In many states, the implied warranties of workmanship and habitability automatically attach to contracts between builder-vendors and new home buyers. Builder-vendors are defined as “persons or entities engaged in constructing homes on real estate they own for sale to the home buying market.” These implied warranties provide a guarantee against certain structural defects not otherwise provided for in the written terms of the contract. While the warranties offer additional protection to the home-buying public, they can expose builder-vendors to unanticipated liability.
The good news for builder-vendors is that many jurisdictions allow the parties to a contract for the sale of a new home to disclaim the implied warranties. While the relevant law in this area varies from state to state, the following general techniques have been effective in many jurisdictions to disclaim implied warranties the parties did not intend to apply to the new home sale. There are also certain “contracting pitfalls” that builder-vendors should avoid. While the implied warranties have been extended to commercial construction contracts in rare cases, the following discussion is limited to the residential construction context.
Implied Warranties of Workmanship and Habitability
Broadly speaking, a warranty is a “promise that something in furtherance of the contract is guaranteed by one of the contracting parties.” Warranties can be express or implied. An express warranty is a promise explicitly included in the terms of a contract. Meanwhile, an implied warranty is one that arises “by operation of law because of the circumstances of the sale.”
The implied warranties of good workmanship and habitability attach to contracts for the sale of a recently completed home and, in some jurisdictions, the sale of a home under construction. In Tennessee, for example, the builder-vendor implicitly warrants to the initial buyer that the workmanship in the home and its fixtures are “sufficiently free from major structural defects” and that the home has been “constructed in a workmanlike manner.”
The implied warranty of habitability is closely related and imposes an implied covenant by the builder-vendor that the house is “reasonably suited for its intended use.” In other words, the builder-vendor warrants to the buyer that the home is safe, sanitary, and otherwise suitable for human habitation.
Implied warranties apply even when they are not included in the contract simply by operation of law. One or both of the implied warranties has been in adopted in a large number of states, including Alabama, Arkansas, Florida, Illinois, Massachusetts, Missouri, North Carolina, Pennsylvania, Tennessee, and Texas. Therefore, if the parties to a new home sales contract do not intend for any implied warranties to be included, they must be expressly disclaimed. To do so properly requires the proper techniques.
Disclaiming Implied Warranties
Many jurisdictions adopting implied warranties allow contracting parties to disclaim them. While disclaimer requirements vary from state to state, most states require them to be written in “clear and unambiguous language.” For instance, disclaimers in Pennsylvania “must contain language which is both understandable and sufficiently particular.” Specificity in the drafting of a disclaimer clause is important because courts tend to resolve ambiguity in favor of the buyer who may lack the ability or expertise to discover defects in a new home.
A Tennessee court has found inadequate a disclaimer that stated: “Purchaser accepts Property in existing condition, no warranties or representations having been made by Seller or Agent which are not expressly stated herein.” The court explained that the disclaimer did not provide the buyer with adequate notice of the specific implied protections being waived.
Under Florida law, a disclaimer of an implied warranty is not effective unless it specifically identifies the items that the buyer agrees to exclude. For example, a clause disclaiming the “housing merchant implied warranty or any other warranties, express or implied” was ineffective because it failed to disclaim specific items such as the risk of water intrusion. Likewise, a clause purporting to exclude all representations not set out in the written contract was held ineffective in disclaiming the implied warranty of good workmanship.
In Texas, the implied warranty of good workmanship can be disclaimed when the contract provides for the manner, performance, or quality of the home. The warranty of habitability can be disclaimed, as long as it is accomplished with a specific rather than general disclaimer provision.
Under Arkansas law, an express warranty regarding workmanship can replace the implied warranty of workmanship. However, such a disclaimer will not displace the implied warranty of habitability. In Missouri, builder-vendors must prove the buyer actually understood what he or she was waiving for a disclaimer to be effective.
Finally, the Massachusetts Supreme Court has forbidden disclaimers of the implied warranty of habitability altogether because this would “defeat the very purpose of the warranty.”
Whether the implied warranties of workmanship and habitability apply is a state-specific inquiry. Additionally, state laws regarding disclaimer vary considerably. Ultimately, builder-vendors should be aware of any implied warranties in the contracts they execute and may want to consider whether a disclaimer is an option worth pursuing.