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CHAPTER 1

EXPRESS WARRANTIES

An express warranty is the builder's or remodeler's (warrantor's) written or oral promise that is "expressly" made to the home buyer or home owner (customer) that the work will meet certain standards and, if it does not, that the warrantor will stand behind the work by making repairs or by replacing defective components. The express warranty is part of the contract between the warrantor and the customer. The extent of a warrantor's responsibility to make repairs and to correct construction problems after the work has been completed largely depends on the specific terms of the express warranty that the warrantor provides.

Written Versus Oral

A major motivation for warrantors to provide an express warranty is to give themselves a dispute-resolution mechanism for construction problems that may develop or be discovered subsequent to closing. Using best practices, they provide an express warranty in writing in order to create a permanent, accurate record of the customer's rights and the warrantor's responsibilities. An oral warranty, like any oral contract dependent on fallible memory, may actually generate disputes over its terms and conditions or even about whether an express warranty was provided at all. Keep in mind that every time a builder or remodeler, or even an employee, makes a statement regarding the quality of the work, or makes a remark about fixing problems after completion, the possibility of an express warranty is being extended. Without a permanent written record of the promise, the customer's expectations definitely could differ from the builder's or remodeler's. The builder or remodeler might be unaware of particular statements made by sales personnel or other employees that could be interpreted as an express warranty in a court of law.

Every time a builder or remodeler, or an employee, makes a statement regarding the quality of the work, an express warranty is being extended.

Exclusive Warranty

The written warranty document includes an express warranty promise. However, there may be other promises or legally imposed responsibilities that can supplement or amend the written warranty. Additional promises concerning quality or customer service may be found in sales advertisements or in the builder's or remodeler's correspondence with the customer or may be derived from their conversations with existing or potential customers. This situation can be avoided if, by its terms, the written express warranty document is acknowledged to be the sole and exclusive warranty provided by the warrantor. Any separate printed statements or oral comments will not then be interpreted as a variance or supplementation of the builder's or remodeler's warranty responsibilities.

A Word of Caution. To avoid a claim of misrepresentation or a possible violation of the state's consumer protection laws, take care to assure that advertised promises do not conflict with the express written warranty terms.

Limited Warranty

It is a generally accepted practice to provide conditions or restrictions in express warranties that limit the extent of the warrantor's responsibility to the customer. The most common limits include conditions as to length of time that the warranty remains in effect, the specific components that are covered by the warranty, the extent of liability for damage, and the available methods for resolving disputes.

Time Restrictions. There is a point in time when residential occupants should reasonably be expected to have noticed most construction deficiencies, if any exist. And, there is a point in time when problems with a home's condition are more likely to be issues of maintenance than problems with the original construction. At either point, the warranty should cease, and responsibility for making home repairs should shift to the home owner.

The duration of warranty coverage is specified in most express warranty documents. These periods can and do vary, but a one-year warranty duration is perhaps used the most. Some express warranties may provide for longer effective periods, particularly for specific components, such as mechanical, electrical, and plumbing (often two-year coverage); or foundations or load-bearing components (often five-or ten-year coverage).

Coverage. An express limited warranty will generally restrict coverage to the replacement or repair of defective materials or workmanship. It may further limit coverage to only latent (hidden) defects that are not apparent at the time of occupancy. An express limited warranty should also specifically state which items or conditions are not covered. These nonwarranted items or conditions may include

* appliances covered by manufacturers' warranties

* exterior features such as landscaping or driveways

* damage caused by third parties or by the owner

* damage resulting from acts of God, such as storms, floods, and fires

* damage resulting from the owner's failure to service and maintain

Damage Exclusions. In some circumstances, a defective condition can lead to additional damage claims beyond the cost of the defect's repair. For example, a roof leak could result in damage to household furnishings. This is called consequential damage. Other indirect damage claims might include

* lodging expenses while repairs are being made

* lost wages for time spent away from work

* payment for mental anguish

* medical bills and damage awards for personal injuries

* the cost of inspections

* expenditures for third-party repairs

* legal fees

An express limited warranty provides an opportunity to specifically exclude or to place monetary limits (caps) on any additional damage or expense claims that may arise as the result or consequence of a defect covered by an express warranty.

