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ALERT: Subsequent Home Buyers are not Protected by Implied Warranty of Habitability

September 2, 2014

The Pennsylvania Supreme Court recently slammed the door on claims against home builders for breach of the implied warranty of habitability brought by subsequent home buyers.  Just two years earlier, the state Superior Court held that home owners who were not the original purchaser, and therefore had no direct contract with the home builder, could nonetheless sue the home builder for breach of the implied warranty if latent defects were later discovered.  The Superior Court's decision gave subsequent home buyers a potent litigation weapon against any home builder that did not already provide transferrable warranties, and resulted in a number of such lawsuits being filed across the state.  The Supreme Court has now closed the flood gate. 

In Conway v. The Cutler Group, the Supreme Court held that only original home buyers can sue a home builder for breach of the implied warranty of habitability.  In that case, the Conways had purchased their home in 2006 from David and Holly Fields, who three years earlier had purchased the home from builder The Cutler Group.  Several years after moving in, the Conways discovered water infiltration through the windows of their master bedroom which they attributed to Cutler’s defects in construction.  They sued Cutler for breach of the implied warranty, a judicially created doctrine adopted by the Pennsylvania Supreme Court over forty years ago as a means to level the playing field between home builders and home purchasers.  Until the Superior Court’s decision in Conway, it was generally understood that privity of contract was required to maintain an implied warranty claim, meaning the implied warranty did not extend beyond the original purchaser.  The Superior Court’s decision changed the landscape dramatically, exposing the home builder industry in Pennsylvania to a rash of new lawsuits brought by home owners with whom they had no contract.

While acknowledging a split among state courts throughout the country, the Supreme Court refused to extend the implied warranty beyond the original home purchaser, noting that its earlier decision adopting the implied warranty was rooted in the existence of a contract between the builder and purchaser, which was lacking in the Conway case.  Absent privity of contract, therefore, an implied warranty claim cannot be maintained.  The Supreme Court was not unsympathetic to the arguments for extending the implied warranty to subsequent purchasers, but in the end determined that it was for the legislature, not the courts, to make that policy determination: “After careful review of the arguments of the parties, the comments of amici, and the reasoned decisions of our sister states on this issue, we conclude that the question of whether and/or under what circumstances to extend an implied warranty of habitability to subsequent purchasers of a newly constructed residence is a matter of public policy properly left to the General Assembly. We do not minimize the potential concerns, nor do we disregard the rationales set forth by the parties and amici; to the contrary, many of the arguments are cogent and compelling.  However, the arguments are predominantly grounded in policy considerations that necessitate judgments reserved to the legislature after fact-finding and weighing of the ramifications of any decision.”

Although significantly limiting the liability of home builders, the Conway decision does not leave subsequent purchasers completely without protection.  Many subsequent purchasers, for example, do in fact enjoy warranty protection in the event the warranties provided by the home builder to the original purchaser are transferable, which often is the case.  Moreover, the Conway decision should not impact claims against home builders alleging negligence.  Indeed, the Supreme Court emphasized that the Conways’ complaint alleged only a single count for breach of the implied warranty, without any assertion of negligence.  Further, as noted by Justice Max Baer in his concurring opinion, by enacting the Real Estate Seller Disclosure Law ("RESDL"), the Pennsylvania legislature has already taken steps to protect subsequent home purchasers from defects that affect habitability.  The RESDL, for example, requires home sellers, other than the builder of a residence, to disclose to the buyer "any material defects with the property."  And it enumerates sixteen subjects requiring disclosure, relating to various aspects of the property, including the roof, basement, termites, sewage, electrical and heating systems, as well as the presence of hazardous substances.  The RESDL may not completely protect subsequent purchasers, especially in cases of latent defects unknown by the seller and therefore not subject to the RESDL’s disclosure requirements, but it does afford a comprehensive legislative scheme from which subsequent purchasers can seek relief.     

For questions about the Conway decision, or other construction-related issues, please feel free to contact Anthony R. Twardowski, Esq., Co-Chair of Zarwin Baum’s Commercial Litigation Practice Group, at 267-765-9621, artwardowski@zarwin.com.   


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