2017 Legislative Update for Iowa Residential Landlords
Iowa Governor Signs Two Bills Impacting Iowa Residential Construction Industry
Jodie McDougal, Attorney, Davis Brown Law Firm (May 4, 2017)
Two bills were recently passed by the Iowa Legislature and signed into law by Governor Terry Branstad. Senate File 413 deals with the statute of repose for construction projects and House File 586 expands the contractors required to file a “Commencement of Work” notice in order to maintain their lien rights on residential construction projects. Both will impact the residential construction industry in different ways.
Statute of Repose Senate File 413What Happened?
For decades, Iowa contractors and design professionals have had to deal with the fact that they could be hauled into court over an alleged problem with one of their buildings that was designed and constructed over 10, 12, or even 15 years prior to the lawsuit being filed. The reason? Iowa had one of the longest statutes of repose in the entire country. In short, Iowa’s 15-year statute of repose allowed plaintiffs to bring construction and design defect lawsuits against the original designers and contractors anytime within 15 years of a building being constructed under certain circumstances. On April 13, 2017, and after years of legislative efforts by various trade associations and other groups, this fact changed, as Governor Branstad signed SF413 into law, substantially reducing the Statute of Repose applicable to most construction claims. This is great news for the Iowa construction industry.
Remind me – What is the Difference between a Statute of Repose and a Statute of Limitations?
A statute of limitations is different from a statute of repose. A statute of limitations for a particular cause of action is triggered by an injury, or at times, the date in which the injury was or should have been discovered. There are various statutes of limitation applicable to construction and design claims in Iowa. The statute of limitations for claims for breach of a verbal agreement, professional negligence, breach of the implied warranty of workmanlike construction, breach of other implied warranties, and other property damage claims is five years. The statute of limitations for claims for breach of a written construction agreement, design agreement, or other written agreement is ten years.
Conversely, a statute of repose represents an absolute outer bar to all claims, regardless of the applicable statute of limitation and of when the statute of limitation began, including in situations in which the statute of limitation is tolled, i.e., does not begin, until the injury is actually discovered by the claimant. Also, the statute of repose clock begins to run on the date a construction project is completed; it does not wait for an injury to occur. As noted, for decades Iowa has had a 15-year statute of repose, meaning that under the right circumstances, all of the aforementioned claims having 5 or 10-year statutes of limitations could be brought for up to 15 years.
What Does the New Statute of Repose Law Mean for Me?
This law reduces Iowa’s current 15-year statute of repose for all claims arising out of a defective or unsafe condition of an improvement to real property to 8 years for commercial construction and 10 years for residential construction. Please note that the law has the following exceptions:
- claims regarding nuclear power plants, interstate pipelines, and fraud/intentional misconduct claims will maintain a 15-year repose period, and
- if the unsafe or defective condition was discovered within one year of the expiration of the new statute of repose period, then the repose period would be extended for one additional year.
Moving to 8 years for commercial construction will bring Iowa more in line with our neighboring states, which have 4-10 year statutes and, will also avoid litigation 15 years after a project was completed, which many times involves faulty or faded memories, evidence being lost or stale, witnesses being unavailable, and companies being sold or not in business by the time of litigation.
When Does the New Statute of Repose Law Take Effect?
The new statute of repose law will take effect on July 1, 2017. The law does not have any retroactive effect. In addition, the law contains an express provision regarding applicability:
Sec. 2. APPLICABILITY. This Act does not apply to an improvement to real property in existence prior to the effective date of this Act or to an improvement to real property, whether construction has begun or not, that is the subject of a binding agreement as of the effective date of this Act.
This means that, if the construction project has not begun as of July 1, 2017 and if your company’s construction or design agreement has not yet been executed as of July 1, 2017, then the new, shorter statute of repose will apply to your company.
Conversely, the old 15-year statute of repose applies if either the “improvement to real property” is already “in existence” as of July 1, 2017, or your company has already signed “a binding agreement” regarding the construction project as of July 1, 2017 regardless of whether construction on the project has begun.
This law is enormously beneficial for Iowa construction companies and design professionals, both in terms of shortening the time period during which these companies can be sued, as well as a possible reduction in the insurance premiums paid by these companies.
To prepare for the implementation of this law, you should have a conversation with your insurance brokers about your premiums and work with your attorney to ensure that your contracts and records retention policies are in line with the new law.
Commencement of Work Notices For Residential Projects House File 586
What Does the New Pre-Lien Notice Law Mean For My Company?
On April 7, 2017, the Governor signed House File 586 into law. The law takes effect on July 1, 2017. The law expands the category of residential contractors who are required to file the pre-lien notice termed the “Commencement of Work” Notice (or C.O.W. Notice) in order to preserve their mechanic’s lien rights on a residential construction project.
Prior law only required general contractors (i.e., companies directly supplying materials or labor to the homeowner) with subcontractors to file a C.O.W. Notice on the MNLR online registry no later than 10 days from the start of every residential construction project in order to preserve their lien rights. This interpretation of the law was affirmed by the Iowa Court of Appeals in 2016 in the mechanic’s lien case of Standard Water v. Jones in which Jodie McDougal represented a residential contractor.
The new law requires all general contractors (that is, all contractors who directly work for a homeowner) to timely file a C.O.W. Notice at the outset of each residential project to preserve their lien rights, regardless of whether subcontractors will be used on the project. Thus, even contractors who self perform all work without any “subcontractors,” as well as suppliers who supply directly to homeowners, will now have to timely file this C.O.W. Notice within 10 days of the start of their residential projects to preserve their lien rights.
While this law, which was introduced and supported by those in the lending and closing industries, negatively impacts certain residential contractors by now requiring them to file C.O.W. Notices, the law positively affects those in the lending and closing industries and will streamline their loan closing practices. In particular, by late 2017, lenders and closing agents will likely no longer ask for all lien waivers; instead, they will check the MNLR registry and only be concerned with general contractors and subcontractors who have properly preserved their lien rights through their timely filing of their pre-lien notices.
What is the Bottom Line?
As of July 1, 2017, all general contractors, subcontractors, and suppliers on residential projects who want to preserve their mechanic’s lien rights on residential projects must timely file their C.O.W. Notice (for general contractors and others working directly for an owner) or Preliminary Notice (for subcontractors) at the outset of such projects. Otherwise, all lien rights are lost.
Please contact attorney Jodie McDougal should you have any questions regarding this law.
Jodie McDougal, Davis Brown Law Firm, 515-288-2500, [email protected]Jodie is a Construction Law and Real Estate Attorney and serves as the Chair of the Construction Law Department. In her construction law and real estate law work, Jodie represents commercial and residential general contractors and builders, architects and engineers, remodelers, subcontractors, suppliers, and owners. Her work includes contract preparation and negotiation, project administration, mechanic’s liens and public/Chapter 573 claims; warranty claims; loss prevention work; purchase agreement disputes; landlord matters; and various other construction project dispute and litigation matters.
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