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March 2015

A Win for Home-Builders: Pennsylvania Supreme Court Rules that the Implied Warranty of Habitability Only Applies to Initial Buyer-Resident

Conway v. Cutler Group, Inc., No. 80 MAP 2013, 2014 WL 4064261 (Pa. Aug. 18, 2014)

The Pennsylvania Supreme Court ruled that a builder’s implied warranty of habitability extends only to the initial buyer of a home, and not to subsequent purchasers. The Court reversed a recent Pennsylvania Superior Court decision that provided more expansive liability for home builders. Noting that the rationale underpinning the Superior Court’s decision was primarily based on policy grounds, the Supreme Court explained that the allocation of responsibility for defects in residential construction in the absence of privity was better suited for the Legislature to decide.

A builder’s implied warranty of habitability, is a warranty that protects those who purchase a newly constructed home from latent defects. Concluding that a builder’s warranty of habitability is grounded in contract, the Court held that a subsequent purchaser of a previously inhabited home cannot recover damages from a builder-vendor based on the builder-vendor’s breach of the implied warranty of habitability. While Pennsylvania has long recognized that builder’s implied warranty of habitability owed to initial buyers, until now, however, it was unclear whether the warranty extended to subsequent buyers.

InConway, The Cutler Group, Inc. sold a new house in 2003 to Davey and Holly Fields. After living in the house for three years, Mr. and Mrs. Fields sold the house to the Conways. In 2008, the Conways discovered water infiltration around some of the windows in the home, and, after consultation with an engineering and architectural firm, concluded that the infiltration was caused by several construction defects. On June 20, 2011, the Conways filed a one-count complaint against the homebuilder, alleging that its manner of construction breached the home builders’ implied warranty of habitability recognized by this Court in Elderkin v. Gaster, 288 A.2d 771, 777 (Pa. 1972).

The Court discussed the rationale behind the implied warranty of habitability, which, in the context of new home construction is a doctrine that rejects caveat emptor (let the buyer beware) because the purchaser of a new home justifiably relies on the skill of the developer. Thus, as between the builder-vendor and the buyer, the builder should bear the risk that the home he builds is habitable and functional. In adopting the doctrine, the Court noted that the doctrine is rooted in the existence of a contract – an agreement of sale – between the builder-vendor and the buyer.

The Supreme Court’s decision leaves unanswered the question of whether a second purchaser, but first user of a new home can pursue a breach of warranty action against a builder with whom the purchaser is not in privity of contract. The Supreme Court declined to address or extend the ruling to cover the circumstance where the first purchaser of a new home is a developer-affiliated entity who did not reside in or use the home.

Given the policy considerations at issue, it is unlikely that a builder could insulate itself from liability through a straw sale. Builders should monitor possible legislation addressing the public policy issues that the Supreme Court explained should be addressed by the legislature, not the courts. This case underscores the importance when contracting for the sale of a newly constructed home, to pay careful consideration to the representations, warranties, and intentions of all parties involved.