Different Types of Legal Claims are Subject to Different Time Periods
As New Year's Eve approaches there are those who may express the sentiment that they are glad that this year is over. Others, of course, may feel it has been a terrific year; and many may view it as just more of the same. Usually, there is not much sense to the suggestion that a specific calendar date actually marks the beginning or end of a particular period of good luck or bad, risk or reward. Our eras, if you will, tend to both begin and end without specific notice.
There are, though, some time lines that have real significance to real estate brokers and agents, their attorneys, and their professional liability insurance companies. I refer to the various statutes of limitations. These are the provisions that stipulate how much time one has to file a lawsuit over various causes of action.
These limitation periods were the central topic of a real estate case reviewed by California's Third District Court of Appeal last year (William Lyon & Associates v. Superior Court (Henley), April 4, 2012). The Court's discussion is instructive for real estate agents and brokers. (We note that this has to do with California law. Different considerations may apply in other states.)
The underlying case is one that might be considered a "garden variety" non-disclosure suit. (By that I do not at all mean to minimize the effects on the parties.)
The buyers had entered into an exclusive buyer-broker agreement with the broker. (The broker was also the agent of the seller; but the dual agency was not an issue in this proceeding.) An escrow closed on May 9, 2006. The buyers moved into the property in June. Subsequently, they began to discover construction defects that they alleged were concealed by the sellers as well as the broker. On May 9, 2009, the buyers filed their complaint. It named the broker as well as the sellers. Claims against the broker included breach of contract, negligence, fraud, and breach of fiduciary duty.
The broker asked for summary judgment (dismissal of the case), because the statute of limitations time period had expired.
A variety of arguments were at play. What we focus on here is the broker's reliance on a provision in the (then) buyer-broker agreement. It said that there would be a two-year limitation period on "legal action for breach of [the buyer-broker agreement], or any obligation arising therefrom..." Thus, the broker argued that the buyer's action was untimely, because it was filed nearly three years after the close of escrow. In response, the buyer's argued that "the two-year limitations period must be extended by the discovery rule."
The appellate court agreed with the buyers.
What is the discovery rule? In essence, the discovery rule is a rule that a limitations period should not began to run until the aggrieved party has learned, or should have learned, of the offending behavior. The court cited an earlier case involving a home inspector in which the court held that the statue of limitations "began to run only after the buyers discovered or should reasonably have discovered the inspector's failure to find and report on the defects with the house."
The appellate court did not have a problem with the buyer-broker agreement shortening the normal four-year statute for breach of contract to two years, but, it said, the discovery rule had to apply. "[It] is manifestly unjust to deprive plaintiffs of a cause of action before they are aware that they have been injured."
The buyers said that they didn't discover that the sellers and the broker were aware of the water intrusion problems until May of 2007. Therefore, under the discovery rule, their action was filed in a timely manner. The appellate court agreed.
For many causes of action, California real estate brokers can breathe more easily after two years have passed. But, if fraud is alleged, as it often is, hold your breath.