Dispute Resolution. Even though the replacement and repair provisions of an express warranty provide a means of resolving disputes between the warrantor and customer, disputes may still arise over issues such as the adequacy of repairs or warranty coverage. A limited express warranty can specify the method of dispute resolution that may be employed, such as the use of mediation or binding arbitration, rather than resorting to filing a lawsuit. A limited express warranty can also designate the procedures to be employed prior to initiating formal dispute resolution, such as requiring a notice to a warrantor of a claimed defect and providing an opportunity to inspect a defect and to make a repair.

Warning. The forms and procedures contained in this book are simply illustrative. The authors are providing them for information purposes only. Warranty law varies widely among the states, and in some circumstances, local municipal law may impose different requirements as well. Differences between the types of home construction projects, such as new home construction and remodeling, may greatly affect the provisions of particular warranties. Draft your warranty agreements with great care and have a local attorney experienced in construction law review them. Sample disclaimer language used in this book is for informational purposes only. It is not suitable for every jurisdiction.

IMPLIED WARRANTIES

In addition to the express warranties that builders knowingly and deliberately provide for new home construction, regardless of the builder's intentions, these hidden, or implied, warranties are imposed primarily by state court rulings or occasionally by statute, and they affect new home builders-vendors.

The work of a remodeler on an existing home does not normally subject the remodeler to liability under an implied warranty for new home construction. However, in at least one state, Illinois, an implied warranty is imposed on the construction of a major addition to an existing home.

The work of a trade contractor on a new home does not make the trade contractor liable to the property owner under an implied warranty for new home construction. However, the general contractor (builder) is responsible for the work of the trade contractors, and the builder will be liable under an implied warranty for that work — even though the trade contractors are not.

However, remodelers and trade contractors may not be exempt from all implied warranty liability. Other implied warranties could apply to them under certain circumstances. Many courts hold that whenever someone claims to be specially qualified to do a particular type of work, that person is subject to an implied warranty that (a) the work will be done in a workmanlike manner, and (b) the resulting construction will be reasonably fit for its intended use.

What happened to the doctrine of caveat emptor? As late as 1957 the courts for all the states consistently held that without an express warranty, a home buyer had no redress for faulty construction, i.e., let the buyer beware. However, the dynamics of home construction changed in the twentieth century. Homes became more complicated in their construction, design, and features. The addition of new heating, electrical, and plumbing systems and insulation; the use of new building materials and components; and the mass production of homes using subcontracted labor all added to the complexity of home construction.

Courts began to recognize that an ordinary purchaser lacked the expertise to determine whether a new home was of sound construction. As the cost of a new home became more and more expensive (a typical family's single greatest financial commitment), state courts began to listen to the argument that builders-vendors, who were perceived as construction experts, should bear more responsibility for delivering a high-quality product. One by one, the courts decreed that for new home purchases, the doctrine of caveat emptor was fundamentally unfair and against public policy. Today, with the sole exception of Utah, all states recognize implied warranties for new homes.

These implied warranties are generally of two types. The implied warranty of habitability provides that a new home must be sufficiently safe and sound to be actually lived in and to serve its function as a residence. The implied warranty of workmanlike construction goes beyond the issue of habitability and provides that the workmanship must meet the standards of quality that prevail at the time and place of construction. These implied warranties pertain only to latent defects, defined as problems with the work or the building materials that are not discovered, nor reasonably discoverable, at the time of closing. Courts also require these latent defects to be of a significant nature such that they affect the use or livability of a home. However, the current trend in court decisions is to lessen the latent defect's required degree of significance.

Building code violations are matters separate and apart. Certainly, code violations, if the condition is latent, may constitute a breach of the implied warranty of habitability or workmanlike construction. However, a house can pass all code requirements and still have latent defects that are subject to liability under implied warranties.

Originally, courts imposed implied warranties only for the benefit of the original new home purchaser. They ruled that to benefit from an implied warranty, the home owner had to have a direct contractual relationship with the builder-vendor under a doctrine called privity of contract.

In 1976 the Indiana Supreme Court became the first state court to extend implied warranties to subsequent purchasers. It dispensed with the privity of contract doctrine in favor of the "public policy" consideration that a new home should be habitable and of workmanlike construction regardless of who the present owner might be. Not all states have abandoned privity of contract, but the trend among state courts appears to be in that direction. Nebraska is the latest state to extend implied warranties to subsequent purchasers.

