Highlights: Contractual warranties do not protect an owner forever. Time limits are found in three places: the contract itself, the relevant statute of limitations, and possibly the statute of repose. This article examines the last two sources of deadlines, how they interact, and what a few Ohio courts have said about them. Any owner or contractor trying to judge the value of a contractual warranty should find this article useful.

A Question of Timing

Your multi-million dollar construction project is now finished. The contractor has just given you several thick binders of documents. The contractor tells you that the binders contain operation and maintenance manuals, as-built drawings and, alas, several pages of fine print that constitute the project warranties.

Your first question may be how long are those warranties good for. The answer to this question depends on two factors. The first is fairly simple: the plain language of the warranty. Many warranties contain time limits for enforcement. For example, it is common for roofing manufacturers to issue 15- or 20-year roof warranties. This means that during the next 15 or 20 years, typically starting from the date of substantial completion or the date of the manufacturer’s final inspection, the manufacturer is obligated to repair leaks and other defects, provided they are covered perils under the warranty. (See our November 2005 issue for a more in-depth look at roofing warranties.)

The second factor is more nuanced and is the subject of this article. Two kinds of statutes may affect the time period in which an owner can enforce a contractual warranty: In Ohio, both the statute of limitations (R.C. § 2305.06) and the statute of repose (R.C. § 2305.131) may set time limits upon warranties that do not contain a specific time limit.

Ohio’s Statute of Limitations

In Ohio, various statutes of limitations set the time limits when courts will enforce certain promises, including written contracts that do not contain their own time limitations. Consider their effect on the typical construction warranty.

Section 3.5.1 of the AIA A201-1997 General Conditions contains this promise:

The Contractor warrants to the Owner and Architect that materials and equipment furnished under the Contract will be of good quality and new unless otherwise required or permitted by the Contract Documents, that the Work will be free from defects not inherent in the quality required or permitted, and that the Work will conform to the requirements of the Contract Documents.

Similar to the roofing warranty discussed above, Section 3.5.1 is also a warranty. It is in addition to the contractor’s obligation, in Section 12.2.2, to return and correct any defective or noncomplying work for one year after substantial completion. How long does the Section 3.5.1 warranty obligate the contractor? Since the General Conditions do not answer that question, we turn to Ohio’s statute of limitations to affix a time limit to this warranty.

The Ohio statute of limitations applicable to contracts says this:

An action upon a specialty or an agreement, contract, or promise in writing shall be brought within fifteen years after the cause thereof accrued.

The statute thus sets a 15-year limit for breach of contract actions. The next question, of course, is 15 years from what? That depends on when the cause “accrued,” which Ohio courts define as when actual damages are suffered from the breach of contract. After that, the damaged party has 15 years to sue for breach of contract, including the contractual warranty.

The Statute of Limitations in Action

To see how this statute of limitations works, consider Point East Condominium Owners’ Association v. Cedar House Associates (Cuyahoga App. 1995), 104 Ohio App.3d 704. Point East involved an action by a condo association against a developer and construction contractor for water leaks in a fire sprinkler system. The condo association brought suit for breach of warranty some 10 years after the initial construction. The trial court dismissed the case on legal grounds after the contractor argued, among other things, that the two-year express warranty in the contract had expired.

On appeal, the condo association pointed out that the contract for the fire sprinklers also contained a general warranty with language similar to the AIA warranty quoted above. The key factor here was that the warranty contained no express time limit. As a result, the court found that the general warranty in the contract language exceeded the contractor’s two-year express warranty, subject only to the statute of limitations.

The net result was that the contractor’s general warranty was effectively a 15-year warranty, given the language in the statute of limitations for written agreements. So the lawsuit had not been filed too late, and the condo association was entitled to its day in court.

What About Surety Bonds?

In addition to general warranties contained in construction contracts, courts have also found that the 15-year statute of limitations on written agreements applies to performance bonds issued on public construction projects.

In Board of Educ., Cleveland City School District v. United Pacific Insurance Co. (June 28, 1991), Cuyahoga App. No. 60374, the school district sued its architect, general contractor and the general contractor’s surety company based on numerous defects in the design and construction of a new elementary school. Although 14 years had elapsed between the date the contract was executed and the date the lawsuit was filed, the court allowed the breach of contract action to proceed against the provider of the performance bond.

