The 'One-Year Warranty' - Does Such A Thing Exist In Texas?
Many construction contracts, including those that incorporate
the AIA form of General Conditions, have a clause that most
people in the construction business refer to as the "one-year
As an example of the one-year clause, Section 126.96.36.199 of
the 1997 version of the AIA General Conditions reads:
188.8.131.52 - In addition to the Contractor's obligations under
Paragraph 3.5, if, within one year after the date of Substantial
Completion of the Work or designated portion thereof or after
the date for commencement of warranties established under
Subparagraph 9.9.1, or by terms of an applicable special warranty
required by the Contract Documents, any of the Work is found
to be not in accordance with the requirements of the Contract
Documents, the Contractor shall correct it promptly after
receipt of written notice from the Owner to do so unless the
Owner has previously given the Contractor a written acceptance
of such condition. The Owner shall give such notice promptly
after discovery of the condition. During the one-year period
for correction of Work, if the Owner fails to notify the Contractor
and give the Contractor an opportunity to make the correction,
the Owner waives the rights to require correction by the Contractor
and to make a claim for breach of warranty. If the Contractor
fails to correct nonconforming Work within a reasonable time
during that period after receipt of notice from the Owner
or Architect, the Owner may correct it in accordance with
Notice that this clause starts with the phrases "In addition
to the Contractor's obligations under Paragraph 3.5,"
and when you check back to 3.5.1, you will find a warranty
from the contractor that is not limited to one year.
Reading these clauses together, it is clear that the contractor's
warranties under an AIA contract extend longer than one year,
but that the specific obligation to return and correct work
is limited to "within one year after substantial completion"
in most instances.
The fact that the obligation to return and correct is limited
to one year does not mean that the warranty in 3.5 cannot
be enforced after the expiration of one year. It continues
to be enforceable by a lawsuit for damages thereafter, even
though the contractor can no longer be specifically required
to return and correct work. To complicate matters further,
there are warranties that are implied even when not stated
in a construction contract.
The warranty imposed by 3.5 of the AIA General Conditions
has no stated expiration, although in most cases it will not
be enforceable beyond the limitation period applicable to
contract claims, which is four-year period from a breach of
contract. (How to calculate the start of the four-year period
is a complication beyond the scope of this article, because
of the possibility that the warranty subject may be a latent
defect, and limitations do not run on latent defects until
Contractors often attempt to control extended exposure to
warranty claims by adding a limit on warranty enforcement
shorter than the four-year limitations period; however, when
attempting to accomplish this, be warned that a Texas statute
voids any effort to contract for a limitation period of less
than two years.
This statute has kept lawyers and courts busy making the distinction
between two-year limitation clauses that run afoul of the
statute. Clauses attempting to require suits "within
two years" are void and the four-year limitation period
applies. Those that do not run afoul of the voiding statute
provide that "no suit can be commenced after the expiration
of two years from the date the cause of action accrues."
The difference in the time periods provided by these two clauses
is one day ... what a difference a day makes!
Another interesting aspect of the warranty expiration questions
becomes relevant when a public owner is attempting to enforce
a warranty against a surety. The Texas public bonding statute
requires suits on a bond within one year of completion of
the work. If a public owner seeks to impose a warranty obligation
on a surety, it can only do so within the special one-year
limitation period applicable to the bond.
Since this short limitation period is prescribed by statute,
rather than by contract, it does not run afoul of the voiding
statute. This can be a pitfall for public owners under contract
schemes that provide warranty inspections that are held one
year after final completion. By the time the inspection is
held, the right to sue the surety under the performance bond
may have expired.
Does a one-year warranty exist? The answer under the AIA documents
Warranty exposure lasts longer than a year and any constructor
who refuses calls for warranty performance simply because
the demand was made more than one year after completion does
so at some risk.
I suppose the moral of this story may be that the best way
in Texas for a contractor to get the benefit of a one-year
limit on warranty exposure is to do nothing but public bonded
work, and then go broke and let its surety handle the warranty.