Two recent decisions by the Oregon Supreme Court have narrowed the meaning of “substantial completion” in the context of ORS 12.135, the statue of ultimate repose for construction defect claims. The cases, PIH Beaverton, LLC v. Super One, Inc., 355 Or 267 (2014), and Sunset Presbyterian Church v. Brockamp & Jaeger, Inc., 355 Or 286 (2014), address questions of interpretation that circuit courts have been grappling with in recent years.
ORS 12.135(1)(b) requires that construction defect claims be asserted within ten years after “substantial completion” of the project. ORS 12.135(3), which defines “substantial completion” for purposes of the statute, has two separate clauses: (1) substantial completion occurs “when the contractee accepts in writing the construction, alteration or repair of the improvement to the real property”; or (2) if there is no such written acceptance, the date of acceptance of the completed construction[.]” At the Oregon Court of Appeals level, PIH and Sunset further clarified that substantial completion under (1) occurs when there is evidence of written acceptance by the contractee of completed construction, which can occur even when additional work remains to be done; or under (2) in the absence of the written acceptance, evidence of the date the contractee accepts the construction as completed which occurs “when the person takes from the contractor responsibility for maintenance, alteration, and repair of the improvement. See Sunset Presbyterian Church v. Brockamp & Jaeger, Inc., 254 Or App 24, 31-33 (2012); PIH Beaverton, LLC v. Super One, Inc., 254 Or App 486, 498-499 (2013); see also Lindsey M. Sabec, Negligent Construction Claims: Uncertainty in the Wake of Abraham, Sunset, and PIH Beaverton.
Attempting to Narrow the Meaning of “Substantial Completion”
The Oregon Supreme Court accepted review of PIH to resolve two outstanding questions. First, when a constructed facility is opened for business, does the owner’s written completion notice pursuant to ORS 87.045—a statute defining “completion” for construction lien purposes—demonstrate written acceptance of construction sufficient to satisfy ORS 12.135(3)? Second, if there is no written acceptance that satisfies ORS 12.135(3), must a defendant that seeks the benefit of the 10-year limitations period demonstrate that the owner accepted the construction as fully complete, or is evidence that the owner accepted the construction as sufficiently complete for its intended use or occupancy sufficient?
With respect to the first question, the Court concluded that a completion notice pursuant to ORS 87.045 “does not necessarily establish that the owner accepts the construction of the improvement as complete for occupation and, therefore, that the posting and filing of that document alone does not establish the date that the 10-year statute of ultimate repose begins to run under ORS 12.135.” In reaching its conclusion, the Court reasoned that “the owner does not necessarily ‘accept’ anything, much less take control of and responsibility for the construction” as required by ORS 12.135.
The Court was careful in its conclusion, however, to state that its holding “does not mean * * * that the only document that can constitute a written acceptance under [ORS 12.135] is an acceptance of the terms of a Certificate of Substantial Completion as provided in a standard AIA contract, or that a completion notice under ORS 87.045, when combined with other facts, cannot meet the requirements of ORS 12.135.” The Court’s holding, then, was that an ORS 87.045 notice in conjunction with an establishment being open for business was insufficient to establish written acceptance of substantial completion. The Court concluded, “[e]vidence that, when considered in its entirety, demonstrates written consent or assent to construction as sufficiently complete for its intended use or occupancy will satisfy the requirements of ORS 12.135.”
With regard to the second question—whether, when there is no written acceptance of the work, a defendant must demonstrate that the owner accepted the construction as fully complete in order to obtain the benefit of the 10-year limitation of ORS 12.135(3)—the Court observed that “it is apparent that the drafters had in mind two potentially different dates [when drafting ORS 12.135]: that of substantial completion and that of full completion. The drafters provided that an action would accrue on the ‘earlier’ of the two dates.” “[T]he progress of the bill from its first draft to its final engrossment reveals[,]” the Court concluded, “that the legislature intended to differentiate between the date on which a contractee accepts the construction as sufficiently complete for its intended use or occupancy and the date on which the contractee accepts the completed construction.” Thus, the Court held “that to meet the second clause of ORS 12.135(3), a defendant must establish the date on which the construction was fully complete[.]”
The Role of Contractual Allocation of Substantial Completion
In Sunset Presbyterian Church v. Brockamp & Jaeger, Inc. et al., the Oregon Supreme Court addressed related questions. Defendant argued that the parties altered by the contract the date on which plaintiff’s claims accrued for purposes of ORS 12.135. For purposes of the decision the Court acted under the assumption that a contractual provision could legitimately alter the date of substantial completion.
The Court examined the text of the contractual provision at issue and determined that under the very terms of the contract substantial completion could not have occurred until the architect issued a Certificate of Substantial Completion. The Court explicitly noted, however, that “[p]arties who enter into contracts choose the policies that they wish to have apply to their transactions * * * [the Court is] not at liberty to create a new contract for the parties.”
Beyond PIH and Sunset
The holding of PIH makes clear that for purposes of Oregon’s construction statute of ultimate repose, ORS 12.135, “substantial completion” does not occur as a result of an ORS 87.045 notice of completion even when an establishment is open for business. Nor does it require acceptance of the terms of a Certificate of Substantial Completion as provided in a standard AIA contract in every case—those appear to be the extremes identified by the Court. Rather, the Court appears to suggest that some evidence in between may provide sufficient evidence of a writing accepting substantial completion for purposes of ORS 12.135. The Court’s opinion, however, falls short of detailing what might suffice. In that regard, the PIH opinion may leave more questions than answers, while only slightly narrowing the field of what doesn’t count as valid written acceptance. PIH further establishes that, in the absence of a written acceptance under ORS 12.135, a defendant must establish the date on which the construction was fully completed to gain the benefit of the statute of repose.
Although PIH may not sufficiently demarcate the contours of ORS 12.135’s written acceptance provision, Sunset appears to suggest that parties remain free to alter the date or terms of substantial completion by way of contract. The Court’s pronouncement that “[p]arties who enter into contracts choose the policies that they wish to have apply to their transactions * * * [the Court is] not at liberty to create a new contract for the parties” supports that conclusion.