California SB721 Brings Mandatory Inspections to Multi-Family Residences

A new bill is making its way through Sacramento that would have a significant effect on owners and homeowner’s associations of multi-family residential buildings. Senate Bill (SB) 721proposes to add new sections to both the Business and Professions and Civil Codes that would require both owners and homeowner associations to conduct inspections of various building assemblies that contain load bearing components every six years to verify that those components do not pose a threat to users of the building. This bill was introduced in response to the tragic balcony collapse at an apartment building in Berkeley, California in June of 2015 that killed six people. In that incident, the balcony that collapsed had significant dry rot that was alleged to be caused by failures in the waterproofing system of the building.

SB 721 seeks to add Section 7071.20 to the Business and Professions Code, as well as Section 4776 to the Civil Code, both of which impose nearly identical inspection requirements on building owners and homeowner’s associations aimed specifically at load bearing building assemblies of the building. These inspections are to take place once every six years, with the first inspection required to take place before January 1, 2023. The inspections are to be conducted by a licensed architect, licensed civil or structural engineer, or a certified building inspector or building official. The inspectors are required to produce a written report, bearing the inspectors stamp, summarizing their findings and said reports are to become part of the owner or HOA’s permanent records.

The specific building assemblies that are included in this inspection requirement are “balconies, decks, porches, stairways, walkways, entry structures, and their supports and railings, that extend beyond exterior walls of the building and which have a walking surface that is elevated more than six feet above ground level”  as well as the “associated waterproofing elements” which include “flashings, membranes, coatings, and sealants that protect the load-bearing components of building assemblies from exposure to water and the elements.” Both code sections require the inspection of 15% of each of the building assemblies. They also require that inspections allow for “direct visual evaluation of the physical condition of the component” essentially requiring destructive testing of each of these building assemblies. The inspections are required to include an evaluation and assessment of 1) the current condition of the building assemblies, 2) expectations of future performance and projected service life, 3) recommendations of any further inspections, and 4) recommendations of any necessary repair or replacement. If any immediate repairs are recommended, a copy of the report must also be given to the local enforcement agency within 15 days of completion of the report. If an owner does not comply with the inspection requirements, or fails to make repairs, B&P Section 7071.20 requires a civil penalty of $100 a day for failure to comply. Civil Code Section 4776 allows the enforcement agency to recover enforcement costs, but does not impose a set civil penalty for homeowner’s associations.

Should SB721 pass, and all signs point to the fact that it will, this is create a significant new obligation for owners and homeowner’s associations, as well as additional potential liability for owners, homeowner associations, and the inspectors undertaking these 6-year inspections. The following are just a few of the issues that may arise from the passing of this bill:

• Owners will need to budget for these inspections, whether that be in the form of including the costs in reserve studies for common interest developments, or simply including a budget line item for maintenance costs going forward. Owners will have to determine exactly what components of their building are covered by these code sections and estimate what the cost of destructive testing on all of those components may cost in 6 years, as well as budget for potential repairs that may be necessary.
• While the proposed codes only require inspections at 15% of the locations of each of these assemblies, it is silent as to how those locations are chosen. Can an owner choose locations that are easy to get to (i.e. cheaper to investigate) and satisfy the requirement? What if all the locations are chosen on locations of the building that are protected from the weather? Is the owner required to do a visual survey first to determine any visible signs of problems before they chose locations that will be destructively tested? The lack of guidance as to the inspection process may prove problematic.
• The requirement that these load bearing components be “visually inspected” means that a third-party contractor will be disturbing in place construction and potentially destroying the intended waterproofing system for that location. Many manufacturers do not allow patching of their waterproofing system, or if they do, it must be manufacturer approved so as not to void any warranties. The companies undertaking these inspections will have to go to great lengths to assure that the systems are put back in a water-tight fashion, and in a way that does not void any warranties that may exist to various products or systems in the building.
• The inspectors themselves could face enormous liability should a problem arise after the 6-year inspection that was not picked up by the inspector. Because of this, it may prove very difficult to find qualified inspectors that are willing to do this kind of work, and more important, who can get proper insurance to cover this kind of work.
• Because of the potential added exposure for these inspectors, it is likely that the inspectors will be extremely conservative in both their investigations as well as their recommendations, which could drive costs even higher for owners.
• The higher the cost of inspections goes, the more likely that owners and homeowner’s associations may use the inspection as a way to justify a larger construction defect action. Because inspection costs are recoverable under the Stearman case in construction defect claims, many owners may conduct these inspections as part of a construction defect action in an effort to recover all the inspection costs and avoid paying for these expenses out of pocket.
• While the 10-year statute of repose will shield the original contractor’s from claims, it will not protect inspectors from claims related to their inspections. For instance, if it is discovered that a balcony has severe rot because of water intrusion that is not discovered until 11 years after construction is completed, the owner may instead try and sue the inspector for failing to identify this condition during the 6-year inspection since they would be barred from pursuing claims against the original contractors.

As with any new legislation, there are more questions than answers at this point. The only thing that seems certain is that most of these questions will be answered by the courts once these inspection requirements take effect in a few years.