Owners and developers of commercial buildings in Oregon, "green" or otherwise, should be aware that, effective January 1, 2010, the Oregon Legislative Assembly has reduced the time period within which to assert claims against those who performed design, planning, surveying, architecture, engineering, construction, repair, or construction supervision or inspection of or for the building, from ten (10) years after substantial completion of construction to only six (6) years after substantial completion of construction.

In the context of green and high performance buildings, claims against designers, consultants and contractors for buildings’ failures to achieve LEED, energy efficiency or similar goals would be subject to the new six (6) year limit. However, performance monitoring itself takes several years, possibly in excess of six years in some cases, to determine whether energy savings are being realized at the levels expected. Also, with new green product entries and the integration of new with old technologies, defects may take longer to materialize and discover. Green buildings therefore pose special risks that, for the owner’s perspective, may be particularly ill-matched with a shorter limitations period. Owners and developers will need to adapt their purchase and sale, lease and design, and construction documents to take into account the effects of the new law.

Here are the details:

On July 14, 2009, Oregon Governor Ted Kulongoski signed HB 2434 passed in June by the Oregon Legislative Assembly. Although a chapter number has not yet been assigned to the new act, the law will go into effect for building defect claims that arise on or after January 1, 2010.

As addressed in prior Legal Updates from Stoel Rives’ Development Law Group, HB 2434 reduces from ten years to six years after substantial completion the maximum time period during which an owner of a "large commercial building" can assert claims against those who performed design, planning, surveying, architecture, engineering, construction, repair, or construction supervision or inspection of or for the building.

As defined in the statute, the term "large commercial building" includes but is not limited to:

• rental residential structures of more than four stories
• mixed-use projects
• commercial structures that cost more than $250,000 to construct
• motels, hotels, nursing homes, hospitals and recreational facilities
• commercial structures with a ground area over 10,000 square feet or a height over 20 feet
• commercial rental units in a larger structure, if the unit has a ground area of over 12,000 square feet or a height over 20 feet

The term "large commercial buildings" does not include publicly-owned buildings or condominium buildings. One concern for affected building owners and developers is simply the shortening of the period from ten years to six years after substantial completion during which the owner or developer can pursue a defect claim of its own against the designer or contractor of the building.

A second concern, however, is that building owners and developers may end up with legal obligations to a purchaser or tenant regarding building defects for a longer period than the six years after substantial completion during which the owner or developer can assert the claim against the building’s designer or contractor. In this way, a building owner or developer could have a multi-year exposure to getting "caught in a squeeze" by having a defect claim asserted against it by a buyer or tenant yet having no right to assert that claim against the parties that designed and constructed the building.

Owners and developers of "large commercial buildings" in Oregon should consider modifying the claims, warranty, correction of defects, and statute of limitations provisions in their purchase and sale agreements, leases, and construction and design contracts to respond to the changes in Oregon law made by HB 2434.

If you have any questions about the issues of this update, please contact: