Ben Fierro – Warranties vary

Bay State homebuilders are anxiously awaiting the outcome of a legal battle that could drastically affect their industry and the way they do business.

At issue is whether homebuilders should be held to an unwritten guarantee – or implied warranty – that the homes they’ve built and sold are generally defect-free and meet certain standards of habitability.’

The Supreme Judicial Court heard opening arguments earlier this month in two lawsuits regarding the issue. The cases involve a Cape Cod condominium trust and a Newbury couple who sued developers over shoddy construction. The cases were eventually appealed to the SJC.

The plaintiffs argue that homebuyers are entitled to an implied warranty that the new homes they are buying are free from major problems.

The defendants claim the implied warranty is unnecessary because homebuyers have various other protections to rely on, including the right to home inspections and express or written guarantees for various systems within their homes.

The Homebuilders Association of Massachusetts has also lined up to fight against implied warranty. HBAMA leaders worry that the added liability will only force homebuilders to build that cost into home prices.

What it comes down to is the impact it’s going to have on affordable housing, said Paul Novak, a Worcester attorney and senior vice president of HBAMA.

An implied warranty of habitability is vague, homebuilders argue, and can lead to various interpretations, confusion and, ultimately, more lawsuits.

In fact, defects covered by implied warranties vary from state to state, according to a brief filed by HBAM counsel Benjamin Fierro III of Lynch & Fierro in Boston. In some cases, implied warranty has been extended to include shrinkage of exterior siding, leaky roofs, defective fireplaces and sagging floors, according to Fierro.

In Massachusetts, homebuilders are generally not responsible for defects unless the homebuyer has a written or express warranty covering the alleged defect. Many homebuilders in Massachusetts already provide written guarantees or warrantees that generally cover various systems within the house.

Novak said that most of the builders he knows and works with have written one-year warranties in the purchase-and-sale agreements drawn up for buyers.

While the terms of the written warranties vary, they are generally comprehensive and specific, he said. In implied warranties, the specifics aren’t there, so the parties involved don’t know what to expect, Novak said.

I feel every homebuilder across America has a moral obligation to building a quality home for every homeowner, said Len Gengel, president of HBAM. But I believe it should be contractual and based on what is agreed to by both parties.

‘Hidden’ Defects
But the plaintiffs claim that homebuyers can’t be protected by written or express warrantees in all cases.

Stephen Schultz, a partner in the Boston law firm Engel & Schultz and the attorney for the Cotuit Bay Condominium Trust, said the defects his clients found after moving into the 62-unit condominium complex would not have been discovered by a routine home inspection.

The plaintiffs are suing for defects found in the common areas of the condominiums, areas that are not likely to be checked during a home inspection and not likely to be included in written warrantees. Further, some of the defects, like the improper fastening of chimneys to the roofs, would not have been picked up unless the structures were taken apart, Schultz said.

Every single one of the claims relates to a hidden defect, said Schultz.

The several-hundred-pound chimneys were attached to the roofs with nothing other than eight-penny nails banged into sheathing, wrote Schultz in court documents. Not surprisingly, several of the chimneys have fallen off roofs.

The condominium trustees originally sued the condominium developer for various defects, including failure to install appropriate flashing and improper deck construction, in Land Court in 1987. A year later, the case was transferred to Barnstable Superior Court.

The trustees contend that supporting columns of the outdoor decks were not constructed of pressure-treated wood and were built directly in the ground, causing rotting and decay. Also, water leaks from the chimneys, sliders, roofs and skylights caused other interior damage, according to the complaint, and improper bathroom and attic ventilation caused wood decay within the units.

The plaintiffs lost their implied warranty and negligence claims in 1993, eventually seeking and being granted direct appellate review in the SJC. The plaintiffs did, however, win a claim for breach of fiduciary duty in 1995. The original damages awarded were more than $295,000. They were later reduced to a little more than $104,000 to apply only to defects that the developer knew about. Now, the plaintiffs are seeking another $305,000 and a finding of implied warranty.

The fact that implied warranty doesn’t exist in Massachusetts goes back to the centuries-old rule of let the buyer beware, said Schultz.

The lack of implied warranty is a remnant of caveat emptor, he said.

The Community Associations Institute, a national nonprofit formed by the Urban Land Institute and the National Association of Home Builders, is also supporting the condominium trust in its claim.

As many as 48 states have recognized some form of implied warranty in the sale of a new home, according to a brief filed Jan. 2 on behalf of CAI.

According to the brief, filed by the Braintree law firm Marcus, Errico, Emmer & Brooks, The defendant’s arguments against the adoption of a implied warranty in this case are not compelling. As pertains to the common-area defects, unit owners are not in a position to protect their interests by express warranty.

Renters are currently covered by implied warranty of habitability, but a Utah court case distinguished renters from homebuyers, arguing that unlike renters, homebuyers can get written warrantees, inspections and legal representation.

The defendants are using the Utah case to bolster their arguments.

[The plaintiffs] already have a number of different remedies available to them, said Jennifer Roberts, the Osterville attorney representing the developer in this case. In my view, it is unnecessary for the court to imply a warranty.

The key issue to me is whether an implied warranty is needed by the residents of this state, she said. I think the short answer to that is no.

Expressing a similar argument to that used in Fierro’s brief, Roberts said it really should be up to the Legislature to decide whether an implied warranty is needed in the commonwealth.

In fact, while several state courts adopted implied warranty for new homes within the last three decades, other states, including New York and Maryland, established or regulated such warranties through laws.

[The Legislature] should hold hearings and hear from homebuilders and homebuyers about whether this is necessary, said Roberts.