How Long Should Construction Professionals Keep Records? Florida's Recent Construction Defect Notice Procedure as a Reminder

by Gavin D. Caddy, Esq.

How Long Should Construction Professionals Keep Records? Florida's Recent Construction Defect Notice Procedure as a Reminder.

Many businesses establish records retention policies to comply with Internal Revenue Service (IRS) requirements; three (3) years for individuals and three to seven (3-7) years for a business.¹ However, that is less than half as long as might be required if you are sued in connection with a construction claim in the State of Florida. For claims under a written contract, Florida’s Statute of Limitations is five (5) years.² The Statute of Limitations for construction defects is four (4) years from the date of possession by the owner, issuance of a certificate of occupancy, or the date of termination or completion of the contract, whichever is latest.³ If the defect is latent and not obvious, the four (4) years begins to run upon discovery of the defect.⁴ In virtually all cases, the statute of repose makes it impossible to maintain an action for a construction defect more than fifteen (15) years after the date of possession by the owner, issuance of a certificate of occupancy, or the date of termination or completion of the contract, whichever is latest.⁵ There is a bill pending before the Florida legislature, which may shorten that period from fifteen (15) to ten (10) years. Simply put, construction professionals cannot be sure that they are safe from prosecution for breach of contract for five (5) years after completion of the contract and in reference to construction defects, the exposure could last up to fifteen (15) years for latent defects.

But, is it really necessary to retain records that long? The common sense answer is yes, if you are interested in being able to effectively defend and/or counterclaim in the event you are sued or involve other potentially responsible parties. In many instances, the project in dispute may have been completed many years before, which means witnesses may have become scarce and those that are found barely remember the job without records to review. Additionally, a separate cause of action exists for the failure to maintain records, or worse, their destruction. This is known as spoliation of evidence, a legal doctrine which has been applied since the 18th Century and has existed in one form or another in over 40 U.S. states including Florida and the District of Columbia.⁶ Normally, a spoliation claim applies only after a specific reason to maintain records has arisen, such as a lawsuit. However, what sanctions would be appropriate when a party fails to preserve evidence depends on the intent or bad faith of the offender, the harm caused to the party seeking the evidence, and the difficulty or ease of any available remedy.⁷

What type of records should be maintained? The short answer is that the scope of discoverable information under the Florida Rules of Civil Procedure is extremely broad. Information does not have to be directly relevant to the issues in a case, so long as the request for documentation or other evidence is “reasonably calculated to lead to the discovery of relevant evidence.”⁸ Certainly, that broad definition of relevancy means that the great majority of, if not all, project records can be discoverable in litigation. The party to whom a discovery request is made does not even have to be named in the lawsuit, in order for the obligation to furnish documents, things or other information to become the subject of a court order.⁹ With the advent of increasing reliance on the digital transfer of information, the requesting party can be entitled to emails, computer programs, data or even entire hard drives.¹⁰ Routine records destruction practices must be suspended when on notice of prospective litigation.

What does all this have to do with Florida’s Construction Defect Notice Statute? Well, the recent new notice procedures provide for the exchange of “discoverable evidence” and potential sanctions in subsequent litigation for those who fail or refuse to exchange documents.¹¹ The new law was enacted in 2003 in the hope that it would reduce the number of lawsuits filed in connection with new residential construction.¹² The statute specifically references its application to contractors, subs, suppliers and design professionals as they relate to the homeowner,¹³ but for simplicity, we will refer only to the contractor/owner relationship. Basically, the statute permits a specific notice of the new statute and its procedures to be included in the contract.¹⁴ Where the contract includes the notice, the owner must provide notice of any defect, inspection rights and an opportunity to cure prior to filing suit or a demand for arbitration.¹⁵ After receipt of such a notice and/or in the event a defect is discovered, the owner has the duty to send a notice to the contractor, referencing the statute and describing the defect(s) with “reasonable detail,” 60 days prior to commencing legal action.

It is significant to note that once appropriate notices have been exchanged by the contractor and owner, the parties can elect to avoid further requirements of the statutory scheme in favor of their own written agreement.¹⁶ Assuming that the parties do not come to an alternate written agreement, the contractor then has a right to send the notice from the owner on to any party it believes may be responsible for the defect. In addition, the contractor and other recipients of the owner’s notice have the right to reasonable inspection of the allegedly defective condition(s), which may involve destructive testing, where necessary and agreed.¹⁷ Regardless of the results of any inspection, or whether an inspection was performed, the contractor and/or any party to whom the contractor sent the notice, must serve a response to the owner.¹⁸ The response must either contain an offer to remedy the condition, pay money, or both, indicate that the claim is disputed or that the claim is being forwarded to the contractor’s insurance carrier for a determination. If the contractor fails to respond, if the response is a denial, or if the terms of the offer to repair or settle have expired by their own terms, the owner may sue without further delay.¹⁹

The Construction Defect Notice Statute is full of complicated and very specific time deadlines, which depend on the size of the project, for the performance of all of the rights and obligations described above. Legal guidance on the procedures should be sought and great care should be taken to ensure compliance within the deadlines. The bottom line is that if an owner fails to comply with the statute, its case can be dismissed until the owner complies²⁰ or parties can face sanctions in subsequent litigation for failure to produce records.

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_{1 irs.gov/, Publication 17 @ p. 15 and Publications 583 and 552. Note that for a business, the requirement to maintain records for a certain length of time depends of the type of record. It is suggested by the IRS that 10 years should be sufficient in all cases.
² Florida Statute § 95.11(2)(b)
³ Florida Statute § 95.11(3)(c)
⁴ Florida Statute § 95.11(3)(c)
⁵ The a statute of repose is similar to a statute of limitations, but differs in that it prohibits a cause of action after a certain period as a simple function of the passage of time and regardless of other factors. See, 35 Fla. Jur 2d Limitations and Laches § 5; Florida Statute § 95.11(3)(c)
⁶ 9 FLPRAC § 3:21
⁷ 9 FLPRAC § 3:21
⁸ Fla.R.Civ.P. Rule 1.280; Calderbank v. Cazares, 435 So.2d 377 (Fla. 5DCA 1983)
⁹ Fla.R.Civ.P. Rule 1.280
¹⁰ Although in the case of the request for the inspection of entire computer systems, particularly personal rather than business computers, the courts tend to require a showing that there is no other less intrusive means of obtaining the information. See, Menke v. Broward County School Board, 916 So.2d 8 (Fla. 4DCA 2005)
¹¹ Florida Statute § 558.004(15)
¹² 8 Fla. Practice and Construction Law Manual, §4.07 (2006 ed.); Florida Statute § 558.001
¹³ Florida Statute § 558.002(3)
¹⁴ Florida Statute § 558.005
¹⁵ Florida Statute § 558.005; 558.002(1)
¹⁶ Florida Statute § 558.005(3)
¹⁷ Florida Statute § 558.004(2)(a-f)
¹⁸ Florida Statute § 558.004(4)
¹⁹ Florida Statute § 558.004(6-8)
²⁰ Florida Statute § 558.003}