Laying Down the Law – Can Buyers Legally Waive the Implied Warranty of Workmanship and Habitability Re: New Home Construction?
December 1, 2021
As the homebuilding booms sweeps across the nation, a record number of homeowners are stepping foot into their newly-constructed properties for the first time. The excitement is understandable—the bidding process is in the rear-view mirror and the envisioned home has become a reality. That excitement may give way, however, to frustration and disappointment when it is discovered that the building process included defective workmanship or materials. In this instance, homeowners may have legal claims against their builder for damages caused by the defective workmanship or materials. In turn, to combat legal risk, many homebuilders have sought to control costs and minimize risk with broad disclaimers of liability and separate warranty agreements that define the representations to which the homebuilder is bound.
One of the legally implied warranties builders give to buyers is the implied warranty of good workmanship and habitability, which provides the homeowner a guarantee that the home has been constructed in accordance with current applicable building practices, codes, and regulations, and that the home is fit for residents to live in. To protect themselves and to minimize risk and costs, many builders have included an express waiver of this warranty in the construction purchase contract, in which the buyer agrees to waive its legal right to sue the builder for any poor workmanship. These contractual provisions have recently given Arizona courts significant pause. The question: can a buyer waive—and a homebuilder disclaim—the implied warranty of workmanship and habitability?
In Zambrano v. M & RCII LLC, the Arizona Court of Appeals determined that builders cannot disclaim the implied warranty of workmanship and habitability even if the buyer executes a waiver of the warranty. In that case, the purchase agreement Zambrano signed with M & RC for the construction of her new residence included the following provision:
THE HOME BUILDER’S LIMITED WARRANTY REFERENCED ABOVE IS THE ONLY WARRANTY APPLICABLE TO THE PURCHASE OF THE PROPERTY. ALL OTHER EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, HABITABILITY AND WORKMANSHIP ARE HEREBY DISCLAIMED BY SELLER AND ITS AFFILIATES AND WAIVED BY BUYER, ANY IMPLIED WARRANTY THAT MAY EXIST DE[S]PITE THE ABOVE DISCLAIMER IS HERE-BY LIMITED.
The express warranty also included the following disclaimer:
WE make no housing merchant implied warranty of habitability or any other warranties, express or implied, in connection with the sales contract or the warrantied HOME, and all such warranties are excluded, except as expressly provided in this BUILDER’S LIMITED WARRANTY. There are no warranties which extend beyond the face of this BUILDER’S LIMITED WARRANTY.
Zambrano sued M & RC, alleging that because there were popped nails in the home’s drywall and defects affecting the home’s foundation, the builder had breached the implied warranty of workmanship and habitability. In response, the builder argued that because the buyer had waived the implied warranty in the purchase contract, the builder was not responsible for the home’s issues, and Zombrano’s claim was dismissed.
The Court of Appeals overturned the dismissal, reasoning that while public policy favors the rights of parties in an arm’s length transaction to freely bargain and contract, there is an even stronger policy in favor of protecting Arizona home purchasers from subpar construction. Moreover, the court opined, the construction process is complex and therefore the builder is in a superior place of knowledge to the homebuyer, and should not be allowed to exploit that advantage by being able to contract away liability for their intentional or mistaken errors.
Many other states, including Alabama, North Carolina, South Carolina and Washington, still allow builders to provide for an express warranty in lieu of the implied warranties (and allow buyers to waive the same). With this latest ruling, Arizona does not allow the waiver of the implied warranty of workmanship and habitability in any circumstance. The court conclusively determined and held that, “a new home buyer cannot waive – and a builder cannot disclaim – the implied warranty of workmanship and habitability. This prohibition precludes a waiver even when, as here, the builder gives an express warranty in consideration for the waiver.”
Therefore, buyers should understand that regardless of any express waivers of the implied warranty they sign, their builder cannot disclaim the warranty of good workmanship and that their new home is suitable to live in. Likewise, Arizona builders should be aware that any express waivers of the warranty of workmanship and habitability in their current contracts are not enforceable. When contracting for the sale of a newly-built residence, both builders and buyers should seek the advice of legal counsel for the drafting and review of construction contracts to ensure that both parties’ interests are properly protected.
Christopher J. Charles is the founder and Managing Partner of Provident Law ®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS ® (the “AAR”). Mr. Charles holds the AV ® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions. Christopher regularly teaches continuing education classes at the Arizona School of Real Estate and Business and he can be reached at Chris@ProvidentLawyers.com or at 480-388-3343.
Blake Wilkie is an Associate Attorney with Provident Law®. His practice focuses primarily on real estate, real estate litigation, and preventive counsel. Blake is also a licensed Arizona real estate agent, allowing him the unique perspective of serving clients from both a legal and business point of view. He has represented commercial landlords, homeowners, and tenants in numerous transactions and cases, as well as advised on and prepared business formation documents and performed lending agreement legal analysis. From pre-litigation matters through final resolution, he is trained to identify a wide variety of legal issues that arise on a day-to-day basis, how to respond to them, and how to prevent them before they arise in the future. After graduating from the W.P. Carey School of Business at Arizona State University, Blake obtained his J.D. from the Sandra Day O’Connor College of Law at Arizona State University, where he was a Managing Editor of the Arizona State Law Journal.