Court: New Home Buyers Can Sue Despite Signing Waivers

By Howard Fischer | Arizona Capitol Times

Buyers of new homes are entitled to sue builders for hidden defects for up to eight years — even if they have signed contracts waiving that right, the Arizona Supreme Court ruled Wednesday.

In a ruling with wide implications, the justices said that the common law “implied warranty of workmanship and habitability” recognizes the fact that home buyers are not experts in all the things that are required in constructing a house.

“A homebuyer must … rely heavily on the builder-vendor’s knowledge of construction quality, as builders are skilled in the profession, modern construction is complex and regulated by many government codes,” wrote Justice Ann Scott Timmer. “And homebuyers are generally not skilled or knowledgeable in construction, plumbing, or electrical requirements and practices.”

She acknowledged that, in general, people are legally entitled to sign contracts defining the responsibilities of each. That presumes both parties are “sophisticated” and equally aware of the risks and terms.

But in cases of new homes, Timmer said, there is an “inequality in bargaining power” between the builder and the buyer.

“The implied warranty was created in recognition of this disparity, and undoubtedly reflects the homebuyers’ reasonable expectations that a newly constructed home would be properly designed and built,” she wrote.

Wednesday’s ruling was not unanimous. Justice Kathryn King said it runs afoul of the state’s public policy favoring freedom to contract.

And King, joined by Justice Clint Bolick, pointed out that right of implied habitability exists nowhere in state law. Instead, she noted, it was created by a 1979 ruling of the State Court of Appeals.

Timmer said that’s irrelevant, noting subsequent state laws have implicitly affirmed that decision.

The case involves Tina Zambrano, who in 2013 entered into a preprinted purchase agreement with M & RC II LLC, to buy a home that Scott Homes Development Co. would construct in a new subdivision in Surprise.

That contract said the warranty offered by the builder was “the only warranty applicable” to the purchase. More to the point, it said all other express or implied warranties, including of habitability and workmanship are waived by the seller.

Zambrano initialed the paragraph confirming she had read and understood the agreement.

That warranty had specific provisions, like saying Scott would repair within one year any floors having more than a quarter-inch ridge or depression within 30 inches of the joists.

Four years later, Zambrano sued alleging various design and construction defects. These included improper grading, separation of windows from cracking stucco, separation of baseboards from the tile and walls, and nail pops in the ceiling.

A trial judge granted the company’s request to throw out the lawsuit. Wednesday’s ruling says that was wrong, sending the case back to court to allow Zambrano to pursue her claim.

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