Shorter Contractual Periods

Parties may agree by contract to shorten the statute of limitations period. For example, in Holland Excavating v. Montgomery County (Montgomery App. 1999), 133 Ohio App.3d 837, a contract between the county and a contractor for construction of a sanitary sewer required that the contractor file suit within 60 days after the denial of a claim. The contractor filed a claim with the county based on unforeseen site conditions. The county denied it. Seventeen months later, the contractor filed suit but lost on summary judgment (a judgment for the county on solely legal grounds, without the need for a trial).

In affirming the trial court’s decision, the Court of Appeals held that “parties to a contract may shorten the period set forth in the [statute of limitations] so long as the time period provided is reasonable.” In this case, the court found that shortening what would otherwise be a 15-year deadline for filing suit to a 60-day time limit was reasonable.

Ohio’s Statute of Repose

Our analysis of warranty time periods does not end with the statute of limitations. The Ohio statute of repose, R.C. § 2305.131, also sets time limits after which certain claims may not accrue.

In particular, Section (A)(1) of the statute of repose sets a 10-year deadline for accrual of certain non-contractual actions “to recover damages for bodily injury, an injury to real or personal property, or wrongful death that arise out of a defective and unsafe condition of an improvement to real property,” as well as related actions for contribution or indemnity. The statute protects any “person who performed services for the improvement to real property or a person who furnished the design, planning, supervision of construction, or construction of the improvement to real property” and, with certain exceptions, prevents any such action from accruing against such person more than ten years after the date of substantial completion of the improvement.

This might at first seem to cut short the 15-year statute of limitations period, instead imposing a 10-year time limit on claims. Along these lines, courts have held, as the court did in Armbrust v. United Telephone Co. (Warren App. 1997), 119 Ohio App.3d 497, that when both the statute of repose and statute of limitations apply to a given fact pattern, then the parties are obligated to comply with both time limits on claims.

Comparing the Two Statutes

There are two sharp distinctions between the statute of repose and the statute of limitations, however. First, the statute of limitations focuses on the claimant’s actions, while the statute of repose focuses on the defendant’s actions. This can be seen in the language of the statute of limitations, which focuses on when the cause (or claim) accrues. Courts have held that claims begin to accrue when they are first discovered or should have been discovered by the claimant. The statute of repose, on the other hand, states that claims can accrue no later than 10 years after substantial completion of the project by the defendant.

The Ohio Supreme Court has pointed out a second major distinction between the statute of repose and the statute of limitations. In Kocisko v. Shutrump (1986), 21 Ohio St.3d 98, a church with severe roof leaks sued the project architect, general contractor, roofing subcontractor and roofing manufacturer for breach of contract. In this case, the church’s lawsuit was filed 11 years after substantial completion of the project, thus placing the church outside the 10-year time limit imposed by the statute of repose then in effect.

Did the church wait too long to bring its claims? The Ohio Supreme Court allowed the church to proceed with its claim, finding that the language used by the state legislature in the statute of repose referred specifically and only to tort claims and not to breach of contract actions.

In order to arrive at this conclusion, the Court first had to differentiate between tort actions and contract actions:

• “Tort actions,” the Court said, “are created to protect the interest in freedom from various kinds of harm.”

• Contract actions, on the other hand, “are created to protect the interest in having promises performed.”

The Court went on to find that there was no injury to person or property arising out of a defective and unsafe improvement; instead, the church was seeking damages for the contractor’s installation of a leaky roof, in breach of its contractual promise. Based on this distinction, the Ohio Supreme Court held that breach of contract actions (which include the breach of general warranties discussed above) are subject only to the 15-year statute of limitations and not the 10-year statute of repose.

The statute of repose was amended following the Supreme Court’s decision in Kocisko. The new language in Section (A)(1) focuses on when a claim accrues, rather than on when it can be filed. The Supreme Court has not had the opportunity to revisit the statute of repose since the amendment and thus it is unclear whether the new language has the effect of extending the statute of repose to cover contract actions as well as tort actions.

Still, even after the amendment, the statute of repose focuses on bodily injury, property damage, and wrongful death actions arising from defective and unsafe conditions. Such actions are most likely brought by injured parties who fall through defective porch railings or are overcome by fumes from defectively installed furnaces, not by owners who discover that some part of their building doesn’t meet specifications.

Additionally, the new statute of repose contains, in Section (D), a loophole permitting actions to be brought after the 10-year period has lapsed if the defendant “has expressly warranted or guaranteed an improvement to real property for a period longer” than 10 years.

Regardless of the amendments to the statute of repose, general warranties such as those contained in the AIA General Conditions are at least effective for 10 years following substantial completion of the project and, depending on the nature of the claim, even longer, unless the parties to the contract have agreed, in writing, to shorten that period.