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Builders Beware; Subsequent Purchasers of Homes Get Implied Warranty

Recent decisions out of the Pennsylvania Superior Court and the U.S. District Court for the Western District of PA have greatly expanded the rights available to subsequent home purchasers. Specifically, both courts have ruled that the implied warranty of habitability was available to subsequent purchases, a remedy that was previously only available to original purchasers. The implied warranty of habitability provides the purchaser of a newly constructed home with implied warranty protection from the home’s builder-vendor that the home is constructed in a reasonably workmanlike manner and fit for habitation. This judicially created doctrine shifts the risk of certain defects in the construction of a new home from the purchaser to the builder-vendor. Of course, some defects that affect the habitability of a home do not materialize until years after the home is built. The state Superior Court has now decided that the risk for these defects should be borne by the builder-vendor of the home regardless of whether the original purchaser or a subsequent purchaser discovers the defect.

A 2006 Superior Court case, Conway v. Cutler Group, was the first case out of PA to expand the warranty.  The Pennsylvania Superior Court began its opinion by outlining the history of the doctrine of the implied warranty of habitability and stating that the judicially created doctrine equalizes the bargaining power between a builder and a purchaser of a home. Typically, a home purchaser has little experience or knowledge in assessing a home’s quality of construction, and even a thorough home inspection may not uncover some latent defects. Although many home builders provide some kind of express warranty or guaranty in an agreement of sale, a builder is not required by Pennsylvania law to include in an agreement of sale an express warranty or guaranty about the quality of construction of a new home.

The Conway decision may have significant consequences in expanding a home builder’s liability exposure. Importantly, the Conway decision does not extend the time period during which a builder-vendor faces the prospect of a claim for breach of the implied warranty of habitability. However, to the extent that a new home is resold sooner than 12 years after it is first built, the Pennsylvania Superior Court’s decision that an implied warranty of habitability claim does not require a contractual relationship to exist between the builder-vendor and the suing homeowner expands, as a practical matter, the possibility of claims against the builder-vendor arising out of a home’s original construction.

In construction law, proper contract drafting can potentially eliminate or at least reduce the exposure to liability under the law of implied warranty. Although Pennsylvania case law allows a builder-vendor to obtain from its home purchaser an express waiver of an implied warranty of habitability claim using clear, unambiguous language that is sufficiently particular to put the purchaser on notice of the right that the purchaser is waiving, a significant question left unanswered by the Conwaydecision is whether, and how, an express waiver given by the first purchaser of a home affects the rights of a subsequent purchaser of the same home under an implied warranty that will now extend to that subsequent purchaser. This question will remain open until it is answered by a future court decision. Until then, builder-vendors of new homes in Pennsylvania should consider what steps might be taken to respond to the Superior Court’s expansion of the implied warranty of habitability.

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