Claims for construction defects: limitation and warranty period considerations

There is a common misconception in the construction industry regarding the difference between a limitation period and a warranty period.  A limitation period is the time frame specified by statute within which a lawsuit must be brought. If there is a failure to commence a lawsuit within the time required by the statute, then the right to bring such suit is lost forever.

There is a common misconception in the construction industry regarding the difference between a limitation period and a warranty period.  A limitation period is the time frame specified by statute within which a lawsuit must be brought. If there is a failure to commence a lawsuit within the time required by the statute, then the right to bring such suit is lost forever. Conversely, a warranty period is typically the time specified and agreed to within a construction contract for the correction of defects and deficiencies in the work of a contractor. The fact that a warranty period has expired under a construction contract does not mean that a cause of action to bring a claim for an item covered by an expired warranty has similarly expired.

While the expiry of a warranty period is easy to determine, the expiry of a limitation period is not always so clear. This is particularly the case in light of BC’s relatively new Limitation Act, which came into effect on June 1, 2013.

Contrary to the former Limitation Act, which imposed a general six-year limitation period for bringing a claim, the new Act provides a basic two-year limitation period for most claims. This time period only begins to run at the time a claim is “discovered”. Discovery under the new Act is defined as the time an individual first knew or reasonably ought to have known all of the following:

1. that injury, loss or damage had occurred;
2. that the injury, loss or damage was caused by or contributed to by an act or omission;
3. that the act or omission was that of the person against whom the claim is made or may be made; and
4. that, having regard to the nature of the injury, loss or damage, a court proceeding would be an appropriate means to remedy the injury, loss or damage.

Consequently, this two-year time period may not begin to run until well after a construction project is complete, meaning an individual could have the ability to bring a suit in respect of defects or deficiencies in the project well after the expiry of any relevant warranty periods. For example, if a construction project was completed in January 2015, but no defects or deficiencies were discovered until March 2027, a claim could be brought up until March 2029.

That said, there is an ultimate limitation period “clock” of 15 years, which starts ticking when the original act or omission took place, regardless of whether damage has yet occurred or whether the claim has been discovered. Consequently, in our January 2015 construction example, no claims could be brought in respect of defects or deficiencies past January 2030.

While this may seem relatively straightforward, the concept of “discovery” and the running of limitation periods is complicated by the new Act’s “transition” provisions, which provide that pre-existing claims – i.e., those claims based on acts or omission that occurred prior to June 1, 2013 – are subject to the former Act’s six-year limitation period if the claim is discovered prior to June 1, 2013. As a result, if a construction project was completed prior to June 1, 2013 and an individual discovered defects in the construction prior to that date, the former Act would apply and an individual would have six years from the date of discovery to bring a claim in respect of those defects.

For example, consider a construction project completed in January 2010. If defects in that construction were discovered in May 2013, a claim in respect of those defects could be brought up until May 2019. Conversely, if defects in that same project were not discovered until July 2013, a claim in respect of those defects could only be brought up until July 2015.

With respect to the ultimate limitation period “clock”, in cases where the act or omission took place prior to June 1, 2013 and where no claim was discovered before this date, the ultimate limitation period runs for 15 years from the date the new Act came into force – i.e., until June 1, 2028. Conversely, in cases where the act or omission took place prior to June 1, 2013, but a claim was indeed discovered before this date, the ultimate limitation period runs pursuant to the former Act – i.e., for 30 years from the date of this discovery.

Consequently, in our January 2010 construction project example, if a claim was discovered in May 2013 (i.e., prior to June 1, 2013), the ultimate limitation period would not expire until May 2043. Conversely, if a claim was discovered in July 2013 (i.e. after June 1, 2013), a claim could only be made up until July 2028.

Ultimately, it is clear that the difference in limitation periods can be dramatic depending on when a claim is discovered. It is therefore critically important that companies or individuals involved in construction take steps to fully inspect any construction work as early as possible to discover any problems or possible claims, and that potential defendants understand the implications of this discovery on their exposure to risk.