Contractors; New Home Warranty

Establishes warranties for new homes and a new home warranty
security fund.  Requires new home builders to register with DCCA
and builders of new housing developments to participate in the
fund or an alternate warranty security program.  Requires
contractors to make building plans available to the customer.

THE SENATE                              S.B. NO.           2585
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  Chapter 444, Hawaii Revised Statutes, is amended
 2 by adding two new sections to be appropriately designated and to
 3 read as follows:
 4      "444-    New home warranty; applicability; registration;
 5 security fund; alternate programs; election of remedies.  (a)  As
 6 used in this section, unless the context requires otherwise:
 7      "Builder" means any person engaged in the construction of a
 8 new home.
 9      "Major construction defect" means any actual damage to the
10 load bearing portion of the home including damage due to
11 subsidence, expansion, or lateral movement of the soil (excluding
12 movement caused by flood or earthquake) that affects its load
13 bearing function and that vitally affects or is imminently likely
14 to affect use of the home for residential purposes.
15      "New home" means any dwelling unit not previously occupied.
16      "Owner" means any person for whom the new home is built or
17 to whom the home is sold for occupation by the owner or the
18 owner's family as a home, and the owner's successors in title to
19 the home, or mortgagee in possession.  "Owner" does not mean any

Page 2                                                     
                                     S.B. NO.           2585

 1 development company, association, or subsidiary company of the
 2 builder, or any person or organization to whom the home may be
 3 sold or otherwise conveyed by the builder for subsequent resale,
 4 letting, or other purpose. 
 5      "Warranty" means the new home warranty prescribed by the
 6 board pursuant to the section.
 7      "Warranty date" means the first occupation or settlement
 8 date, whichever is sooner.
 9      (b)  The board shall prescribe by rule under chapter 91 a
10 new home warranty and procedures for the implementation and
11 processing of claims against the new home warranty security fund
12 as provided for in subsection (f).  The warranty shall include
13 standards for construction and quality for the structural
14 elements and components of a new home with an indication, where
15 appropriate, of the degree of noncompliance with the standards
16 that shall constitute a defect.  The time periods and the scope
17 of the warranties shall be as follows:
18      (1)  One year from and after the warranty date, the
19           dwelling shall be free from defects caused by faulty
20           labor and defective materials due to noncompliance with
21           building permits, except as set forth in paragraphs (2)
22           and (3);
23      (2)  Two years from and after the warranty date, the

Page 3                                                     
                                     S.B. NO.           2585

 1           dwelling shall be free from defects caused by the
 2           faulty installation of plumbing, electrical, heating,
 3           and cooling delivery systems; provided that in the case
 4           of appliances, the warranty shall not exceed the length
 5           and scope of the warranty offered by the manufacturer;
 6           and
 7      (3)  Ten years from and after the warranty date, the
 8           dwelling shall be free of major construction defects; 
 9 provided that any alternate program as provided for in subsection
10 (g) submitted for approval after the effective date of this
11 section, may contain warranties and time periods greater than
12 provided for in paragraphs (1), (2), and (3).
13      (c)  A builder of a new home shall be liable to any owner
14 thereof during the time period when the new home warranty is
15 applicable to the home for any defect of the home that is covered
16 by the warranty in accordance with its terms and conditions.  The
17 new home warranty applicable to a new home shall be the warranty
18 in effect on the date that construction of the home is commenced.
19 The liability of a builder under the new home warranty shall be
20 limited to the purchase price of the home in the first good faith
21 sale thereof or the fair market value of the home on its
22 completion date if there is no good faith sale.
23      (d)  No person shall engage in the business of constructing

Page 4                                                     
                                     S.B. NO.           2585

 1 new homes unless the person is registered as a builder with the
 2 board.  Each application for registration shall comply with the
 3 requirements of section 444-12 for license applications and shall
 4 be accompanied by proof, satisfactory to the board, of
 5 participation in the new home warranty security fund or an
 6 approved alternate new home warranty security program, if
 7 participation is required under this subsection.  Upon receipt of
 8 the above, the board shall issue a certificate of registration.
 9 Each certificate of registration shall be valid for period of two
10 years from the date of issue and may be renewed for additional
11 two-year periods.
12      As a condition of registration, a builder shall be required
13 to participate in the new home warranty security fund or an
14 approved alternate new home warranty security program; provided
15 that participation in the fund shall be required only of builders
16 of multi-unit housing developments.  The department shall affix a
17 new home warranty security fund seal upon the certificate of
18 registration of a builder who participates in the fund.
19      No corporation, partnership, limited liability company,
20 limited liability partnership, or other business organization
21 shall be entitled to registration, nor shall they engage in the
22 construction of new homes unless a stockholder, director,
23 officer, partner, manager, member, or employee thereof, is a

Page 5                                                     
                                     S.B. NO.           2585

