​Homebuilders and Construction Defects – What is Your Legal Risk?

Problems arise when you are building a home. It is to be expected. And if you are the general contractor, you are ultimately responsible for solving those problems. But at what point does a flaw in your final product put you at risk of a lawsuit?

Here in Utah, every time a homebuilder sells a new home, a warranty against construction defects automatically attaches to the sale. The courts call it the “implied warranty of workmanlike manner or habitability.” It doesn’t matter if the warranty is mentioned in your contract or if you even used a formal, written contract. In fact, the warranty is impossible to get out of, even if your contract specifically says that the buyer is waiving all implied warranties.
However, the warranty does not apply to any and all flaws in the construction. It only applies if all of the following are true:

1. The defect became apparent after the sale but could not have reasonably been discovered prior to the homeowner’s purchase if, for instance, a proper inspection had been done;
2. The defect was caused by improper design, material, or workmanship; and
3. The defect has made the home unsafe or uninhabitable.

And again, the warranty only passes to the original purchaser who buys from you, the homebuilder. Generally speaking, once the original purchaser sells the home, subsequent purchasers no longer have a right to sue the homebuilder for defects they discover.

Under Utah statutes, the implied warranty is good for 6 years and the clock typically starts to run when the certificate of occupancy is issued, regardless of when the homeowner purchased the house.  But you are allowed to alter that timeframe. If your purchase contract says that the implied warranty will only run for 2 years, for example, that’s usually going to be enforceable.

Speaking of the purchase contract, although the law only requires the implied warranty of workmanship and habitability, if you choose to include additional guarantees in your contract, the purchaser can hold you to them. For instance, if your contract warrants against cracks in the concrete in excess of ¼ inch, your purchaser can sue you if you fail to honor that warranty. Likewise, even though the implied warranty does not technically require you to build to code, if your purchase contract says you will build to code, the homeowner then has a right to sue you for any code violation they discover, even if the violation doesn’t create an issue of safety or habitability.  This is because the law considers the promises and warranties expressly outlined in your contract to be entirely separate from the implied warranty of workmanship and habitability.
 
              So, here’s the takeaway: pay attention to your purchase contract. Be deliberate about the guarantees and warranties you offer in there and understand how long those promises last. Negotiate some of those things as you see fit, including the length of time that you remain exposed for implied warranties. And be aware that you are on the hook for major defects, regardless of what your contract says or doesn’t say about them. So, make preparations, buy insurance, and supervise your projects accordingly.

-Scott Welker- Miller Harrison LLC
Attorney