5.3 Nevada Construction Defect Law (NRS Chapter 40) & Dispute Resolution

Nevada's Constructional Defect Law ("Chapter 40")

NRS 40.600 to 40.695, usually called "Chapter 40," set a mandatory pre-litigation process for constructional defect claims about residences and appurtenances. The Legislature reformed it substantially in 2015 (AB 125) and again in 2019. Its purpose is to give contractors, subcontractors, suppliers and design professionals notice and a chance to inspect and repair before a lawsuit.

• Scope: A constructional defect is a defect in the design, construction, manufacture, repair or landscaping of a new residence, an alteration of or addition to an existing residence, or an appurtenance. Commercial buildings are outside Chapter 40.
• Exclusions and Priority: Chapter 40 does not govern personal injury or wrongful death claims. It prevails over conflicting law (NRS 40.635).

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Definition of a Constructional Defect (NRS 40.615)

A defect qualifies if it either:

1. Presents an unreasonable risk of injury to a person or property; or
2. Is not completed in a good and workmanlike manner and proximately causes physical damage to the residence, an appurtenance, or the land to which it is affixed.

2015 Reform: A code violation is no longer a defect by itself. A deviation that creates no unreasonable risk of injury and causes no physical damage does not meet the definition.

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The Pre-Litigation Process

1. Notice of Defect (NRS 40.645)

Before suing, or adding a defect claim to a complaint, the claimant must send written notice by certified mail, return receipt requested, to the contractor at its address in Board or clerk records, or its last known address. The notice must:

• State that it is given to satisfy NRS 40.645;
• Specify in reasonable detail the defects and the damage or injury to each residence or appurtenance;
• Describe the cause, if known, and the nature and extent of the damage; and
• Include a signed statement by each named owner verifying that each listed defect exists in his or her residence. For a homeowners' association, an executive board member or officer signs under penalty of perjury.

If the contractor is no longer licensed or no longer contracting in Nevada, the claimant may notify responsible subcontractors, suppliers or design professionals directly.

2. Forwarding to Subcontractors (NRS 40.646)

• Within 30 days after receiving the notice, the contractor forwards a copy by certified mail to each subcontractor, supplier or design professional it reasonably believes is responsible.
• A contractor that fails to forward the notice generally cannot later sue that party over the defect.
• Within 30 days after receiving it, each subcontractor inspects and tells the contractor in writing whether it elects to repair, with a time estimate and at least two proposed start dates.

3. Inspection (NRS 40.6462 and 40.647)

The claimant must give the contractor and responsible subcontractors reasonable access to inspect. The claimant or a representative must attend and point out the defect locations. A suit filed without allowing inspection and a chance to repair is dismissed without prejudice, or stayed if dismissal would let a limitation period run.

4. Written Response (NRS 40.6472)

The contractor must send a written response by certified mail within 90 days after receiving the notice. A subcontractor or supplier that received notice directly must also respond within 90 days. For each defect the response:

• Must state whether the party elects to repair. If the repair will force the claimant to move out, it must include money for temporary housing or storage.
• May propose monetary compensation, including contributions from subcontractors.
• May disclaim liability and give reasons.

If the party elects to repair, the claimant must allow a reasonable opportunity to do it. If it elects not to repair, the claimant may sue.

5. Mediation (NRS 40.680)

Before suing, the claim must be mediated unless all parties waive mediation in writing:

• If the parties cannot agree on a mediator within 20 days, any party may ask a mediation service to appoint one.
• Mediation is convened within 30 days and completed within 45 days after submission, unless extended.
• The claimant deposits $50, and the other parties share the remaining cost. Mediator fees are capped at $750 per day unless agreed otherwise.

Imminent Hazards (NRS 40.670)

A defect that creates an imminent threat to health or safety must be cured as soon as practicable, using only licensed trades. If not cured in a reasonable time, the owner may cure it and recover the cost plus attorney's fees.

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Consequences, Damages and Tolling

• Unreasonable Rejection (NRS 40.650(1)): If a claimant unreasonably rejects a reasonable written settlement offer and then sues, the court may deny the claimant's attorney's fees and costs and award fees and costs to the contractor.
• Contractor Non-Compliance (NRS 40.650(2)): If the contractor fails to respond, make an offer or good-faith response, or mediate, Chapter 40's damage limits and defenses no longer apply.
• Recoverable Damages (NRS 40.655):
  • Reasonable repair costs and temporary housing during repair;
  • Reduction in market value, but only to the extent caused by structural failure;
  • Loss of use and damage to other property;
  • Reasonable expert costs; and
  • Statutory interest.
• Builder's Warranty: Where a builder's warranty covers the home, the claimant must diligently pursue it, and warranty payments are deducted from any recovery.
• Tolling (NRS 40.695): Limitation and repose periods are tolled from the date notice is given until the earlier of 1 year after notice or 30 days after mediation ends or is waived. A court may extend this only for good cause.
• Board Opinions (NRS 40.6887): Any party may submit a question or dispute about a defect, repair method or responsibilities to the State Contractors Board. The Board responds within 30 days. Its answer is not binding and is not admissible in court.

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Statute of Repose (NRS 11.202 and 11.2055)

• 10-Year Bar: No action for a deficiency in design, planning, supervision, observation or construction of an improvement to real property, or for property damage, injury or wrongful death caused by one, may be brought more than 10 years after substantial completion. The 2019 Legislature lengthened the period from 6 to 10 years.
• Fraud Exception: An action for fraud in causing the deficiency may be brought at any time. This does not apply to a lower-tier subcontractor that unknowingly covered up another trade's defect.
• Not Covered: Claims for indemnity or contribution, innkeeper liability, and product defects.
• Substantial Completion Date (NRS 11.2055): The latest of the final building inspection, the issuance of a notice of completion, or the issuance of a certificate of occupancy. If none occurs, the common law decides.

$$\text{Repose Deadline} = \text{Substantial Completion Date} + 10 \text{ years}$$

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The Dispute-Resolution Ladder

Partnering / project charter       (prevention at kickoff)
        |
Initial decision maker (architect) (contract administration ruling)
        |
Direct negotiation                 (principals meet)
        |
Mediation                          (non-binding; mandatory pre-suit for Chapter 40 claims)
        |
Binding arbitration  or  District Court litigation

• Partnering: A kickoff workshop that sets shared goals and an escalation ladder to settle field disputes quickly.
• Initial Decision Maker: Under AIA A201, the architect often decides claims first. Its decision is a prerequisite to mediation under the contract.
• Mediation: Confidential and non-binding; the mediator helps the parties settle but cannot impose a decision.
• Arbitration: Private and binding, usually under the AAA Construction Industry Arbitration Rules. Awards are enforced under Nevada's Uniform Arbitration Act (NRS Chapter 38) and may be vacated only on narrow grounds such as fraud, evident partiality, misconduct or the arbitrator exceeding its powers.
• Litigation: Public, formal and slow, with full appeal rights.