Last week, the Washington Supreme Court issued a decision finding that a contractual one-year limitation period buried in a residential construction contract was unconscionable and void. The case, Tadych v. Noble Ridge Construction, Inc., 2022 WL 15027140, provides important lessons for residential contractors and developers. The Tadychs entered into a written contract with Noble Ridge Construction to build a custom home. Noble Ridge Construction prepared the contract, which contained the following one-year limitation on claims:
Any claim or cause of action arising under this Agreement, including under this warranty, must be filed in a court of competent jurisdiction within one year (or any longer period stated in any written warranty provided by the Contractor) from the date of Owner's first occupancy of the Project or the date of completion as defined above, whichever comes first.
In April 2014, the Tadychs moved in and began experiencing issues with uneven flooring and shifting of the home. They hired a construction expert and met with the contractor to assess the issues, but did not file suit. Between 2015 and 2016, the Tadychs continued to inform the contractor of additional issues with the home. The contractor repeatedly assured the homeowners that it would repair the issues, but failed to do so. In 2017, the Tadychs filed suit against the contractor for breach of contract. The trial court dismissed the claims based on the one-year contractual limitation period, and the Court of Appeals affirmed.
On appeal, the Washington Supreme Court found that the one-year limitation period was substantively unconscionable, focusing on the contractual provision's effect on the Tadych's existing statutory rights and the manner in which the contract was executed. The Court found that the one-year limitation period effectively abolished the Tadych's statutory rights to bring a claim for latent defects because it provided a substantially shorter limitation period than provided by statute (normally, RCW 4.16.310 provides a six-year statute of limitations.) The Court considered the two competing policies underlying the statutory limitation period: the homeowner's ability to discover and bring a claim and the benefit to contractors of providing certainty in ending potential liability. Ultimately, based on the specific facts of this case, the Court found the contractual limitation provision one sided and unduly benefitted the contractor with no benefit to the homeowner.
Beyond the significantly shortened claim period, the Court highlighted the fact that the Tadychs were laypersons, the contract was prepared by Noble Ridge Construction, there was no indication that the limitation period had been negotiated or bargained for, and that the limitation period language was inserted into a warranty clause in the middle of the contract and not prominently called out.
While the Court did not establish a bright line rule that any contractual limitation period is void if it provides less time to assert a claim than is provided by statute and did not overturn or address already existing Washington law enforcing contractual limitation periods outside of residential construction, the Tadych case demonstrates the need to carefully craft any contractual claim limitation language. It also emphasizes that similar limitation language buried in existing residential contracts is unlikely to be enforced to limit claims for latent defects. Moving forward, contractors and developers should review their existing contracts to determine whether they contain any limitation periods that may be affected by the Tadych case.
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