Builder Beware!

In the latest of a two-decade series of cases dealing with the liability of residential developers, the Colorado Court of Appeals recently added further dimension to the implied warranty of habitability law in Colorado. In its December 1983 decision, that Court ruled on six points:

- those who build homes for resale (builder-vendors) impliedly warrant that their homes are habitable

- a builder-vendor is one who either builds, participates in building or supervises the building and may even be a first time builder-vendor. For instance, people building their own homes who, in turn, plan to or may sell them after only a brief period of family occupancy may be builder-vendors

- the implied warranty of habitability imposes liability upon the builder-vendor merely upon proof of a defect due to improper construction, design, or preparation o liability cannot be avoided, even when the defect could have been discovered upon a reasonable examination of the premises by the buyer

- it is immaterial whether the buyers knew that the house had been built by the people from whom they purchased

- the implied warranty of workmanlike construction and habitability may be limited by clear unambiguous language in the contract of purchase-but that language will be strictly construed against the builder vendor if challenged. A simple "as is" clause in the contract is probably insufficient. The recent case involved an Aspen, Colorado home built by a man and wife who did most of the construction work themselves. Like three of their earlier homes, they completed the one in question, lived in it for a short time and then sold it. The trial court ruled that the couple had willfully concealed the presence of the defects and the fact that they had no certificate of occupancy. Therefore, punitive (exemplary) damages were also awarded.

Punitive damages are not commonplace in contract actions. However, the court declared:

"Where, however, as here, the facts...establish willful and wanton conduct and reckless disregard for the rights of the [buyer], the maleficent intent on which exemplary damage awards in tort [non-contract wrongful conduct] are based is present, and exemplary damages may be awarded though the action sounds in contract."

The amount of the punitive damages awarded was measured by the attorney's fees and the costs the buyers incurred in prosecuting their claim against the sellers.

This recent case was Davies v. Bradley, 676P.2d 1242 (Colo. App. 1983).

Other Colorado appeals court cases have ruled that even those who do not buy directly from a builder-vendor may recover for breach of the implied warranty of habitability and that a builder-vendor who repurchased a home, fixed it up, and then resold it would also be liable for implied warranties.

Long gone are the days of caveat emptor-buyer beware. It's now builder beware!

Update Note: On September 8, 1987 the Colorado Supreme Court changed the rule in Colorado. It decided that punitive damages cannot be awarded in breach of contract cases. Mortgage Finance, Inc. v. Podleski, 742 P.2d 900 (Colo. 1987).