What remedies does a resale purchaser have against the builder?

It happens frequently.

Buyers (Buyers #1) contract with a builder for the construction of a new home. A few years later, the property is again sold, this time to buyers (Buyers #2) who had no direct dealing with the builder. Problems surface. Credible evidence links the problems to construction flaws. Buyers #2’s recourse against Buyers #1 is limited.  A failure to disclose/misrepresentation suit will fail because Buyers #1 were unaware of the problems. Further, those who resell property do not impliedly warrant the condition of the property or its habitability and do not, in the absent unusual circumstances, expressly warrant the condition of the property. In fact, the standard agreement provides that the property is being sold in its “present condition,” unless otherwise stated.

There was a time when Pennsylvania courts recognized that a subsequent buyer could bring suit against the builder for breach of the builder’s implied warranty of habitability (Pennsylvania law has long held that builder-sellers impliedly warrant the habitability of the property).  On Aug. 18, 2014, however, the Pennsylvania Supreme Court weighed in and decided that the builder’s implied warranty of habitability did not extend beyond the first purchaser. The case, Conway v. Cutler Group, Inc., dramatically changed the landscape for subsequent purchasers of new construction. Not having the benefit of the warranty for relatively new construction can have far-reaching consequences.

Karen Zajick was such a buyer. In 2008, she bought a stucco home built for Bob and Arlene Santhouse. The home had been constructed for the Santhouses five years earlier by the Cutler Group. In the spring of 2011, Zajick noticed leaks and she contacted Cutler, demanding that it fix the problems. Having hired an expert stucco inspector, Zajick was armed with information that the stucco system was improperly installed.

When Zajick got nowhere with the builder, she filed suit claiming a breach of contract, breach of expressed and implied warranties and violations of Pennsylvania Unfair Trade Practices and Consumer Protection Law.  The court had no difficulty dispatching all of the claims, save the one under the UTPCPL. After all, Zajick had no contract with Cutler and therefore no written warranty. Further, given the holding in Conway v. Cutler Group, Inc., she had no recourse against the builder for breach of implied warranty, since an owner intervened between construction and Zajick’s purchase. The court, however, allowed the case to move forward on the UTPCPL claim until all discovery had been completed at which time it entertained a motion for dismissal.

A little bit about the UTPCPL is in order. The law’s purpose is to protect the public from unfair and deceptive business practices. It has been recognized as a viable cause of action in cases arising from real estate sales. It requires proof that loses were sustained because of another’s “unlawful method, act or practice.” Further, the person suffering such loss must prove that she “justifiably relied on the defendant’s wrongful conduct or representation.”

It has also been long held in Pennsylvania that a plaintiff can succeed on a UTPCPL claim even though he or she did not directly contract with the perpetrator of the unlawful or deceptive practice. Therefore, Zajick’s claim under the UTPCPL was not immediately dismissed as was her claim of breach of implied warranty.

So how did Zajick endeavor to prove that Cutler’s unlawful methods, acts or practices caused her harm? She asserted that she had relied on Cutler as an “experienced, reliable and reputable builder of custom homes,” that she had purchased a previous home constructed by Cutler that did not have the construction defects she now experienced and lastly, she claimed to have relied on a representative of Cutler, as to its quality when Zajick was in the process of purchasing her previous home from Cutler. Bottom line, Zajick was relying on the builder’s representation and general statements made as to the quality of its product.

On Aug. 31, 2017, the Pennsylvania Superior Court upheld the decision of Court of Common Pleas of Montgomery County dismissing Zajick’s case. The Superior Court found that because Zajick was unable to establish that the builder “made any representations about her specific home or the alleged defective stucco… that she failed as a matter of law to prove her justifiable reliance on the representations of the builder.”

This holding, together with that issued previously by the Supreme Court, means that buyers of new construction, who do not purchase directly from the builder will generally have no recourse against the builder. And why is this important to you? In a transient society, buyers of new construction may find themselves selling shortly after purchase, and before the property has truly gone through its “shake-down” phase. In many cases, construction problems are latent for years. This may not necessarily be a problem for the original purchaser who has implied and, in most cases, written warranties that will compel the builder’s response. A subsequent purchaser, without these remedies, is in a vastly different place. Knowing this enables you to appropriately counsel buyers who are purchasing properties constructed one, two, three, four or more years previously.