How to Know When Claims Are Time Barred

What does the Responsible Developer do first with regard to a notice of claim arising out of a completed project?

She does the math to see whether or not the claim is time barred.

Whether you are making a claim or defending against one, a first good step is to quickly gather the information to figure out whether the claims at issue are time barred. If the claims are barred, then it could be a waste of time and money to pursue them.  Yet time barred claims are made all the time, most are later dismissed.  In some cases the defending party is also awarded their fees and costs. Sometimes these claimants found out too late but some just failed to do the analysis. 

In order to know when a claim is time barred you need to do some project research. Most of the time the claims at issue for a typical real estate developer will arise out of a contract dispute based on written documents, such as a construction contract, purchase sale agreement, or a lease. Yet there are also times when a “contract” is really just an invoice or some other writing that may not meet the legal test to be a “written contract.” So quickly find and read those contracts and agreements.

A second step is to figure out what events start the clock running on your contract claim. These events generally can be when a contract was fully executed, when the scope of work under a construction contract was completed and when the claim event at issue was discovered. 

The third step is the hard part, you need to do the analysis and apply the math. The analysis is to determine what statute of limitations applies and the math is to determine how many years have expired since the contract was performed, and how much time you have left until the claim is time barred. Generally, the statutory claim time periods are three years for oral contracts (which includes writings that do not meet the legal test for a written contract) and six years for a formal written contract. Both the three and six year periods may be subject to what is called the “discovery rule” which can extend either statute. In case this analysis is not already complex enough, there is another statute, called the statute of repose, that acts as a bar to claims even if the discovery rule were to otherwise apply.

At about this point in the analysis many clients roll their eyes and call their lawyer to help them figure it out. This is a natural reaction given that this analysis can be tough even if you have a legal background. So to help with the analysis here, below is handy bar chart for construction claims.

The first red line is the three year statute of limitations for oral contracts (may be written but lack  essential terms). The second is the six year statute of limitations for written contracts (typical formal contract). The third red line is the six year statute of repose which bars claims that have not timely accrued. If the claims on your project are based, even in part, on a breach of performance by third parties (like designers or subcontractors), your contract may require those third parties to defend and indemnify you, so you need to know what events give rise to duty to defend and indemnity claims.

Again, expect your analysis to require modification as you gather more information.  If it's really complex and you think the claim is close to being time barred, call your lawyer, now, and good luck!