Builder’s Warranty at Root ofUneven Ground

Dear Forms Guy: I represented a buyer who recently closed on a newly constructed home. She is very happy with the house, but can’t get the builder to come back to fix a few odds and ends. I told her that by law, there is a one-year builder’s warranty that requires him to fix the problems. She wants to send the builder a copy of the law, and I need you to tell me where I can find it. Sincerely, Sharp Sallie

Dear Sallie: I have some bad news for you. There is no such law. This is a common misunderstanding. A builder may offer a warranty but is not required to do so. Your buyer should review the sales and/or construction contract she entered into with the builder to see if it contains a warranty, and if it does, the extent of the warranty. If the parties used either the Offer to Purchase and Contract (form 2-T) together with the New Construction Addendum (form 2A3-T) or the Offer to Purchase and Contract – New Construction (form 800-T), the items that need to be corrected would probably be covered. Paragraph 6(a) of the Addendum and Paragraph 5(a) of the New Construction Contract contains a one-year limited warranty of construction which obligates the builder/seller to “… make all necessary repairs and corrections to the house, either interior or exterior, structural or nonstructural, that shall become necessary by reason of faulty construction, labor or materials or non-conformity of construction to the plans and specifications.”

Sallie: The builder insisted that we use his contract form. I told the buyer that it seemed awfully one-sided in favor of the builder, but she said that it wouldn’t be a problem because the two of them go to the same church. I have this bad feeling that the contract doesn’t contain any warranty. Is the buyer out of luck?

Forms Guy: Not necessarily. Although the law does not require a builder to give a warranty, North Carolina’s courts have recognized the existence of a so-called “implied warranty of habitability” that does arise by operation of law, provided that certain requirements are met. Generally, the requirements are: (1) there must be a contract for the sale of a recently completed dwelling or a dwelling then under construction; (2) the seller must be in the business of building such dwellings; and (3) the implied warranty is for only the benefit of the first buyer of the dwelling.

Sallie: Would this implied warranty cover the things my buyer wants fixed?

Forms Guy: The “odds and ends” that your buyer client wants the builder to fix may or may not be within the scope of the implied warranty of habitability. Under the warranty, the builder/seller warrants that the dwelling, together with all its fixtures, is sufficiently free from major structural defects, and is constructed in a workmanlike manner so as to meet the standard of workmanlike quality prevailing at the time and place of construction. The warranty is limited to latent defects –those not visible or apparent to a reasonable person upon inspection of a dwelling. It has been held by North Carolina courts to cover a variety of defects, including a defective air-conditioning system, a fireplace and chimney that didn’t draw properly, and a defectively constructed garage and driveway.

Sallie: I pulled the construction contract out of my buyer client’s file. It says that the builder disclaims any and all warranties, express or implied. Can the builder exclude the implied warranty of habitability?

Forms Guy: The implied warranty of habitability can be excluded by agreement between the parties. However, according to our courts, it must be done by clear, unambiguous language. A general disclaimer like the one in the construction contract your buyer entered into arguably does not constitute an effective disclaimer or waiver of the implied warranty. On the other hand, in one case, the court held that an express disclaimer of any implied warranty of habitability found in a 2-10 Home Buyers Warranty offered by the builder and accepted by the buyer did constitute an express waiver of the implied warranty.

Sallie: So what should I do now?

Forms Guy: The nature and extent of your buyer client’s warranty rights is a potentially complicated matter. You should direct her to a lawyer for advice on what her legal rights are. In addition to potential warranty rights, she may have other claims against the builder, such as a claim for negligent construction, which is independent of any claim for breach of implied warranty.