California Condo Defect Liability Bill Advances

California lawmakers are set to address condominium construction defect legislation following their summer recess, with Assembly Bill 1903 having advanced through committees and passed one chamber. This bill proposes to alter existing rules on construction defect liability by establishing a "right-to-repair" process, which would allow developers to rectify issues before engaging in costly litigation. Another bill, AB 1406, seeks to increase the state's liquidated-damages limit for new condo sales from 3% to 6% of the purchase price. This adjustment is intended to provide developers with greater predictability and deter buyers from withdrawing from purchase agreements, a measure supporters refer to as "condo deposit reform." The California Association of Realtors has reportedly stalled AB 1406, citing concerns about transferring risk from builders to purchasers, and its passage is now considered unlikely.

These legislative efforts in California occur as federal lawmakers revisit discussions on safety financing for condominiums. Representatives Debbie Wasserman Schultz (D-Fla.) and Maria Elvira Salazar (R-Fla.) have reintroduced a bill that offers low-interest loans for structural repairs. This initiative, linked to the anniversary of the Surfside, Florida, condo tower collapse in 2021, could significantly influence how condominium associations across the nation finance essential safety upgrades.

California legislators have grappled with housing affordability challenges for an extended period. Since the onset of the COVID-19 pandemic, their focus has shifted towards reducing regulatory obstacles and encouraging local governments to implement zoning reforms aimed at increasing housing density and diversity. Housing advocates have specifically highlighted condominiums as a critical area for development, noting a significant decline in their construction over the past two decades. They attribute this downturn to litigation and escalating insurance costs associated with construction defect liability. Research supports this assertion; a 2024 study by the Terner Center for Housing Innovation indicated a substantial drop in Los Angeles condo construction since its peak in 2005-06.