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Before Filing Suit: Dispute Resolution Through the Purchaser Dwelling Act

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Compliance with the Purchaser Dwelling Act (PDA) is the starting point for any home purchaser wishing file suit against her home seller for
construction defects.  Residential construction defect lawsuits or
“dwelling actions” differ from most civil suits in that the parties must engage in a statutorily-prescribed alternative dispute resolution
process before a lawsuit may be filed. 

Skipping the requirements of the PDA can result in one’s lawsuit being dismissed, while good-faith compliance with the PDA can aid a home purchaser and home seller alike by facilitating a settlement short of litigation.

The Purchaser Dwelling Act, found at A.R.S. § 12-1361 et seq., outlines steps that must be taken by a residential purchaser before filing a dwelling action. A purchaser must, at least 90 days before filing suit, give written notice by certified mail to the seller “specifying in reasonable detail the basis of the dwelling action.” A.R.S. § 12-1363(A).

The term “seller” is broadly defined to include a variety of persons or entities “engaged in the business of designing, constructing or selling dwellings.” A.R.S. § 12-1361(7). Serving written notice of defects
in compliance with the statute operates to toll the running of the statute of limitations and also the statute of repose (A.R.S. § 12-
552) for the 90-day statutory period. A.R.S. § 12-1363(H).

The purchaser’s written demand must set forth specific details regarding the claimed defects, including a detailed and itemized
list that includes the nature and location of each alleged defect. A.R.S. § 12-1363(A). The PDA also applies to disputes involving multiple
dwelling units, though in a “multiunit dwelling action” it is sufficient that the notice provide a “reasonably detailed description of the alleged defects in a fair and representative sample of the affected residential units.” Id.  (Note that suits brought by associations are also subject to the requirements of A.R.S. § 33-2001 et seq.)

After receiving written notice of the claimed defects, the seller is afforded a right to conduct a reasonable inspection of the claimed defects within 10 days of requesting access. A.R.S. § 12-1363(B). This inspection can include “reasonable measures, including testing” to determine the “nature and cause of the alleged defects” and also the “nature and extent of any repairs or replacements necessary,” provided that the seller restores the dwelling to its pre-testing condition
afterward. Id. Generally, a seller’s insurer is required to treat the purchaser’s notice “as a notice of a claim subject to the terms and
conditions of the policy of insurance,” and the insurer is “obliged to work cooperatively and in good faith with the insured seller … to effectuate the purpose” of the PDA.  A.R.S. § 12-1362.

Within 60 days of receiving the original notice of claimed defects, the seller must provide a “good faith written response” to the purchaser. A.R.S. § 12-1363(C). The response may include an offer to make repairs, to pay for repairs, or to make a monetary payment in settlement of the claim. Id. If the seller fails to provide a response, the purchaser may proceed immediately with filing suit. A.R.S. § 12-1363(D).

After receiving the seller’s good faith written response, the purchaser has 20 days within which to provide a good faith written response of her own, rejecting or accepting the seller’s response or providing a counteroffer.  A.R.S. § 12-1363(E). If rejecting the seller’s offer, and if the seller has provided a specific factual basis for the offer, the purchaser is to provide the “specific factual basis for the purchaser’s rejection of the seller’s offer,” together with any counteroffer the
purchaser may wish to make. Within 10 days of receiving the purchaser’s response, the seller is permitted to make a “best and final
offer” to the purchaser. Id.

As an incentive for the parties to negotiate in good faith to resolve their dispute pre-litigation, the PDA provides that in any contested dwelling action, “the court shall award the successful party reasonable attorney
fees, reasonable expert witness fees and taxable costs.” A.R.S. § 12-1364. While taxable costs are normally awardable to the prevailing party pursuant to A.R.S. § 12-341, expert witness fees are normally not awardable absent some agreement, and the threat of paying the other party’s expert witness fees provides a significant incentive for the
parties to settle. Expert witness fees can be costly in dwelling actions, particularly where numerous types of defects are involved.

Similarly, whereas A.R.S. § 12-341.01(A) provides merely that a court “may” award the successful party reasonable attorney fees, the PDA makes an award of reasonable attorneys’ fees to the successful party mandatory.  As a practical matter, because sellers may be more financially able to bear an adverse award of attorney and expert fees than the average purchaser, the PDA’s fee-shifting provision may apply greater settlement pressure on purchasers than sellers.

The PDA is not perfect. For example, it does not address the assertion of claims by a general contractor against its subcontractors, as in a third-party complaint. Also, such terms as “reasonable detail” and “fair
and representative sample” are inherently subjective, and determining whether these standards have been met will often require a
judicial determination.

Given the subjective nature of these terms, the PDA is of limited benefit where the parties have no real desire to settle, as is the case when an owner has already incurred substantial attorney fees and expert fees
and desires to move forward to become the “successful party” in a “contested dwelling action” so as to trigger an award of attorney
and expert fees under A.R.S. § 12-1364.

Despite its shortcomings, the PDA is a useful tool in facilitating clear communication between a purchaser and seller early in a dispute, enhancing the possibility of achieving settlement before their dispute balloons into potentially costly litigation.

Bradley J. Johnston is a senior member and director of The Cavanagh Law Firm, PA. His practice includes representation of developers, contractors and property owners in construction-related litigation.



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October 13, 2014