General Overview of Title 7

In early October, 2002, shortly after SB 800 was signed into law adding a new Title 7 to the California Civil Code ("Title 7"), we wrote that in the near term Title 7 would prove to be a nightmare, as Builders struggle to implement its provisions by its effective date, January 1, 2003. Now the initial wave of implementation is behind us. Most of our builder clients spent long hours trying to determine what Title 7 meant, developing a strategy to implement Title 7 and reviewing and revising every aspect of their construction and sales documentation, from contracts with contractors and suppliers, to manufactured product disclosures, warranties, and sales and walk-through documentation provided to buyers. Significant effort and thought and innumerable hours were devoted to creating new documentation to implement Title 7. Six years later, it is still hard to justify the time and effort spent, if we try to measure it from the view of increased buyer protection, increased builder protection, improvement in the quality of construction of new residences, increased availability of insurance to builders and subcontractors, or even all of these metrics combined.

Who won? So far, only professional consultants are ahead. In the long term we are concerned that plaintiff's attorneys will benefit as well.

In October, 2003, AB 903 was signed into law making changes to Title 7 which were sufficient to require reworking a substantial portion of existing Title 7 documentation. The changes made by AB 903 are incorporated into this website. However, you may refer to the separate discussion on AB 903 by clicking here. Very minor amendments were made to Title 7 in 2005 and 2006; however, these changes were not significant enough to warrant discussion here.

Where are we now?

Buyers now leave the sale office with significantly more paper than they did before Title 7 was enacted. Part of this documentation usually includes at least one detailed maintenance manual which explains to the buyer how to maintain their residence. A few builders were providing buyers with maintenance manuals before Title 7 was adopted. Since its adoption, however, maintenance manuals have become a standard document. In projects with homeowners associations, buyers will often receive two maintenance manuals, one for the buyer and one for the homeowners association. Buyers will also find that a significant quantity of documents have been recorded against the buyer's property. Some of those documents have names that had no meaning in 2002, such as Title 7 Master Declaration or Title 7 Individual Agreement. These two documents provide buyers with notices, disclosures, information and procedures required by Title 7.

Where will we be in the future?

It is still unclear whether Title 7 will be good for builders, good for homeowners, good for both or good for neither. The initial response of the insurance industry was not encouraging.  The market for builder and subcontractor insurance is little better now than it was in 2002. In the meantime, we all bear the burden of Title 7 implementation, while making educated guesses as to how the courts will interpret its ambiguities and inconsistencies.

Status of Builder Implementation of Title 7

By now, every builder in California should have: (a) modified its purchase contracts and disclosures, (b) modified its policies and practices relating to homeowner warranties, customer service and dispute resolution, (c) revised all subcontracts and construction specifications, (d) reviewed all material specifications and made appropriate changes in materials used, (e) reviewed all manufacturer's representations and installation specifications, changed products and modified installation procedures, and (f) reviewed and revised, where possible, CC&Rs and other recorded documents. Limited warranties should have been eliminated (except for the Fit & Finish Warranty) and superseded either by an Enhanced Protection Agreement or by Title 7 itself. The necessary company-wide reeducation program should have been completed so that construction managers, other construction personnel and all sales representatives are familiar with Title 7 and their Builder's Title 7 implementation program.

If a builder has not done these things, it is way behind and should immediately study the mandates and options of Title 7 and make the necessary policy decisions as soon as possible. All decisions must be promptly followed up with practical application of those policies to ensure that every subcontractor, material supplier, manufacturer and design professional is operating consistently with the new policies and procedures and that all documentation is revised as appropriate.

Builders must not forget that Title 7 also applies to homeowners associations ("Associations"). Similar procedures and documentation should also be put into place for Associations, especially those Associations that maintain residential structures (for example, in condominium developments).

Understanding Title 7

There are two basic components to Title 7. One deals with construction performance standards ("Functionality Standards") and the other deals with a statutory Pre-litigation Procedure for handling buyer claims under Title 7. Each of these components is mandatory unless the Builder elects to "opt out" and provide acceptable alternatives. A Builder must make decisions regarding each of these components. A Builder may "opt out" of either or both of these components, provided that the Builder complies with the "opt out" procedures set forth in Title 7. The status quo does not suffice (see Status Quo).

The following two sections describe these two basic components of Title 7. Or, you may proceed to the General Discussion area for further overview.

Caveats

Despite being enacted in 2002, Title 7 is still too new to know how many of its provisions will be interpreted. Many of its provisions are so ambiguous and uncertain that they are practically unintelligible. AB 903 removed a few of those ambiguities, but added some new ones of its own.

This analysis is intended to share with you our initial experiences as Builders and homeowners begin to live with Title 7. The existence of ambiguities, and the difficulty of initially implementing a program to comply with Title 7 do not justify a failure to fully comply. Any program developed to implement Title 7 must be regularly updated as the courts interpret Title 7 and the legislature modifies it. Given the significant ambiguities in Title 7, it is likely the legislature will continue to periodically fiddle with Title 7. In addition, as the courts further interpret Title 7, it is likely that some surprising interpretations will become legal precedent, modifying the way Builders will need to implement Title 7. For many reasons, any implementation program is very likely to require regular updating.