reserves for the maintenance and replacement of common property, and (3) failure to disclose all material facts and circumstances affecting the condition of the Project property that the Association was responsible for maintaining. The Court noted that the overwhelming majority of jurisdictions now recognize an implied warranty in the purchase of new residential property and decided to adopt the majority view and recognize causes of action for breach of implied warranties. Specifically, the Court found that in every contract for the sale of a new residence, a vendor in the business of building or selling such residences makes an implied warranty to the vendee that the residence is constructed in a workmanlike manner and fit for habitation. The Court held, however, that privity of contract is required to bring a claim for breach of implied warranty. The Court found that in order to establish a breach of the implied warranty of workmanlike manner or habitability a party must show (1) the purchase of a new residence from a defendant-builder/developer-vendor; (2) the residence contained a latent defect; (3) the defect manifested itself after purchase; (4) the defect was caused by improper design, material, or workmanship; and (5) the defect created a question of safety or made the house unfit for human habitation. The Court found that a breach of the implied warranty must be brought within six years of the date of completion of the project or abandonment of construction. The Court's finding that implied warranty claims are now recognized in Utah has immediate effect for all pending cases and would apply retrospectively. Lastly, the Court found that the trial court erred in dismissing the Association's breach of express warranty claims based on the merger doctrine (i.e. on delivery and acceptance of a deed conveying property the provisions of the underlying contract for the conveyance are deemed extinguished or superseded by the deed) because warranties related to the quality of construction are collateral to the conveyance of title and survive any deed conveying the property.
• Adam T. Mow presented "Managing Risk on Green Projects" at "Green Con" a sustainable building conference in Park City, Utah, on October 3, 2009. • Justin Scott, Cody Wilson and Scott DeGraffenried presented programs to construction industry builders sponsored by the Associated General Contractors Association. • Kent Scott published an article in Utah Buildings entitled "Resolving Construction Disputes - Mediation Can Save Time and Money. Please contact Mr. Scott at kent@babcockscott.com if you would like a copy. |
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