New Home Warranties

The law in most states now seems committed to the proposition that a residential developer (builder-vendor) impliedly warrants to the buyer that the home was built in a workmanlike manner and is suitable for habitation. Carpenter v. Donohoe, 388 P.2d 399 (Colo. 1964). Definitions: “Implied warranty” is an assurance of quality established by law rather than by contract between the parties; “workmanlike manner” means generally that the work meets the standard of workmanship prevailing in the particular locality involved; and “suitable for habitation” means that the home is livable – providing a suitable shield from the elements and the usual characteristics of a residence.

The courts have fashioned these implied warranties to protect buyers who are otherwise presumed to be incapable of protecting themselves against construction and construction-related deficiencies about which home builders should be more knowledgeable and over which the builders had control. Rusch v. Lincoln-Devore Testing Laboratory, Inc., 698 P.2d 832 (Colo. App. 1984).

Colorado courts have actually taken the lead among state courts in fashioning the implied warranty rule to new home builders. Colorado appellate court cases have held builders liable to purchasers for structural defects resulting from unstable soil conditions, and for the consequences of building code violations.

The Colorado Court of Appeals has also ruled that the implied warranty of habitability includes a sufficient quantity of potable drinking water. Mazurek v. Nielsen, 599 P.2d 269 (Colo. App. 1979). Also, the Colorado Supreme Court has held that the fact that a builder who repurchased one of its homes, then corrected some deficiencies and later resold the home did not avoid the builder’s implied warranty to the new purchaser.

A new wrinkle was added not long ago by a Colorado Court of Appeals decision which (over a strong dissent of one of the three judges who heard the case) ruled that the implied warranty rule did not apply to a builder who built the house for his own use and later, because of financial reverses, sold it. His purchaser was held not entitled to recover under the implied warranty rule. The court’s reasoning was that because the home was built for the personal use of the builder and not for public sale, the builder should not be responsible for implied warranties.

G-9 Much debate has been centered over that decision, particularly in view of the strong dissent. On March 10, 1980 the Colorado Supreme Court agreed to review the Court of Appeals decision and may change that rule. If so, this column will report on the eventual outcome.

Damages recoverable for breach of implied warranty can either be the cost of corrections or the difference in the value of the home between what that value would have been if the home were built in a workmanlike manner and habitable compared with what it is worth on the market in its defective condition. Rescission or forced repurchase by the builder may also be awarded.

New home builders should thoroughly acquaint themselves with the implied warranty risks incident to their business operations. Construction in a workmanlike manner with a resulting home fit for habitation will cause little problems in this regard. Absent those elements, however, serious trouble for the builder may result.

1 Update Note: It did. The Colorado Supreme Court reversed the court of appeals. Sloat v. Matheny, 625 P.2d 1031 (Colo. 1981).

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