Conway – Good News for Homeowners and Bad News for Builders
This past fall a Pennsylvania appellate court ruled in Conway v. The Cutler Group that second homeowners who purchase homes from original owners of new construction can sue builders if a home is defectively built and, as a result, uninhabitable. What does this holding mean? Second homeowners of relatively new construction now have new legal rights but builders have new liability.
Background of Conway Case
In Conway, second homeowners, the Conways, bought a three-year-old home from original owners who had contracted with Cutler in 2003 to build new construction in Exton, Pennsylvania. Approximately two years after buying the house, the Conways discovered water infiltration around the windows of their home. A building inspector found that the water infiltration was caused by defective construction, including missing and defective flashings, and an improperly installed stucco system. The Conways sued Cutler asserting that the builder breached its implied warranty that the home was constructed in a reasonably workmanlike manner and fit for habitation. Cutler filed preliminary objections to the Conways’ complaint, on the basis that the Conways did not have a legal right to sue for breach of implied warranty of habitability because the Conways did not have a contract directly with Cutler, and, therefore Cutler did not extend any warranties to the Conways. The trial court granted the builder’s preliminary objections and dismissed the Conways’ case. The Conways appealed to the Pennsylvania Superior Court.
The Superior Court reversed, finding that the Conways had a right to sue Cutler for breach of implied warranty of habitability. The Conway court reasoned that buyers of a home have a reasonable expectation that the home will be reasonably well constructed and justifiably rely upon a builder’s skill and expertise in building a home that meets warranty standards and is habitable. The court explained that public policy dictates that buyers should not be forced to absorb the risk of latent construction defects in a home that are not apparent after a reasonable pre-sale home inspection. Thus, because the Conway court based its ruling on public policy considerations, it found that it was irrelevant that there was no contract between the Conways and the Builder.
Impact of the Conway Case
Before Conway, Pennsylvania trial courts were divided and inconsistent in how they dealt with second homeowners’ claims against builders, sometimes dismissing complaints and sometimes permitting cases to continue to trial. Not only were trial courts’ decisions against second homeowners internally inconsistent, such decisions lagged behind New Jersey and other states that have embraced the modern judicial trend of recognizing second homeowners’ rights to sue home builders. Thus, many second homeowners were denied any form of relief against builders and effectively put out of court because they did not a contract with the builder of their uninhabitable home.
The Conway case now provides Pennsylvania trial courts with direction on how to deal with second homeowners’ complaints against home builders. This is good news for homeowners, who now have a clear legal right to recover what could be significant damages associated with sometimes egregious construction defects. However, this case is bad news for residential home builders who now have potential exposure to an entirely new class of plaintiffs. Importantly, builders have exposure to a potential breach of implied warranty of habitability claim for twelve years from the date that the home was built.
While there is no magic contract language or legal way for a builder to shield itself from a potential breach of implied warranty action, often times there are defenses to such claims. For example, a builder could potentially argue that: (a) the defect is not latent (i.e.: the homeowner did not bring the claim within four years from the date that the defect was discovered); (b) damage to the home was caused by lack of proper maintenance and/or some action by the first or second homeowners; and/or (c) even in the case of true latent construction defects, the defects do not rise to such as level as to render the home uninhabitable. However, even where a builder has meritorious defenses, the cost of litigating and defending a lawsuit can be onerous.
Does this Case Apply to Commercial Properties?
The Conway case gives guidance and direction with respect to claims alleged by second homeowners of residential new construction, but does Conway mean that subsequent buyers of commercial properties can sue the builder of non-residential construction for breach of implied warranty of habitability? The answer is probably not. First, a claim for breach of implied warranty of habitability asserts that a property is unfit for human habitation. The issue of habitability likely would not extend to commercial, non-residential properties. Second, the Conway opinion distinguishes between the claims of breach of implied warranty of habitability and breaches of other implied warranties. Thus, it is unclear whether the decision extends to other implied warranty claims, some of which may apply in commercial property contexts. Lastly, the Conway decision is predominantly based on public policy considerations of protecting “innocent” homeowners, such policy considerations generally are not at play in commercial contexts. Notwithstanding these considerations, it is possible, and in fact likely, that the Conway case will be relied upon by a subsequent purchaser of a commercial, non-residential property. At that point in time, it will be a decision for the courts as to how far they will extend the Conway decision.
If you have questions about potential exposure to lawsuits in light of the Conway case, you should contact your attorney.
