by Walker M. Duke
Historically, the Texas residential construction industry had been unregulated by the state. That changed in 2003, when the Texas Residential Construction Commission was created. The TRCC’s original authority included registering individual builders, remodelers and residential construction companies as well as new-home construction and remodel projects. The TRCC was also tasked with certifying thirdparty warranty companies and residential construction arbitrators.
In addition to oversight responsibilities, the TRCC also administered the state-sponsored inspection and dispute resolution programs. As part of the inspection process, the TRCC adopted and maintained statutory warranties and certain building and performance standards. The third party review of construction defect complaints also became a prerequisite to pursuing legal action. In this respect, the TRCC became the gatekeeper to the court system.
The laws that created the TRCC also dictated that, unless it was continued through legislation, it would automatically be abolished as of September 1, 2009. As a result, the Texas Sunset Advisory Commission (an agency created to identify and eliminate waste, duplication and inefficiency in government) reviewed the TRCC to determine whether it should be continued.
In January 2009, the Sunset Commission issued its report and recommended that the TRCC be abolished and the Texas Residential Construction Commission Act be repealed. According to the report, the TRCC was never completely effective at any of its purposes.
On the one hand, the TRCC was never meant to be a true regulatory agency with a clear mission of protecting the public (even though it had elements of a regulatory agency). It was not designed to ensure that only qualified persons enter the residential construction field and, thereby, did not work to prevent problems from occurring.
On the enforcement side, the Commission has no real power to require builders to make needed repairs, despite the administration of the inspection process. Furthermore, because homeowners are required to submit to the Commission’s dispute resolution process before they seek remedies in court, the TRCC effectively deniedmany parties access to the legal system because of a failure to satisfy this prerequisite.
The Sunset Commission concluded that anything short of a true regulatory program does more harm than good, and that the TRCC should therefore be eliminated.
The Sunset Commission’s report has no binding effect and is simply a recommendation to the legislature; the legislature is free to follow the recommendations or ignore them. Until the legislature votes, no one is certain of the TRCC’s fate. However, if the legislature follows the Sunset Commission’s recommendation and the TRCC is eliminated,what would the residential construction landscape look like going forward?
Builders would no longer have to register with the state, but they would continue to be subject to the permitting and inspection process in municipalities or counties with building code enforcement offices. Elimination of the TRCC would also effectively eliminate the statutory warranties to consumers. Construction projects would only carry the warranties provided for in the contract and required by common law.
One of the biggest changes would be the elimination of the state-sponsored inspection and dispute resolution process. This would allow consumers involved in defect disputes to bypass initial dispute resolution procedures and take their complaints directly into the legal system.
If there is no statutorily mandated dispute resolution process, it will become incumbent upon builders to include certain provisions in their contracts if they wish to avoid construction defect litigation. There are several ways to accomplish this. The parties could include a provision wherein all disputes are initially referred to a third party (such as an architect or engineer) for input. Additionally, the contract could include a requirement that all disputes first be mediated before further legal action is initiated. Finally, the parties could stipulate to arbitration, removing the possibility of having to litigate construction defect claims in traditional courts.
All of these provisions would have to be part of an underlying contract to be enforceable. No longer would there be a default to initial alternative dispute resolution, as is the case under the TRCC framework.
Another potential change that might be seen, although probably not in the immediate future, would be a state license program. Twenty-eight states require builders to be licensed. Typical requirements for licensure include passing a competency exam or showing proof of financial soundness, and many states also require posting a surety bond or holding liability insurance.
While no one is completely sure what will happen in this legislative session, change of some sort in residential construction regulation seems likely. Builders should keep a close eye on what happens in Austin so that they can adapt to any new regulations (or lack thereof) and use them to their advantage in this challenging time in the residential construction industry.