Sample Case Law

NEW JERSEY.McDonald v. Mianecki, 398 A.2d 1283 (N.J. 1979). The doctrine of implied warranty of habitability applies to the construction of new homes by builders-vendors whether or not they are mass developers. The implied warranty of habitability encompasses the potability of water.

WASHINGTON.Stuart v. Coldwell Banker Commercial Group, Inc., 745 P.2d 1284 (Wash. 1987). The doctrine of implied warranty of habitability imposes liability upon builders-vendors in favor of original purchasers of residential property for egregious defects in the fundamental structure of the home. The implied warranty of habitability does not provide recovery for defects in exterior, nonstructural elements adjacent to the dwelling unit (such as private decks and walkways).

ILLINOIS.VonHoldt v. Barba & Barba Construction, Inc., 677 N.E.2d 836 (Ill. 1997). The court noted that it had previously held that the doctrine of implied warranty of habitability did not apply to the refurbishing and renovation of existing homes. The court observed that this ruling applied where the project had not been significant. The court distinguished the circumstances in the present case because the builder had constructed a multilevel addition to an existing home, increasing the size of the original house by 40 percent. The court held that, when a builder makes a significant addition to a previously built home, an action for latent defects exists under the doctrine of implied warranty of habitability.

MASSACHUSETTS.Albrecht v. Clifford, 767 N.E.2d 42 (Mass. 2002). The court noted that the implied warranty of habitability that attaches to the sale of new homes by builders-vendors does not make the builder an insurer against any and all defects in a home. The court held that to establish a breach of implied warranty of habitability, the home owner must demonstrate that (a) a new house was purchased from a builder-vendor; (b) the house contained a latent defect that manifested itself only after purchase; (c) the defect was caused by the builder's improper design, material, or workmanship; and (d) the defect was not trivial or aesthetic but posed a substantial question of safety or made the house unfit for human habitation.

NEBRASKA.Moglia v. McNeil Company, Inc., 700 N.W.2d 608 (Neb. 2005). Subcontractors are not liable to property owners for any breach of implied duty to perform in a workmanlike manner. Unlike subcontractors, general contractors are liable to new home owners under the implied warranty of workmanlike performance. On the basis of public policy, the court rules that privity should not be required between a remote purchaser and a general contractor with respect to the implied warranty of workmanship and habitability. The implied warranty imposed on general contractors for new home construction is therefore extended to subsequent purchasers. Liability is limited to latent defects that (a) manifest themselves after the subsequent purchase and (b) that are not discoverable at the time of subsequent purchase by reasonably prudent inspection.

DISCLAIMERS

Under certain circumstances for various reasons, a builder or remodeler may want to disclaim all warranties. For example, a remodeler who is called in to finish someone else's work or to repair that work may wish to disclaim all warranties because deficiencies in the original construction might be attributed to the remodeler. Or a disclaimer of warranties could simply be a price factor. For example, to receive a rock-bottom price, a client may need to waive all warranties to avoid paying for potential warranty repairs. Acceptance of the work in "as is" condition is one example of a disclaimer of all warranties.

Disclaimers of Implied Warranties

Builders-vendors, particularly those who provide express limited warranties to their customers, may also want to disclaim the implied warranties that apply to the sale of new homes. Implied warranty law is subject to vague and unpredictable interpretations that can vary from one court decision to another. Courts often disagree on whether a home is habitable, on what constitutes an implied warranty defect, and on what are the prevailing standards of construction for a specific locality. Builders and home buyers are both left to guess the extent of their rights and responsibilities. Lacking clear guidance, a builder's and a home buyer's expectations can differ, and it may take a lawsuit to sort the matter out. Using an express limited warranty that disclaims all implied warranties eliminates this uncertainty and confusion.

The duration of liability is another reason that a builder may want to disclaim an implied warranty. Home owners should have the opportunity to live in their homes and notice whether any problems develop that were not apparent at closing. Over time, the quality of the builder's original construction becomes less central to the home's current condition and will be overshadowed by the home owner's maintenance responsibilities.

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Excerpted from "Warranties for Builders and Remodelers"
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Copyright © 2007 BuilderBooks.
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