home warranty.jpgBy John A. Greenhall and Jennifer R. Budd

For decades, Pennsylvania Courts have limited the scope of the implied warranty of habitability to the first user of the home. For the first time, in Conway v. Cutler Group, Inc., the Pennsylvania Superior Court permitted a homeowner, who was not the initial purchaser of the home, to maintain a claim against the home builder for breach of the implied warranty of habitability.

What is the Implied Warranty of Habitability?

The implied warranty of habitability (the “Warranty”) is a guarantee made by a homebuilder that (i) the home was built in a workmanlike manner and (ii) the home is suitable for living. If a homebuilder fails to satisfy these two basic requirements, then it can be held liable to the purchaser for breaching the Warranty. For instance, courts have held homebuilders liable to buyers for breach of the Warranty where the home does not have drinkable water.

It All Comes Down to Policy

In enacting this change, the Court examined the history of the Warranty and the policy behind its development, noting that the Courts developed the Warranty to shift the risk of latent defects in new homes from the buyer to the builder. The Court explained that shifting the risk to the builder is appropriate because (i) many defects go undetected even after a thorough inspection and (ii) the builder is in the best position to repair the defects and spread the cost of the repair.

With these policies in mind, the Court expressed several reasons why the Warranty should be expanded to future buyers. First, the Court noted that the Warranty was intended to even the playing field for a home purchaser lacking the expertise of a builder. The Court reasoned that in the case of a second purchaser, neither party possesses the expertise of a builder. Second, the Court explained that the Warranty targets defects that are impossible for an ordinary home purchaser and its inspector to detect. Therefore, the Court concluded that ownership of the home is irrelevant to the applicability of the Warranty because the consequences of a latent defect may not manifest for several years, at a time when title of the home has changed hands.

The Court provided two examples to show that the Warranty should apply to a subsequent purchaser. In one case, if a defect materialized five years after the builder or developer sold the home and the first buyer discovered the defect, that buyer could have successfully brought a claim for a breach of the Warranty. In the second scenario, if the first buyer sold the home after three years, and the second buyer discovered the defect, the builder would not have been liable for a breach of the Warranty. Using these illustrations, the Court concluded that the number of times a home changes hands should not limit the Warranty because it is immaterial to the discoverability of a latent defect. Therefore, the Court held that the sale of a home may not limit the applicability of the Warranty.

A Builder’s Liability under the Warranty Still Has Limits

Although the Conway decision could extend a builder’s liability under the Warranty, that liability is not limitless. First, the Court explicitly stated that all homeowners must file claims for breach of the Warranty within the twelve-year statute of repose. Second, the homeowner must still prove in litigation that (i) the builder’s design or construction caused the defect and (ii) that the defect affects the habitability of the home.

John A. Greenhall is a Partner with the Firm and a member of the Construction Group. He can be reaced at 215.564.1700 or jgreenhall@cohenseglias.com.

Jennifer R. Budd is an Assocaite in the Construction Group. She can be reached at 215.564.1700 or jbudd@cohenseglias.com.