Tennessee Construction Defect Cases: Does the Three-Year or Six-Year Statute of Limitations Apply?
A recent construction defect case decided by the Court of Appeals of Tennessee illustrates how both the three-year statute of limitations for injury to real property and the six-year statute of limitations for breach of contract can apply in a construction defect case.
The trial court held that the claims of the Plaintiffs, the homeowners, were barred by the three-year statute of limitations. The Court of Appeals reversed, holding that some of the Plaintiffs’ claims were subject to the three-year statute, but others were subject to Tennessee’s six-year breach of contract statute.
Here are the basic facts of the case:
The Plaintiffs bought a newly constructed home built by Defendants
The Plaintiffs alleged that the home contained construction defects and substandard materials
The Plaintiffs asserted several different causes of action, including negligence, breach of warranty, and breach of contract
Plaintiffs alleged that Defendants had breached their contract in several ways, including by employing negligent construction practices and by refusing to honor the one-year warranty made by Defendants to make repairs
There was no dispute that the Plaintiffs’ claims were filed after the three-year statute of limitations for injuries to real property would bar them
There was also no dispute that the Plaintiffs’ claims were filed within the six-year statute of limitations applicable to breach of contract actions
The resolution of the statute of limitations issues in this case, as with many cases, turned on the analysis and application of the “gravamen of the complaint” theory, which has been adopted in Tennessee. The Court of Appeals wrote that the overarching issue was whether the trial court had properly determined that the gravamen of the Plaintiffs’ complaint was injury to real property such that the three-year statute of limitations applied.
The leading modern case on the gravamen of the complaint theory is the Supreme Court of Tennessee’s opinion in Benz-Elliott v. Barrett Enters., LP. The most critical point to understand about the gravamen of the complaint theory is that the applicable statute of limitations is not determined by the cause of action asserted by a plaintiff, but by the type of damage alleged by the plaintiff to have resulted from that cause of action.
Another important factor in applying the gravamen of the complaint theory is that, under Tennessee law, a plaintiff can plead alternative causes of action. That principle, and its effect on the gravamen of the complaint analysis, was explained in Benz-Elliott.
Keep in mind that, even in light of the analysis now required by Benz-Elliott, a plaintiff cannot avoid the application of the three-year statute of limitations applicable to claims for injury to real property just by asserting a cause of action for breach of contract where the only injury alleged is to real property.
Turning to the case at hand, the Plaintiffs had pled causes of action for negligent construction and for breach of contract. One basis of their breach of contract claim was Defendants’ breach of the one-year repair warranty. The Plaintiffs also requested damages other than for repair or replacement of construction defects. They sought damages for a refund of the purchase price of the home, moving expenses, costs for temporary housing, expenses for storage, lost profits from their home business, and diminution in value of their home.
Given the Plaintiffs’ assertion of a breach of contract claim and their request for damages that the Court of Appeals determined were other than for injury to real property, the Court held that the breach of contract claim was subject to the six-year statute of limitations for breach of contract.
What this case teaches Tennessee construction lawyers is the importance, where their cases may be at risk of being barred by the three-year statute of limitations, of pleading not only breach of contract claims, but also damages other than for injury to real property.
One point to note about this case is that the Court appeared to conclude that damages the Plaintiffs claimed for diminution in value and return of the purchase price were not damages for injury to real property. While those damages are not directly tied to repair and replacement costs, which clearly relate to injury to real property, it could be argued that both diminution in value and return of purchase price flow from damage to real property.
Finally, it is worth remembering that some construction contracts contain their own contractually agreed statutes of limitations, and those are generally enforceable.