Beacon Residential Community Assoc. v. Skidmore, Owings & Merrill, LLP (Cal. Supreme Court., 07/03/2014, S208173)

On July 3, 2014, the California Supreme Court decided the much watched case Beacon Residential Community Assoc. v. Skidmore, Owings & Merrill, LLP.  The court held that the “principal architect” “owes a duty of care to future homeowners in the design of a residential building . . . even when they do not actually build the project or exercise control over construction.”  (Emph. added.)

The case arose out of the construction of a residential building in San Francisco that was first rented for two years but was ultimately sold as condominiums.  Following the sale, the Homeowners Association brought claims against the project’s developer, contractor, and architect, claiming various construction defects including “solar heat gain” resulting from the defendants’ approval of allegedly substandard windows and a building design that lacked adequate ventilation.  The principal project architect, Skidmore Owings & Merrill LLP, dba HKS Architects, Inc., argued that regardless of its input into the original design, that input consisted of recommendations only.  It did not control the owner’s decisions as to how to proceed with construction and therefore should not be held liable to third party homeowners for alleged defects resulting from those decisions.  Although the trial court agreed, California’s Supreme Court reversed, issuing a broad rule creating potentially extensive liability for architects who design residential projects.

What This Means for Owners and Developers:  In light of the ruling, developers and owners may have trouble hiring architects to design residential projects.  Architects will likely become more concerned about whether their plans are built as designed, about documenting changes to the plans made by the owner, and more hesitant to make value engineering recommendations and give other input during the Construction Administration phase of the project.  In short, it will be harder to get quality architects to work on residential projects, and more expensive and contractually difficult when it happens.

What it Means for Architects:  Homeowners associations will now argue that architects should have unfettered liability for all design defects in residential construction projects – even where the architects didn’t make the ultimate decisions about how the project should be built.  Architects will be more hesitant about the role they play on the project, contractual limits on their liability, and the availability of insurance coverage.  Architects may also become more concerned about the processes a developer establishes for the resolution of defect and design claims.

What Solutions Are Available?  The insurance industry will probably eventually offer solutions that take some of the sting out of the current decision.  In the meantime, residential developers may face hurdles to hiring quality architects for their projects, particularly attached residential projects..  Developers may want to review their dispute resolution procedures to ensure they cover design defects as well as construction defects and that their dispute resolution provisions are updated to reflect the recent case law trends extending liability to common law claims.