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After having a house built by a Homebuilder, the purchasers sold it to another family three years later, and the new owners discovered water infiltration around their windows two years after that and filed suit against the Builder asserting breach of implied warranty of habitability.  The Supreme Court of Pennsylvania explained that the court had never before considered whether the implied warranty of habitability extends beyond the initial user-purchaser of a home to a second or subsequent purchaser.  After explaining the policy reasons for establishing the Builder’s implied warranty, the court held the implied warranty of habitability extends to the subsequent purchasers of a home.  Rejecting the Builder’s argument that this would lead to unlimited liability against homebuilders, the court stated that the homeowner still has the burden to show that the alleged defect is “latent” and attributable to the builder’s design or construction, and affects habitability.  Moreover, said the court, all homeowners must still bring their claims within the 12-year period set out by the statute of repose.  Conway v. Cutler Group, Inc., 58 A.3d 155 (PA 2012).

In reaching its decision here, the court analyzed the public policy reasons for the implied warranty.  It stated that previous decisions had recognized that the implied warranties of habitability and reasonable workmanship were necessary to equalize the disparate positions of the builder-vendor and the average home purchaser by safeguarding the reasonable expectations of the purchaser who is compelled to depend upon the builder-vendor’s greater manufacturing and marketing expertise.  The implied warranty of habitability covers “defects which would not be apparent to the ordinary purchaser as a result of reasonable inspection.”   Privity of contract was previously found by the court not to be a requirement for asserting a breach of warranty claim against the builder of a new residential unit.

Citing previous decisions, the court stated:

 “Our Supreme Court observed that a purchaser of a new home ‘justifiably relies on the skill of the [builder] that the house will be a suitable living unit.’  By the same token, a second or subsequent purchaser also implicitly relies on the home builder’s skill that the home will be a habitable one…. [A] builder ‘holds himself out as having the necessary expertise with which to produce an adequate dwelling….  Therefore, the builder is certifying that the home as a structure will be habitable and free from latent construction defects affecting habitability; regardless of how many times title changes hands.  A second or subsequent purchaser is entitled to the same assurances as the original purchaser that the home the builder has constructed is habitable for human living. By its very nature the implied warranty of habitability shifts the risk of latent defects from the initial homeowner to the builder because the builder is the party with the ‘necessary ‘expertise’ that the initial purchaser does not possess. When a home is sold form the initial purchaser to a second purchaser, neither party to that sale possesses the expertise that the builder does.”

 “If we were to accept Builder’s position, it would present problematic consequences.  For example, if a given structural defect does not materialize until a home is five-hears old, and the original purchaser is still occupying the home, he or she may recover under the implied warranty of habitability.  However, if the same defect materializes when a home is five-years-old, but the original purchaser sold the home after the third year, the current homeowner cannot recover.  We conclude that allowing such divided recovery based on whether the home is sold, a factor that is immaterial to whether a ‘defect would be apparent to ordinary purchaser as a result of a reasonable inspection,’ would be inherently unfair….  Therefore, the risk of latent defects affecting habitability in the home that do not materialize for years after construction properly rests with the party who built the home, irrespective of whether the homeowner is the original buyer.”

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 15, No. 3 (Mar 2013).

Copyright 2013, ConstructionRisk, LLC