Sep 08, 2014

The Pennsylvania Supreme Court Declares Builders’ Implied Warranty of Habitability Does Not Extend to Subsequent Purchasers

On August 18, 2014, the Supreme Court of Pennsylvania decided an issue of first impression in Conway v. Cutler Grp., Inc.: whether a builder’s implied warranty of habitability extends beyond the first user-purchaser of a newly constructed residence to subsequent purchasers. The Court held that the implied warranty of habitability does not so extend.

A builder’s implied warranty of habitability is a concept grounded in contract law, which protects purchasers of a newly built residence from latent defects in the residence. It provides purchasers a remedy for breach of contract against the builder if such defects are discovered within the statutory period.

Generally, in order to bring a claim for breach of warranty, a direct, contractual relationship must exist between the seller and purchaser called ‘privity of contract.’ While first purchasers of a home have ‘privity’ with the builder – because they sign an agreement of sale – subsequent purchasers do not have privity.

The Supreme Court ultimately relied on this basic contract principal in holding that because a subsequent purchaser does not have privity of contract with the builder, it cannot bring a claim against the builder for breach of the implied warranty of habitability if latent defects are discovered. This holding severely limits a subsequent purchaser’s ability to recover for defects caused by the builder’s faulty construction.

In rendering its decision, the Supreme Court overturned the Superior Court’s 2012 holding in this case. The Superior Court had reasoned that a builder’s implied warranty of habitability is based on public policy considerations, and therefore, public policy should be considered in determining whether the warranty should be extended to subsequent purchasers. The public policy considerations concern the disparate knowledge and bargaining positions of the builder and purchaser in contracting for sale of a residence. The prior Superior Court decision held that such disparity requires heightened protection for the purchaser who relies on the builder’s expertise and representations that the residence is habitable, and determined that extending the implied warranty of habitability to subsequent purchasers provides this protection.

While the PA Supreme Court acknowledged the potential public policy concerns expounded by the Superior Court, it determined that such decisions regarding public policy should be left to the Pennsylvania General Assembly and would not be resolved by the judiciary.

It should be noted, however, that the Supreme Court specifically limited its holding to provide that a subsequent purchaser of a previously inhabited home cannot bring a contract claim against the builder for breach of the implied warranty of habitability. The Court did not address whether a subsequent purchaser may bring this claim if he or she is the first inhabitant of the residence and the first person who may be exposed to latent defects.

To read the Pennsylvania Supreme Court’s decision, please click here.

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