BENJAMIN FIERRO III
Five-part test
A Supreme Judicial Court ruling aimed at protecting buyers of newly constructed homes could open the gates to more lawsuits against builders and increase their insurance costs.
The ruling has also renewed efforts by those in the homebuilding industry to get a bill passed that requires builders to take educational courses before getting their licenses renewed.
In its decision, handed down in early May, the SJC answered a critical question for homebuilders and homebuyers in Massachusetts – whether an implied, or unwritten, warranty of habitability exists with the sale and purchase of a new house. The court decided an implied warranty does exist – that a buyer should expect a generally defect-free and habitable home.
The issue of implied warranty arose after a Newbury couple sued the developer of their home when they discovered defects with the nine fireplaces in the house three years after moving in.
While the court decided that an implied warranty does exist, it did not award damages to the couple because, according to the ruling, implied warranty covers latent, or hidden defects, which present serious safety issues. The problems with the fireplaces – their size did not meet building code requirements – were not considered hidden and did not create a substantial safety issues, according to the court.
Lawyers for the defendants in the case argued that implied warranty is unnecessary because homebuyers have various protections already, including the right to home inspections and express, or written, warrantees for various systems within their homes. Leaders of the Home Builders Association of Massachusetts also argued against implied warranty, fearing it would increase liability risks for builders and insurance costs.
But the SJC decision has limited when and for what buyers can sue, which may in the long run protect builders from frivolous lawsuits over relatively minor and aesthetic problems.
“The helpful aspect of this ruling is that the court set out a five-part test that a buyer would have to meet to be successful in a lawsuit,” said Benjamin Fierro III, Home Builders Association counsel.
The five-part test requires homebuyers, among other things, to file lawsuits within three years of purchasing the home. Homebuyers must also prove that the defects discovered after purchasing the home were latent or hidden, and thus not easily discovered by a routine home inspection, and that the problems create a safety issue that affects the home’s habitability.
“What the homebuilders feared was a ruling that would be so broad and general that homeowners who had squeaky floors or doors that don’t close because of swelling or nail pops – really aesthetic things – could sue builders and those builders could find themselves facing exposure to lawsuits,” said Fierro, a partner with Lynch & Fierro in Boston.
Express Wishes
The SJC ruling comes after recent media attention to shoddy construction of new homes in some Bay State communities. In some cases, the problems arose because builders were not aware of the building codes and may have unintentionally violated them. Since the building code is constantly changing, builders may not always be up-to-date on the newer rules.
That is one of the reasons that HBAM has pushed for passage of a bill that would require homebuilders seeking to renew their annual licenses to complete continuing education courses. The court’s decision has spurred builders to fight even harder to pass the bill, which was filed nearly two years ago.
Specifically, the bill would enable the State Board of Building Regulations and Standards, which issues the licenses, to develop requirements, regulations and approve educational courses for construction supervisors. The completion of those courses would be required for license renewal. The bill is stuck in Senate committee, with some arguing that the board doesn’t have the financial resources to handle the added responsibilities.
With the SJC ruling, Massachusetts joins more than 40 other states where homebuyers are protected by implied warranty. In his research on implied warranty, Fierro examined what types of defects are covered by implied warranties in other states and the length of the warranties and found that they varied greatly.
In one state, the implied warranty for a roof ran for 20 years, while for a furnace it was only five years, he said. Some states covered wet basements and leaky roofs, while others didn’t. These types of discrepancies in laws concerned homebuilders in Massachusetts.
“The concern of the industry was whether this would create an open-ended unknown exposure to liability which could have an impact on costs,” said Fierro.
Steve Ryan, director of government affairs for the Massachusetts Association of Realtors, said that the recent SJC ruling leaves some unanswered questions that the lower courts will have to answer on a case-by-case basis, including what constitutes a latent defect.
If nothing else, the ruling illustrates why it’s so critical for builders to provide express or written warranties, said Ryan and Fierro. Many builders already provide such warranties covering specific parts of a house.
“The express warranty provided by the builder is the best place to start,” said Ryan.
Fierro added, “Builders would be wise to offer a comprehensive, minimum one-year warranty with the sale of a new home.”
“If after expiration of the express, one-year warranty, if the homeowner has a complaint about a latent defect, and if the buyer sues the builder under implied warranty the more comprehensive the express warranty, the better the builder will be able to argue that the complaint of the homebuyer doesn’t rise to a substantial safety issue,” he said.
Fierro said homebuilders should not have great “difficulty” with the decision.
“It’s unlikely to change the way they build their homes,” he said. “It is the builder who is part-time, who gets in the business when the market is strong, who is not scrupulous to make sure that their construction supervisors are on top of changes with the building code – they’re the ones that should be concerned,” he said.
