Court rules on builders’ implied warranty

The Pennsylvania Supreme Court in the case of Conway v. the Cutler Group ruled that an implied warranty of habitability which protects the original purchaser of new residential construction does not extend to a later purchaser. Thus, a buyer of a very recently constructed home, may have no recourse against the builder unless he bought the residence directly from the builder. This decision reverses a Superior Court’s decision made just two years ago.

 The warranty of habitability was established by the 1972 Pennsylvania Supreme Court case of Elderkin v. Gaster. In short, Elderkin held that newly constructed homes come with an implied warranty that the home was constructed in a reasonably workmanlike manner. In the Conway case, the builder sold a newly constructed residence in 2003. After living in the property for three years, the buyers sold the property to the Conways. The Conways discovered significant water infiltration, eventually determined to be caused by several construction defects. The Conways brought suit against the builder alleging a breach of the homebuilders’ implied warranty of habitability as established by the Elderkin case.

The trial court dismissed the case noting that there was a lack of a direct contractual relationship between the builder and the Conways. The Conways appealed and in a decision expanding long-established case law, the Superior Court held that a homebuilder can be liable to a subsequent purchaser of a home for breach of the implied warranty of habitability, even though the builder and subsequent purchaser lacked contractual relations. The builder appealed this decision to the Pennsylvania Supreme Court.

After reviewing arguments on both sides, the Supreme Court declined to extend the implied warranty of habitability beyond its firm grounding in contract law. The court held that an action for breach of the implied warranty required contractual relationship between the parties. The court concluded that the question of whether and under what circumstances to extend the implied warranty of habitability to subsequent purchasers is a matter of public policy that should be left to the legislature to determine.

The fact that the Supreme Court saw this as an issue requiring legislative action is interesting considering that the implied warranty of habitability was a judicial creation, not the result of legislation. Regardless, this case is a very significant victory for homebuilders in Pennsylvania. Subsequent homebuyers now appear to have little or no recourse against the homebuilder for construction defects that may not become evident until after they purchase the home from the original buyer.

Editor’s note: In tomorrow’s Just Listed, Jim Goldsmith will discuss how this ruling will affect Realtors.