A California appellate court recently decided that the two-year contractual limitation for a buyer to sue his or her broker under C.A.R.’s standard form buyer-broker agreement may not begin to run if the broker actively conceals a construction defect, and does not apply to a buyer’s claim for negligence or breach of fiduciary duty. The court indicated that, for active concealment, the time begins to run when the defect is discovered.
In this case, the real estate broker was the listing agent, and also entered into a buyer-broker agreement with buyers Ted and Patti Henley. After the Henleys closed escrow in May 2006, they discovered various construction defects in the home and sued the contractor and sellers. In May 2009, the Henleys amended their complaint to include the broker, claiming they had recently discovered the broker’s involvement. The Henleys alleged that their agent was present at the property in March 2006 when photos were taken to list the property for sale, and that she saw “efflorescence” (i.e., an off-white powdery substance) on the back side of the house while it was being painted over with dark brown paint. (These and other facts are contested and are currently the subject of a rehearing petition).
The broker moved to dismiss the lawsuit as untimely based on the buyer-broker agreement, which states a claim must be brought within two years as is consistent with the two-year period in Civil Code section 2079.4. While the appellate court agreed that parties to a contract may stipulate to a reasonable period of limitation shorter than that fixed by the statute of limitations, the court focused on the discovery rule, which means the time starts when the problem is discovered. In this case, the Henleys specifically claimed their agent knew but did not disclose knowledge of the construction defects and the seller’s concealment. The court reasoned the broker “may not reap the benefit of a shortened contractual limitations period when its own alleged malfeasance contributed to the delay in the discovery of the buyers’ injury.”
The appellate court remanded the case back to the trial court to determine at what point in time the Henleys discovered the broker’s alleged concealment of the defects. While fraud and active concealment claims are typically subject to the discovery rule, the court also ruled that the Henleys’ remaining claims of negligence, negligent inspection, and breach of fiduciary duty were not limited by the two-year contractual limitation in the buyer-broker agreement and were in addition to the duties in Civil Code section 2079. A motion for rehearing has been submitted and it is expected the parties will file a petition for review before the California Supreme Court.
Source: William L. Lyon & Associates, Inc. v. Superior Court of Placer County (2012 WL 1232114) (decided April 12, 2012).