Apr 20th, 2016

Oregon Supreme Court Applies 10-Year Statute of Repose to “Spec” House Defect Claims

Roland Lau

          Roland Lau

Recently, in Shell v. Schollander Cos.[i], the Oregon Supreme Court considered which of two statutes of repose applies when a buyer enters into a purchase and sale agreement to buy an existing home.

The defendant, Schollander Development Company, built “spec” houses—houses that are built without pre-existing contracts in anticipation of eventual sale to the public.  The plaintiff, Melissa Shell, entered into a purchase and sale agreement for one of these “spec” houses on May 30, 2000.  But Schollander continued to make changes to the house thereafter.  After the work was completed, the sale closed on July 12, 2000.  Shell served a Notice of Defect on Schollander on June 25, 2010.  Shell’s allegations of negligence stemmed from the construction of the exterior elements of her house, a task that had been completed by June 22, 2000.

The trial court dismissed Shell’s claim, concluding that she had failed to bring her claim within the 10-year period of repose set forth in ORS 12.115, which begins running “from the date of the act or omission complained of.”  In deciding to dismiss the claim under ORS 12.115, the trial court declined to apply the 10-year period of repose in ORS 12.135, which begins running from the date that construction is “substantially completed.”  The court reasoned that because ORS 12.135 applies to claims arising from contracts to construct, alter, or repair homes, and because no construction contract existed in this case, the more general statute of repose—ORS 12.115—applied.  The Court of Appeals affirmed, and the Supreme Court took review to consider whether ORS 12.115 or ORS 12.135 applied.

The Supreme Court upheld the lower courts’ decisions that ORS 12.115 applied.  The Court first examined ORS 12.135, and noted that one of its subsections provided that “substantial completion” has been defined by the legislature as the date that the “contractee accepts the construction as complete.”  Defining “contractee” to include only parties to a construction, alteration, or repair contract, the Court held that a party who contracted to buy an existing home was not a “contractee” for purposes of ORS 12.135.  Therefore, where there is no contract to construct, alter, or repair an improvement to real property, there is no “contractee” whose acceptance can trigger the ORS 12.135 period of repose.  Because ORS 12.135 was inapplicable, the ORS 12.115 general period of repose applies.

The Court then reviewed the legislative history of ORS 12.135 and determined that the initial drafts of the statute assumed the existence of a contract to construct.  In fact, “substantial completion” was defined as the date the “contractee accepts in writing the construction, alteration or repair of the improvement to real property.”  After contemplating the legislative history of ORS 12.135, the Court once against affirmed its determination that the period of repose set out in 12.135 applies only to claims that derive from contracts to construct, alter, or repair improvements to property.

In support of its holding that ORS 12.115 applies to “spec” houses, the Court pointed out that, given the fact that “spec” houses may go unsold for years after construction, if ORS 12.135 were to apply, the statute of repose would not begin running in some situations until years after the construction of the house was completed.  If this were so, the Court observed, the date that the statute of repose would begin running on “spec” houses would turn on the “happenstance” of the date of sale, thereby defeating the certainty that ORS 12.135 was intended to provide as to the expiration of any claims.

Following the Court’s decision in Shell, a buyer of a house who did not contract with the builder to construct a home cannot bring a claim outside of the 10-year statutory period set forth in ORS 12.115.  This offers certainty to contractors of “spec” houses, as well as their insurers, that defect claims brought more than 10 years after completion of the work will be barred.



[i] 358 Or 552 (2016).