Monday, October 5, 2015

New Construction Implied Warranties Waived By the Initial Buyer Can Still Extend to Subsequent Buyers

Illinois recognizes an implied warranty of habitability by the builder-seller of a new construction home to the buyer, that the home will be suitable for habitation.  This warranty is breached when (1) there are hidden, latent defects in or around the residence, that (2) interfere with the dwellers' use of the residence. See Board of Directors of Bloomfield Club Recreation Association v. Hoffman Group, Inc.

Builders can disclaim this implied warranty and buyers can waive it, by an express written agreement, provided that the disclaimer specifically references the implied warranty of habitability, the disclaimer language is brought to the purchasers' attention, as well as the consequences of waiver, and the purchasers knowingly waive their right to pursue any action for breach of the implied warranty of habitability.  This is often coupled with a replacement, express warranty from the builder (for example, to fix any defects within the first year after construction).

The recent case Fattah v. Bim provides a reminder of the strict parameters for the warranty, and also that the warranty, even if effectively waived by the initial purchaser, can still be claimed by a subsequent purchaser who did not knowingly waive it, even if the second owner bought the house "as is."  In Fattah, the issue involved a patio supported by a retaining wall behind the house.  The retaining wall failed and the patio collapsed four months after the second buyer moved into the property (February 2011, after the house had been built in 2007).  Extending the warranty to a subsequent purchaser is not new, and the Fattah court cites the 1982 Illinois Supreme Court decision in Redarowicz v. Ohlendorf on this point.

The "as is" agreement between the buyer and seller was not an agreement between the second owner and the builder, and therefore the court found this could not be sufficient basis for the builder to claim it amounted to a knowing waiver of the warranty.

The ruling begs the question, how can the builder better protect itself and extend the warranty to subsequent buyers?  Could for example the builder record a copy of the waiver of the implied warranty, so that any subsequent purchaser would be deemed to have at least constructive knowledge of its existence?  If the buyer went ahead with the purchase and said nothing, would that be enough to constitute acceptance of the waiver (and therefore a "knowing waiver" by the new buyer)?  The answer is unclear from this opinion, but this step would seem a relatively simple and prudent one that builders could take to at least strengthen their position.


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