 1 registered builder.
 2      The board may deny, suspend, or revoke any certificate of
 3 registration after affording the registrant or applicant the
 4 opportunity for a hearing under chapter 91 if the registrant or
 5 applicant has failed to undertake or maintain participation in
 6 the new home warranty security fund or an approved alternate new
 7 home warranty security program after receiving proper written
 8 notice from the board by certified mail, or has violated any
 9 provision of section 444-17.
10      Any person who fails to register and engages in the business
11 of new home construction shall be subject to sections 444-22 and
12 444-23.
13      (e)  There is established a new home warranty security fund
14 to be administered by the board with moneys sufficient to pay
15 claims by owners against builders participating in the fund for
16 defects in new homes covered by a new home warranty.  The board
17 by rule shall set the amounts to be paid by participating
18 builders.  Moneys collected for the fund shall be forwarded to
19 the director of finance for deposit into the new home warranty
20 security fund.
21      If at any time the moneys available in the fund are
22 insufficient to satisfy outstanding awards and anticipated awards
23 for the succeeding year, the board by rule shall require

Page 6                                                     
                                     S.B. NO.           2585

 1 participating builders to pay additional amounts to replenish the
 2 fund.  The board may also provide for surcharges against those
 3 participating builders who are responsible for a significant
 4 number of awards against the fund, and may discontinue the
 5 participation in the fund of any builder who is responsible for
 6 an excessive number of awards against the fund after a hearing
 7 under chapter 91.  At no time shall the State be required to
 8 contribute any moneys to the fund, nor shall the State have any
 9 liability to any persons having any right to or claim against the
10 fund over and above the amount therein.                          
11      (f)  Prior to making a claim against the fund for defects
12 covered by the warranty, a home owner shall notify the builder of
13 the defects and allow a reasonable time period for their repair.
14 If the repairs are not made within a reasonable period of time or
15 are not satisfactory to the owner, the owner may file a claim
16 against the fund in the form and manner prescribed by the board.
17 The board shall investigate each claim to determine its validity.
18 All claims submitted by an owner shall first be reviewed through
19 a conciliation or arbitration procedure by the board.  If the
20 board upholds the owner's claim, the builder shall correct the
21 defects as determined through the conciliation or arbitration
22 procedure.
23      The board shall hold a hearing if requested by either party

Page 7                                                     
                                     S.B. NO.           2585

 1 under chapter 91.  Reasonable attorney's fees shall be assessed
 2 against the unsuccessful party.  If the owner's claim is upheld
 3 and the builder is unable or wilfully refuses to correct the
 4 defects raised in the claim, an amount sufficient to cure the
 5 defect shall be paid from the fund to the owner; provided that
 6 the total amount of awards from the fund for any new home shall
 7 not exceed the purchase price of the home in the first good faith
 8 sale thereof or the fair market value of the home on its
 9 completion date if there is no good faith sale.  Upon
10 certification from the board of the amount of the award, the
11 director of finance shall make payment to the claimant from the
12 fund.
13      If the builder is unable or wilfully refuses to correct the
14 defect, the board may suspend or revoke the builder's certificate
15 of registration after affording the registrant or applicant the
16 opportunity for a hearing under chapter 91.
17      (g)  The board may review and approve alternate new home
18 warranty security programs that provide for the payment of claims
19 against builders for defects covered under the new home warranty
20 and financial security adequate to cover the total amount of
21 claims that may be reasonably anticipated against participating
22 builders that is at least equivalent to that provided by the new
23 home warranty security fund.

Page 8                                                     
                                     S.B. NO.           2585

 1      Any person desiring approval of a new home warranty security
 2 program shall make application to the board in the form and
 3 manner prescribed by the board.  The board by rule may establish
 4 and charge reasonable fees to cover the costs incurred in
 5 reviewing and approving the applications.  The board shall review
 6 each application and conduct any investigation deemed necessary
 7 with respect to an application.  The board may, and if requested
 8 by an applicant, shall, hold a hearing on an application under
 9 chapter 91.  If the board finds that a new home warranty security
10 program provides coverage and financial security at least
11 equivalent to the new home warranty security fund, the board
12 shall approve the program.  The board may revoke or suspend the
13 approval for a program after a hearing under chapter 91 if the
14 board finds that the program no longer provides coverage and
15 financial security equivalent to the new home warranty security
16 fund.
17      (h)  Nothing contained in this section shall affect other
18 rights and remedies available to the owner.  The owner shall have
19 the opportunity to pursue any remedy legally available; provided
20 that the initiation of procedures to enforce a remedy shall
21 constitute an election which shall bar the owner from all other
22 remedies.  Nothing contained in this section shall be deemed to
23 limit the owner's right of appeal as applicable to the remedy

Page 9                                                     
                                     S.B. NO.           2585

 1 elected.
 2      444-    Purchase of plans.  Each contractor who undertakes
 3 or contracts to undertake the erection, construction, completion,
 4 addition, alteration, or repair of any building or structure
 5 occupied or to be occupied as a residential dwelling shall make
 6 available for a reasonable fee to the person with whom the
 7 contractor contracted, or the person's agent, a copy of the plans
 8 and specifications, if any, for the building or structure.  If
 9 the contractor fails to make the plans and specifications
10 available, the contractor shall be liable to the person for the
11 person's reasonable costs in otherwise obtaining the plans or
12 specifications."
13      SECTION 2.  New statutory material is underscored.
14      SECTION 3.  This Act shall take effect upon its approval;
15 provided that the first new section added to the Hawaii Revised
16 Statutes in section 1 shall take effect on July 1, 2001.
18                           INTRODUCED BY:  _______________________