(602) 606-2810 2810 North Third Street, Phoenix

Risk Management for Builders: Legal Awareness for Front Line Personnel

Click here for Powerpoint of seminar.

  • Every time a builder or an employee makes a statement regarding the quality of the work, or makes a remark about fixing problems after completion, the possibility of an express warranty is being extended.
  • Without a written record of the promise, the customer’s expectation definitely could differ from the builder’s.
  • The builder may be unaware of particular statements made by sales personnel or other employees that could be interpreted as an express warranty.
  • There may be other promises or legally imposed responsibilities that can supplement or amend the written warranty.
  • Aside from the implied warranty at law, additional promises concerning quality or customer service may be found in sales advertisements or in the builder’s correspondence with the customer or may be derived from their conversations with existing or potential customers.
  • This situation can be potentially avoided by its terms the written express warranty document is acknowledged to be the sole and exclusive warranty provided by the warrantor. Any separate printed statement or oral comment will not then be interpreted as a variance or supplementation of the builder’s written responsibilities.
  • CAUTION: To avoid a claim of misrepresentation, or a possible violation of the state’s consumer protection laws, take care to assure that advertised promises do not conflict with the express written warranty terms.
  • LIMITED WARRANTY: Conditions as to (a) length of time that the warranty remains in effect; (b) the specific components that are covered; (c) extent of liability for damage; (d) available methods of resolving disputes.
  • A. Length of time. Usually one year but sometimes longer for specific components such as foundations or load bearing components (5-10 yrs) and plumbing and electrical (often 2 years).
  • Non warranted items such as (a) appliances and consumer goods covered by Magnuson Moss Act 15 USC § 2301-2312 (2000)(consumer of a consumer product (tangible personalty whether attached or not) with a written warranty or service contract used for personal, family or household purposes). However, the Act requires a sale of consumer product by a supplier to a buyer “for purposes other than resale.”  See e.g., Parott v. Daimler Chrysler Corp., 473 Ariz. Adv. Rep. 32 (3/21/06) (holding that because Pitre purchased vehicle for resale and leased to plaintiff he had no warranty claim).

The Act does not require builders to provide their customers any warranty. The Act applies to builder backed warranties and manufacturer’s warranties.

By excluding consumer products entirely from the warranty provided you will avoid triggering the requirements of Magnusson Moss.

  • Other exclusions: exterior features such as landscape and driveways or damage caused by third parties or owners or from acts of God such as storms, floods and fires or from owner’s failure to maintain or service.
  • Damage Exclusions: 1. Lodging expenses while repairs made; 2. Lost wages for time spent away from work; 3. Payment for mental anguish; 4. Medical Bills and damage awards for personal injury; 4. Cost of inspections or experts hired by owner; 5. Expenditures for third party repairs; 6. Legal fees.
  • An express limited warranty provides you the opportunity to specifically exclude or to place monetary limits or caps on any additional damage or expense claims that may arise as a consequence of a defect.
  • DISPUTE RESOLUTION: You can specify the method of repair, the method of dispute resolution, and procedures to be employed prior to initiating formal dispute resolution.
  • An arbitration provision vitiates Right To Cure Statutes (ARS § 12-1361) and allows you to create your own right to written notice of defect, right to inspect and right to exclusive repair or replacement.
  • IMPLIED WARRANTIES AT LAW
  • Work should be done in a “workmanlike” manner and reasonably fit for its intended use.
  • Warranty of habitability provides home must be sufficiently safe and sound to be actually lived in and to serve its function as a residence.
  • Warranty of workmanlike construction goes further and provides the workmanship must meet  the standards of quality that prevail at the time of construction.
  • Pertain only to “latent” defects that affect use or livability of the home.
  • House can pass all code requirements and still subject to implied warranty claim.
  • Applies to subsequent purchasers without notice had a reasonable inspection occurred.
  • Reasonable inspection does not require an expert or professional home inspector.
  • An implied warranty will not extend  to defects that the average purchaser could have discovered.
  • The implied warranty is not unlimited. It does not require builder to act as an insurer for subsequent vendees.
  • The implied warranty may extend to structural defects, faulty stucco application, latent defects in soil.
  • Such claims are subject to Statute of Repose (ARS § 12-552).
  • Provision of alternative homeowner warranties will not necessarily obviate the implied warranty.
  • Standard to determine whether a breach has occurred is one of reasonableness in light of the surrounding circumstances (age of home, maintenance, the use to which it has been put).
  • DISCLAIMERS
  • Disclaimers of implied warranty generally not allowed as a matter of public policy unless negotiated and clear and unequivocal and knowingly obtained.
  • An AZ Appellate Court ruled that an otherwise valid disclaimer of an implied warranty between the builder and the original buyer was void and against public policy as to an innocent subsequent buyer who lacked knowledge of the disclaimer. Nastri v. Wood Bros. Homes, 620 P. 2d 159 (Ariz. 1984). Under this reasoning a recorded disclaimer or release would be helpful.
  • WHAT IS A DEFECT?
  • Defects in original design, construction or workmanship are warranted either expressly or impliedly, but just what is a defect?
  • ROC standards
  • Industry Standards and Guidelines prepared by local HBA
  • Local Building Code or IBC
  • NAHB’s Residential Construction Performance Guidelines
  • Plans and specifications- “substantial conformity”
  • What is not a defect covered by warranty- consumer products (?) (assignment of warranty if manufacturer allows), damages caused by ordinary wear and tear, damages caused by lack of maintenance or improper maintenance, or by others, or acts of God or nature, or items expressly listed as not warranted and that are not latent.
  • Customer service personnel must realize they are potentially binding the company by their statements and commitments and potentially expanding the Warranty
  • CLAIMS
  • Be Proactive!
  • And Follow Up
  • Document the claim and the intended repair and have Owner sign
  • Don’t promise too much and deliver too little
  • Exceed expectations
  • NOTICE AND RIGHT TO REPAIR LAW
  • Widespread defect litigation has created a liability insurance crisis.
  • More expensive and more restrictive
  • ALTERNATIVE DISPUTE RESOLUTION
  • Mandatory confidential mediation with shared costs
  • Arbitration
  • Federal Arbitration Act trumps state arbitration act if conflict
  • Arbitration clauses have been routinely upheld (Pulte Case)
  • Is arbitration appropriate for you? Pros and Cons
  • Courts can refer cases to arbitration and mandatory arbitration in state court if claim under $50,000.
  • Small Claims Court
  • AAA. Fast track for cases under $75,000. Completion within 60 days.
  • SAMPLE CONTRACT PROVISION TO AVOID STATUTE
  • Consider allowing limited discovery and joinder of subcontractors or other parties and consolidation with other claims
  • Expressly provide for fees and costs in Contract
  • Repairs may trigger new obligations but do not effect ROC jurisdiction of 2 years from date of completion