Home Builder Still Liable For Implied Warranty Of Habitability To Subsequent Purchaser And Resulting Damages

By Corey B. Stern, Chitkowski Law Offices

In May, 2015, the Appellate Court ruled that the Implied Warranty of Habitability applied to Subsequent Purchasers, despite the fact that the Home Builder and Original Purchaser had explicitly waived this Implied Warranty and the Subsequent Purchaser bought the Property "As-Is". In this recent case , the Subsequent Purchaser made a viable claim against the Home Builder for breach of the Implied Warranty of Habitability. By law, in the construction or significant additions/remodeling of every home, the Home Builder or Remodeler warrants that the house is livable and is free from latent defects. However, a Home Builder or Remodeler can have the Purchaser waive the Implied Warranty of Habitability if done properly, and thereby, limit the Contractor's liability and monetary exposure.

The Implied Warranty of Habitability applies to developers, general contractors, subcontractors and materialmen. The Implied Warranty of Habitability provides that the home is free from latent defects, structurally sound and without substantial defects. A latent defect is one that could not be discovered from an inspection that exercised ordinary and reasonable care. A claim for Implied Warranty of Habitability must be brought by the homeowner within four (4) years after the homeowner discovers the latent defect or within ten (10) years from the date the work was performed.

The Purchaser can make a claim for Implied Warranty of Habitability against a Home Builder if it proves that: 1) there is a latent defect in the house; 2) the latent defect interferes with the intended use of the house; and 3) the latent defect were noticeable within a reasonable time after the house was purchased.

The Court held that the Waiver of the Implied Warranty of Habitability contract provision between the Home Builder and Original Purchaser was not enforceable against the Subsequent Purchaser. Additionally, the Court held that the "As-Is" contract provision between the Original Purchaser and the Subsequent Purchaser did not waive the Implied Warranty of Habitability.

For a Home Builder to have an enforceable Waiver of Implied Warranty of Habitability with the Purchaser, the Waiver must be: 1) more noticeable than other contract provisions; 2) the waiver must inform the Purchaser of the consequences of the waiver; and 3) the Purchaser must specifically sign off on the waiver contractual provision. Instead, the Home Builder should offer a 1 year warranty that defines the Parties obligations on remediation and notice.

According to the Court's reasoning, since the Subsequent Purchaser did not have knowledge and agree to the waiver of the Implied Warranty of Habitability, the Subsequent Purchaser could not be bound by that waiver. One possible way to put the Subsequent Purchaser on notice of the Original Purchaser's waiver of the Implied Warranty of Habitability is to record the contractual provision with the County's Recorder's office or to require the Original Purchaser to provide in a contract to provide an assignment of the waiver. Depending upon the manner in which the recording of the contractual provision is performed and the Subsequent Purchaser obtains the property, the Subsequent Purchaser may have sufficient notice of the Waiver of Implied Warranty of Habitability. At the very least, recording the contractual provision may provide a position which could be leveraged into a settlement, if the subsequent purchaser ever asserts a claim.

-For further information on drafting and enforcing home building contracts, waiving the implied warranty of habitability, providing warranties, and prosecuting or defending any construction litigation issue, contact Corey B. Stern from Chitkowski Law Offices at 630-824-4809 or cbs@chitkowskilaw.com.