Builders fear litigation reforms could be dismantled by proposed Nevada Legislation
April 17, 2017
Nevada contractors feel like they're facing a wrecking ball in the 2017 Nevada Legislative Session.
Progress made in 2015 to make construction defect regulations more reasonable, according to the industry, could be dismantled by a pair of bills introduced in the 2017 session, Assembly Bill 462 and Senate Bill 450.
"If (the laws) revert back, it will kill the market," said Aaron West, CEO of Nevada Builders Alliance.
West noted in particular the need for workforce housing in the region, which is enjoying an economic boom.
The reforms of 2015 improved the market climate for developers to build condominiums, townhouses, and apartments priced so that lower incomes could afford them, West said.
Before 2015, Nevada laws regulating how housing defects were handled substantially increased the risk for the builder, especially for multifamily projects, which almost guaranteed a lawsuit, he said.
"The definition of defect was so lose, it wasn't based on industry standards, it was based on opinion," West said.
"Attorneys were going to homeowners saying 'we think you have an issue with your house. We'll represent you and you'll get some money.'"
Attorneys could go to the homeowners association, which could file a lawsuit on behalf of everyone and individual homeowners would have to opt out or automatically be a part of it.
It cost contractors millions of dollars and the cost of liability insurance skyrocketed, he said.
In a $30 million settlement, "attorneys would get $25 million and $5 million was divided among homeowners," West gave as an example. "But there was nothing in place to ensure anything went to repairs.
"It was a fundamentally flawed system. Contractors steered clear of multifamily construction."
For years, the builders fought for reforms, finally succeeding during the 2015 Legislative Session.
The reforms reduced the time to file a complaint from 10 to six years; removed the HOAs from being able to initiate litigation; and more clearly defined a defect.
The reforms opened the doors for more work force housing.
The changes in 2015 were a "reasonable reform to a difficult law," said Mark Turner, a principal with CC Builders. Defect litigation laws "in Nevada were the most difficult in the country, even more difficult than in California.
"Builders just opted to avoid that type of housing," he said.
That changed after the 2015 reforms took effect. Construction on multifamily projects increased significantly.
In mid-March, CC Builders broke ground on a 105-unit townhouse project in Carson City called Mills Landing..
The company would not have started the project without the reforms of 2015, Turner said.
Assembly Bill 462 and Senate Bill 450 could set construction back.
SB 450 awards attorneys' fees automatically in a successful lawsuit.
AB 450 dismantles the rest of the 2015 reforms.
West, Turner and others in the building industry feel the reforms weren't given a chance to work and to show that defects would be taken care without the harsh laws of the past.
"It's been in place two years and we haven't seen any negative affects," West said. "If anything, it's been positive. …
"Not one of (the legislators we've talked to) have said 'I was contacted by constituents that weren't able to get a defect fixed.' Not one. Just from a policy perspective, you'd think policy should be based on a need."
Even if the 2017 bills do not become law, the swift inclusion of the bills suggests the battle will need to be fought again in the next legislative session.
With the possibility that the reforms could be undone this year or in the future, some contractors are hesitant to move forward with plans to construct workforce housing.
"I don't want to go near that," Turner said of the potential for litigation presented by AB 462 and SB 450.
Even construction of the Mills Landing project could come to a halt.
"We're on the fence. We would lose money if we didn't move forward. But we could lose a lot more if (in a lawsuit)," he said.
Despite the uncertainty, construction is moving ahead for now.
"We're continuing because the ball is rolling. It's hard to pull back," he added.
Whether they take on new projects is more doubtful.
"For us, the risk of building entry level housing, workforce housing, are just too great." Tuner said.
The proponents of the bill could not be reached by press time. This story will be updated online at nnbw.com.