Why This Happened: The “Condo Drought”
For nearly two decades, Oregon faced a sharp decline in condominium construction. Industry stakeholders—including developers, builders, and insurers—argued that the state’s previous construction defect liability (CDL) laws were too restrictive. Specifically, a 10-year “statute of repose” (the deadline for filing construction-defect lawsuits) created long-term “tail risk” that made financing and insuring condo projects prohibitively expensive.
As a result, many developers pivoted away from condominiums entirely, contributing to a severe shortage of entry-level homeownership options across the state.
The Legislative Response: A Balanced Approach
To jump-start development while still protecting homeowners, the Oregon Legislature passed HB 3746 to shift the industry from a reactive, litigation-heavy model to a more proactive, maintenance-focused one. The law introduced three primary reforms to achieve this balance:
- Shorter Statute of Repose: For projects declared on or after January 1, 2026, the deadline to file construction-defect claims was reduced from 10 years to 7 years. This provides developers with the predictable “hard stop” they requested, allowing for easier project insurance and financing.
- Mandatory Proactive Inspections: To compensate for the shorter legal window, the law mandates independent moisture-intrusion inspections at roughly the two-year and six-year marks. These inspections are designed to detect water-related issues early, before they escalate into systemic, costly failures.
- New Procedural Safeguards: The law adds strict transparency requirements for homeowners’ associations (HOAs). Before initiating litigation, boards must now provide formal notice to all unit owners, hold a meeting to discuss the claim, and obtain majority approval, while also offering individual owners the right to “opt out” of the legal action.
By implementing these changes, the state aimed to reduce the perceived risk of building condos, thereby encouraging new development, while ensuring that associations remain diligent about building health and owner involvement.