Builders, homeowners at odds over no-lawsuit provision in contracts

Diana Sahagun

Friday, April 14, 2000 | 11:04 a.m.

The widespread use of "no-lawsuit" clauses by the building industry promises to be a hot topic in the 2001 Legislature.

The clauses, which prohibit home buyers from taking builders to court over construction defects, are under fire from consumers, attorneys and some state legislators.

At least 50 percent of builders in Southern Nevada are using the clauses, which require binding arbitration instead of lawsuits.

State Sen. Randolph Townsend, R-Reno, chairman of the Senate Commerce and Labor Committee, said the clauses are a problem that must be addressed by the Legislature.

"Obviously this is a real tragedy for people who truly believed that they would still have their normal court remedies," he said.

The Southern Nevada Home Builders Association maintains that the no-lawsuit clause is an advantage over court proceedings that can be prohibitively expensive and drag on for years.

But legislators point to a state law they passed in 1995 giving homeowners the right to sue in the event mediation fails.

Chapter 40, as this construction-defect law is known, requires the homeowner and builder to mediate disputes. It also states that if issues remain after mediation, the homeowner may file a lawsuit.

Sen. Mike Schneider, D-Las Vegas, who in the 1999 Legislature supported a bill pushed by the building industry intended to amend Chapter 40, said that although he understands why the clause is being inserted he nevertheless does not believe it would hold up in a court challenge.

"I am not sure you can give up your rights by signing that" under the U.S. Constitution, Schneider said. "I wouldn't be scared to sign one. I think it's a worthless piece of paper."

Schneider added, though, that he supported the builders last time because lawsuits are "getting out of control."

As he sees it, builders aren't using the clause to get out of liability, but choosing to use a quicker method to get defects fixed. The only way for people to be "made whole," he said, is if they can get their defects resolved as soon as possible.

When the issue comes up in the next Legislature, Schneider said he intends to ask for "checks and balances" that will insure that any money a homeowner receives in a lawsuit actually goes into home repairs. He said many homeowners are motivated more by the idea of receiving cash than by a desire to fix their homes.

Sen. Ann O'Connell, R-Las Vegas, agreed that the issue should be discussed in the next legislative session.

"You hope that the law is followed," she said. "Unfortunately, you set policy, you're not the enforcement agent. You would hope if everyone agreed to that law that it was going to be followed."

But she said she can see the builders' side too. She says builders have no other choice in trying to avoid costly lawsuits.

The question of whether the no-lawsuit contracts are legal is unclear. The matter should be decided soon in District Court, as 40 North Las Vegas homeowners have filed a class-action suit asking that the clause be ruled unenforceable.

Townsend said that what most importantly should be looked at in the next session is how to cut down on the number of construction defects.

"How do we increase the standards for builders to make sure things are done right the first time?" he said. "Then it doesn't matter what you sign."

Robert Lewis, formerly president of Lewis Homes and now with Kaufman & Broad, which bought Lewis Homes, said the clauses bring a "fair, quick, cheap and easy" result to construction defect matters.

Although the contract says "the arbitration procedures ... shall be the sole, exclusive and final means of resolving any dispute," Lewis said the company prefers mediation as the first step and then moves on to arbitration only if mediation fails.

Kelly Behrens, regional manager of the American Arbitration Association, a private, not-for-profit organization, said she prefers mediation to arbitration.

"I promote mediation, I think it is the best source or forum of alternative dispute resolution that there is," she said. "I have seen people walk out of this office that I thought would never settle and they walk out smiling and shaking hands."

The arbitration clause is just an alternative method that his company sees as a legitimate procedure, Lewis said. Kaufman & Broad has the buyer sign a separate addendum to the purchase agreement called "arbitration of disputes" to emphasize the clause.

Although the Legislature may ultimately see the issue as conflicting with state law, Lewis said the clauses are the only realistic defense against trial lawyers who he says are seizing upon construction defects to make large profits.

Leah Bryant, president of Kaufman & Broad's Las Vegas division, said, "We think that it's working well for us, as well as the buyers in allowing them to get their problems resolved a lot faster." She added that in the 22 years she has worked for the company, it has only gone through four arbitration proceedings.

But for Ted Samuels, the issue all boils down to one word: "disclosure." Samuels, who is an activist for homeowners associations, was enraged when he heard about the use of no-lawsuit clauses by Southern Nevada companies.

A native of England, Samuels said in that country potential buyers always go through an attorney who reviews the contract. But here, he said, as quick as the house goes through escrow the paperwork is ready to be signed with no questions asked. He maintains that it should be the responsibility of the state Real Estate Division to ensure that sellers are giving full disclosure to prospective buyers.

Matt Di Orio, education information officer for the state Real Estate Division, said, "The real estate agent should have a general knowledge," of contracts or have enough knowledge to refer the matter to legal counsel.

Ron Chandrin, who owns a home built by U.S. Homes, said he signed the contract with a no-lawsuit clause without realizing the implications.

He believes he was at a disadvantage because he was still living in Chicago while dealing with the Las Vegas builder. He was made to feel like it was a "take-it-or-leave-it" situation, he said.

"When they sent us a sales contract, our lawyer laughed and said, 'The laws in Nevada must really be favorable to the builder,' " Chandrin said.

Diana Sahagun is a reporter for the Sun. She can be reached at (702) 259-2320 or by e-mail at diana@lasvegassun.com