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William G. Fig

Beware Elusiveness of Substantial Completion

August 2014

William G. Fig

Published in the Daily Journal of Commerce

In the construction industry, "substantial completion" is a loosely and often-used phrase. However, this term has a specific and significant meaning in the context of construction lien claims.

Oregon statutes set forth a specific notice procedure for declaring a project "substantially complete." Once the statutory procedure has been properly completed, a rebuttable presumption is established that the project is, in fact, substantially complete. If a lien claimant's 75-day deadline to record a construction lien has not already begun to run, the designation of the project as substantially complete will start the clock. Because the failure to timely record a lien is an absolute defense to a lien claim, as one might suspect, there has been significant lien-related litigation regarding the issue of substantial completion.

However, in April of this year, the Oregon Supreme Court issued two decisions regarding "substantial completion" in the area of claim preclusion. Both of the cases show the importance of a contractor obtaining the owner's written acceptance of a project in order to trigger any contractual or statutory time limits on construction-related claims.

In the first case, PIH Beaverton LLC v. Super One Inc., the court addressed whether the plaintiff's construction defect claim was barred under ORS 12.135, the applicable statute of limitations for such claims. The 10-year limitation under ORS 12.135 begins to run upon the "substantial completion" of the project, which the statute defines as "the date when the contractee accepts in writing the construction, alteration or repair of the improvement to real property or any designated portion thereof as having reached that state of completion when it may be used or occupied for its intended purpose or, if there is no such written acceptance, the date of acceptance of the completed construction, alteration or repair of such improvement by the contractee." The court held that the posting and filing of a notice of completion by the owner pursuant to the Oregon lien statutes did not necessarily establish that the owner accepted construction of the improvement as complete. The notice of completion only established that the owner was taking responsibility for the use and maintenance of the portion of the project that was sufficiently complete for its intended use and occupancy. Thus, the court concluded that the completion notice did not conclusively establish the date that the statute of limitations began to run regarding the plaintiff's construction defect claims.

The second case, Sunset Presbyterian Church v. Brockamp & Jaeger Inc., involved a construction contract in which it was specified that any claims arising from the construction would accrue on the "date of substantial completion". The trial court granted the defendants' motions for summary judgment based on the grounds that the plaintiff failed to file its claim within the time specified by the contract, or within the time allowed under ORS 12.135. The plaintiff appealed. The Supreme Court held that the plaintiff occupying the property for its intended purpose on a particular date did not necessarily establish that the project was substantially complete at that time and, therefore, was not conclusive proof that the plaintiff's claims started to accrue on that date. Absent a certificate of substantial completion from the architect, whether the plaintiff's claims accrued under the contract's limitation clause was a question of fact for the trier of fact. Because the owner contested the date that it accepted the project, the court held that the occupation of the property, by itself, did not trigger the 10-year statute of limitations under ORS 12.135.

Both of these cases may be examples of "good facts make bad law," but they nevertheless show the importance of a contractor establishing, in writing, the date the owner accepts the project as complete. A contractor may no longer rely on an owner's completion notice to establish "substantial completion" of the project needed to trigger the statute of limitations on a claim. Thus, absent the owner's written acceptance of completion, when asserting a statute of limitations defense to a construction-related claim, it appears a contractor may well be stuck litigating a potentially expensive factual dispute regarding when the owner accepted the project.

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