As 2025 draws to a close, signs of cautious optimism are emerging in the U.S. housing market. According to the National Association of Home Builders (NAHB), builder sentiment climbed to a six-month high in October, with the Housing Market Index rising five points to 37. This number represents the most bullish figure since April. While the index remains below the 50-point benchmark that signals favorable market conditions, the upward trend suggests that builders are beginning to see light at the end of the tunnel.

Texas: A Strengthening Market

At a national level, it is clear that builder sentiment is slowly improving as mortgage rates ease. But nowhere is the momentum stronger than in Texas. Despite national uncertainty related to tariffs and labor shortages, the Lone Star State continues to punch above its weight in new housing activity.

Although Texas represents only about 9% of the U.S. population, it accounted for nearly 15% of all new-home permits issued in 2024. Continual population increases, business relocations, and relatively affordable land prices have made Texas a magnet for builders and a bright spot in an otherwise mixed national landscape.

Opportunity Brings Risk

With homebuilding sentiment on the rise, builders are likely to secure more construction contracts then in the past couple of years. However, increased business also brings increased exposure to legal risk.  Because of that, now is a good time for contractors to take another look at their construction contract and make sure that it includes the following provisions:

• Standard of Care: This clause defines the level of skill and diligence expected from the contractor. It often references industry standards or codes. Without this provision, disputes over workmanship can devolve into subjective arguments. A clear standard reduces ambiguity and sets the parties’ expectations.
  • Basic Example – “Contractor shall perform all work in accordance with generally accepted construction practices and comply with applicable building codes and regulations and the warranty tolerances defined herein.”

• Waiver of Consequential Damages: Consequential damages include indirect losses such as lost profits, rental income, or business opportunities caused by delays or defects. These damages can far exceed the contract price, so it is essential to expressly limit their recoverability.
  • Basic Example – “Owner waives all claims for consequential damages that it may have against Contractor, including, but not limited to, lost profits, financing costs, and rental income.”

• Limits on Total Liability: Contractors can cap their liability to the contract amount or available insurance coverage. This prevents unbounded exposure on projects where damages could spiral beyond the parties’ original scope.
  • Basic Example – “Contractor’s total liability for any claims shall not exceed the contract price or the amount of insurance coverage available, whichever is greater.”

• No Guaranteed Completion Date: This provision clarifies that the contractor is not guaranteeing completion by a specific date. By expressly stating this, the contractor reduces the risk that unavoidable delays, such as those caused by weather, supply chain disruptions, or owner-directed changes will be treated as a breach. Without this clause, owners may argue that any delay constitutes default, potentially exposing the contractor to claims for liquidated damages or termination. Including this language helps set the parties’ expectations and fairly allocates responsibility for delays.
  • Basic Example –  “Contractor shall use commercially reasonable efforts to achieve substantial completion in accordance with the project schedule; however, Contractor does not guarantee completion by any specific date. Contractor shall not be liable for delays caused by events beyond its reasonable control, including but not limited to weather conditions, labor shortages, material delays, or changes requested by Owner.”

• Reducing Statute of Limitations: Texas law permits parties to contractually shorten the time period for bringing claims, so long as the limitation is not reduced below two years. Including such a clause can provide contractors with greater certainty about when their exposure on a project ends.
  • Basic Example – “Any claim arising under this contract must be filed within two years of Contractor’s substantial completion.”

• Clear Warranty Standards and Tolerances: Define what constitutes acceptable work and how long warranties last. Ambiguous warranties lead to disputes over minor imperfections. Clear tolerances (e.g., drywall cracks under 1/8 inch are acceptable) prevent unnecessary litigation.

The RCLA: A Shield for Texas Homebuilders

Regardless of these contract provisions, some disputes are inevitable and unavoidable.  The most common post-contractual dispute that arises on a residential construction project is a construction defect claim.  These claims arise when a homeowner alleges that a defect in the design, construction, or repair of their residence has caused damages or a failure to meet building codes or standards.

Plaintiffs often attempt to reframe a standard construction defect claim as a violation of the Texas Deceptive Trade Practices Act (DTPA), which can allow for recovery of treble (triple) damages and attorney’s fees if the contractor’s conduct is deemed “knowing” or “intentional.” This can significantly increase a contractor’s exposure.

Fortunately, Texas law provides extensive legal protections for homebuilders through the Residential Construction Liability Act (RCLA), which is codified in Chapter 27 of the Texas Property Code. Rather than creating a new cause of action, the RCLA modifies the legal framework surrounding common homeowner claims—such as those brought under the DTPA, breach of contract, negligence, and breach of warranty. Specifically, the RCLA limits the types and amounts of damages that may be recovered and, in the case of DTPA claims, expressly supersedes them when the dispute arises from a construction defect. The statute also encourages resolution through repair offers and scripted pre-litigation procedures, helping contractors avoid expensive and time-consuming lawsuits.

Under the RCLA, contractors are shielded from speculative and punitive damages. Instead, liability is generally limited to:

• The reasonable cost of repairs necessary to cure the defect;
• Replacement or repair of damaged goods in the residence;
• Engineering and consulting fees;
• Temporary housing expenses during repairs;
• Reduction in market value (only if the defect is structural);
• Reasonable attorney’s fees; and
• Arbitration filing fees and associated costs.

How Builders and Contractors Can Activate RCLA Protections

The RCLA applies broadly to any claim for damages or other relief arising from a residential construction defect. To take full advantage of the statute’s protections, residential construction contractors must understand and follow the procedural requirements it sets out. These steps are essential, and failure to adhere to them can result in the loss of RCLA protections and expose the contractor to significantly greater liability, including liability under other statutes such as the DTPA.

When a contractor receives a demand letter or lawsuit alleging construction defects, the first step is to identify whether the RCLA governs the dispute. In the likely event it does, the contractor should promptly notify the claimant that the RCLA applies and begin preparing to follow the statute’s pre-litigation process. The key procedural milestones include:

1. Written Notice: The homeowner must provide written notice of the alleged defects at least 60 days before initiating legal action such as a lawsuit. This notice must be sent via certified mail and include a detailed description of the issues.
2. Inspection Opportunity: Within 35 days of receiving the notice, the contractor may request to inspect the property. This inspection allows the contractor to assess the nature and extent of the alleged defects and begin formulating a response.
3. Settlement Offer: No later than 60 days after receiving the notice, the contractor may make a written offer to either repair the defects or provide monetary compensation. If the homeowner accepts the offer, the contractor must complete the repairs within 60 days of acceptance.

3. If the homeowner rejects the offer and the court later determines the offer was reasonable, the homeowner’s recovery at trial will be limited to the fair market value of the contractor’s last offer.
4. Documentation: Throughout the process, contractors should maintain detailed records of all communications, inspections, offers, and repair work. This documentation is critical to demonstrating compliance with the RCLA and defending against any future claims.

By following these steps, contractors protect their ability to enjoy the RCLA’s protections, which can significantly limit the scope of damages and reduce the likelihood of prolonged litigation. Conversely, ignoring or mishandling the RCLA process can leave builders vulnerable to enhanced damages under the DTPA and other legal theories.

Final Thoughts

In a rising market where opportunity and risk go hand in hand, Texas homebuilders and residential contractors should treat contract drafting and RCLA compliance as core pieces of their risk management strategy. Doing so not only protects their business, it also promotes fair and efficient resolution of disputes in a rapidly growing housing sector.