Do you know when your last project was substantially complete? Most contractors would probably agree that substantial completion is not actual completion. A recent Oregon Court of Appeals case, however, shed light on the meaning of “substantial completion” under Oregon’s statute of repose (ORS 12.135) for construction claims.
A statute of repose is similar to a statute of limitations, but sets an ultimate deadline on when someone can bring a claim based upon a certain event, regardless of when the damage occurred. For example, if an owner discovers a construction defect in high-rise office building in downtown Portland, the owner has six-years (statute of limitation) from the date of discovering the defect (when the damage occurred) and has ten-years (statute of repose) from the date that the high-rise was substantially completed (the event) to bring a claim against the contractor.
In PIH Beaverton, LLC v. Super One, Inc., the owner of a Washington County hotel brought a claim against the general contractor and subcontractors who constructed the hotel from 1995-1997. The owner, VIP’S Motor Inns, contracted Super One as the general contractor to perform the construction of the new hotel and to perform site work around the property. On February 13, 1997, VIP’S filed a “Notice of Completion” of the hotel pursuant to Oregon’s lien statute to trigger the 75-day statutory period to file liens. Additionally, on or around February 13, 1997, Washington County issued a Temporary Certificate of Occupancy (TCO) and VIP’S began accepting guests.
After VIP’S obtained TCO, Super One continued to perform some work on the site. Certificate of Occupancy (CO) was eventually issued on September 24, 1997. In 2006, VIP’S sold the hotel to PIH and, shortly after, PIH discovered defects in the building’s envelope. PIH did not file suit until May 23, 2007, which was more than ten years after February 13, 2007 (the date that VIP’S filed the Notice of Completion and received TCO), but less than ten years after September 24, 1997 (when CO was issued).
The appellate court was tasked with determining which date triggered the ten-year statute of repose. ORS 12.135 provides in pertinent part that
(1)
(4) For purposes of this section: (b) “Substantial completion” means the date when the contractee accepts in writing the construction, alteration or repair of the improvement to real property or any designated portion thereof as having reached that state of completion when it may be used or occupied for its intended purpose or, if there is no such written acceptance, the date of acceptance of the completed construction, alteration or repair of such improvement by the contractee. ORS 12.135.
The general contractor brought a motion to dismiss the owners claims, arguing that the Notice of Completion filed by the owner on February 13, 1997 constituted “substantial completion” by acceptance of the construction in writing. Counter intuitively, the trial court determined that the Notice of Completion filed by owner was not enough to constitute “substantial completion” by accepting the construction in writing. However, according to the trial court, the written Notice of Completion in combination with the occupancy of the hotel and the definition of “substantial completion under the construction contract, that the project was “in fact, substantially completed by February 13, 1997.”
The appellate court agreed with the trial court that the Notice of Completion filed pursuant to Oregon’s lien statutes was not substantial completion by acceptance in writing, but disagreed with the conclusion that the project was substantially complete (for the purposes of triggering the statute of repose) on February 13, 1997. Under ORS 12.135’s definition of “substantial completion,” “substantial completion occurs—and the ultimate repose period in ORS 12.135(1) begins to run—on the ‘date when the contractee accepts in writing the construction, alteration or repair of the improvement to real property or any designated portion thereof as having reached that state of completion when it may be used or occupied for its intended purpose.’”
The appellate court emphasized that, where an owner accepts in writing, the definition “substantial completion” contemplates that a project may be “substantially complete” before it is finally completed. This is often the reality on construction projects—substantial completion can be months before a project is actually complete.
The appellate court also highlighted that under Oregon’s statute of repose, when there is no “written acceptance,” substantial completion occurs on “the date of acceptance of the completed construction, alteration or repair of such improvement by the contractee.” Thus, the appellate court determined that where there is not written acceptance, then “substantial completion” “references the date on which the contractee accepts the construction as completed.” (the Court cited to Webster Dictionary’s definition of “Complete”).
Despite what common sense tells us, the court determined that under Oregon’s state of repose, if there is not written acceptance of the construction, then substantial completion actually means that the project is complete. Since the appellate court had already determined that the owner had not accepted the construction in writing, the court determined that the 10-year clock for the statute of repose began to run on September 24, 1997—when CO was achieved and the project was actually complete.
In the same suit, Super One filed claims against its subcontractors by raising the indemnification provision of the construction contract. Under the contract indemnity provision, the subcontractors were required to defend Super One from the owner’s defect claims. Super One conceded that substantial completion occurred on February 13, 1997 (the date that the owner filed the Notice of Completion and obtained TCO), but argued that the statute of repose did not apply to indemnity claims. The Court of Appeals disagreed and found that the ten-year statute of repose applies to indemnity claims, and since Super One conceded that substantial completion occurred on February 13, 1997, the Court dismissed Super One’s indemnity claims against its subcontractors as being barred by the same ten-year statute of repose.
Under the same set of facts, substantial completion occurred on two different dates for the purposes of triggering the statute of repose. Super One not only lost the 10-year statute of repose protection, but it also lost the protection of its indemnification provision!
What Does this Mean for Contractors Working in Oregon?
Get it in writing. Some contractors rarely follow through on their contract notice requirements, including written notice that the project is substantially complete. Here, had Super One obtained a written statement from the owner that it accepted the hotel (even just the part that guests were occupying), then there likely would have been no issue regarding which date triggered the ten-year statute of repose.
[hr] Author: Paige Spratt