Under California’s SB 800 “Right to Repair Act,” a builder may obtain a “reasonable release” to resolve a construction defect claim in exchange for a cash payment. So, what’s a “reasonable release” under SB 800? This question was answered by the Second Appellate District in the case of Belasco v. Wells (filed 2/17/2015, No. B254525).
Plaintiff David Belasco (“Plaintiff”) purchased a newly constructed residence in 2004 from the builder defendant Gary Loren Wells (“Wells”). In 2006, Plaintiff filed a complaint against Wells with the Contractors’ State License Board (the “Board”) regarding certain alleged construction defects. The parties settled the 2006 action through written agreement that required Wells to pay Plaintiff $25,000 in consideration for Plaintiff executing a release and a Civil Code §1524 waiver of all known or unknown claims. In 2012, Plaintiff filed a subsequent action against Wells and Wells’ surety, American Contractors Indemnity Company (“American Contractors”) (collectively “Defendants”), alleging a defect in the roof that was discovered by Plaintiff in 2011.
The trial court granted Defendants’ summary judgment, ruling the action was barred by the terms of a 2006 settlement agreement. Plaintiff appealed, arguing in relevant part, that (1) the general release and section 1542 waiver for patent construction defects was not a “reasonable release” of a subsequent claim for latent construction defects pursuant to section 929; (2) ‘a reasonable release’ can only apply to a specific violation and not to a latent defect pursuant to section 945.5(f); and (3) the 2006 settlement agreement was vague and invalid because it did not reference a specific violation. The Court of Appeal held the trial court properly granted summary judgment in favor of Wells based upon the express language of the 2006 settlement agreement.
As the Court of Appeal observed, a ‘builder’ is liable under SB 800 in original residential construction for failure to follow standards, including issues that involve the roof. SB 800 has several procedural components, including agreements to repair or simply a cash payment in exchange for a “reasonable release in exchange for a cash payment.” (§929(a)-(b).)
The Court held that the general release in the 2006 settlement agreement was a “reasonable release” under section 929 because (1) Plaintiff was an attorney and represented by counsel when he signed the 2006 agreement; (2) the agreement was explicit; (3) Plaintiff expressly waived his rights under section 1542; and (4) Plaintiff was free to reject Wells’ cash offer. Simply put, the settlement agreement was the result of an ‘arms-length’ negotiation.
The Belasco case is important because it is the first one to analyze this section of SB 800 and because of the way it came down. Arguments over the scope of a release are common, especially when there is a discrete claim. Typically, a well represented homeowner will not sign a broad waiver in those situations where there is one discrete claim, but it does happen occasionally. For claims involving multiple building components, 1542 waivers are standard practice and expected as part of the settlement. As demonstrated by this case, 1542 waivers are incredibly powerful and should be sought whenever possible.
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