Purchasing a new construction home involves certain risks. Without normal wear and tear or the passage of time to uncover latent defects, discovering problems in a new home during the inspection is difficult.

The implied warranty of habitability is a protective measure that is available to buyers of new construction homes. In Pennsylvania, courts imply a warranty of fitness for the purpose intended when a buyer has reason to rely upon and does rely upon the judgment of a builder who manufactures the product, believing such a warranty is necessary to equalize the disparate positions of the builder and the average homebuyer by safeguarding the reasonable expectations of the homebuyer who is compelled to depend upon the builder’s greater manufacturing and marketing expertise. The warranty is further justified because the builder is in the best position to repair the defects and spread the costs of the repair to those responsible.

A decision recently handed down by the Superior Court of Pennsylvania in Conway v. Cutler Group addressed a question of first impression regarding the applicability of the implied warranty of habitability as to whether homebuyers, who were not the initial homebuyers, may maintain a cause of action for breach of the implied warranty of habitability against the builder.

The initial homebuyers who purchased their home from the builder sold it several years later. Two years after purchasing the home, the new homebuyers recognized water infiltration around the windows. The new homebuyers retained the services of an architectural firm to assess the situation. The architectural report revealed water infiltrating the home because of several defects in the construction of the home, and the report recommended “a complete stripping off of the entire home” to repair the mistakes, the opinion said.

The new homebuyers then filed a complaint against the builder solely upon the grounds of the alleged breach of the implied warranty of habitability.

The builder then filed preliminary objections to the complaint, arguing that the implied warranty of habitability only extends from the builder to the initial homebuyer. The trial court agreed and granted the preliminary objections.

On appeal, the Superior Court reversed the trial court’s ruling.

The Superior Court relied on the notion that “privity of contract is not required to assert a breach of warranty claim against the builder of a new residential unit.” In doing so, the Superior Court reviewed its previous ruling in Spivack v. Berks Ridge, where a condominium was purchased from a vendor shortly after the vendor acquired the condominium from the builder.

In Spivack, the Superior Court concluded that the new purchasers were permitted to sue the builder for a breach of the implied warranty of habitability because the builder should have recognized the vendor would not be the first to occupy the home, and privity of contract is not required to assert a breach of warranty against the builder.

Relying on a similar rationale, the Superior Court in Conway found “no logical reason to limit a builder’s implied warranty to his immediate vendee.”

Although the Pennsylvania appellate courts have not considered whether the implied warranty of habitability extends beyond initial purchasers, other trial courts that have confronted this issue have ruled that the builder’s warranty is not limited to the initial homebuyers.

The Superior Court in Conway focused upon the policy considerations from these trial court rulings. According to the Superior Court, these cases assert that “the implied warranty of habitability is a creature of public policy. The warranty was created because a builder who exercises reasonable care should be capable of constructing a house that meets the warranty standards, because the price that the buyer is willing to pay is based on the assumption that the newly constructed house meets contemporary community standards for function and habitability, and because the contractor is the only party that is in a position to know whether the house has been built in accordance with these standards. Even a knowledgeable buyer does not have access to the underlying structural work. Furthermore, defects attributable to negligent or deliberate failures to comply with building codes frequently do not manifest themselves until many years after the house was constructed.”

In reaching its holding, the Superior Court emphasized that a homebuyer “justifiably relies on the skill of the builder that the house will be a suitable living unit,” and that a subsequent homebuyer similarly relies upon the builder’s skill that the home will be habitable. Before purchasing the home, the Superior Court noted that the subsequent homebuyer is in no better position than the initial homebuyer to discover hidden structural defects and should be afforded the same assurances as the original homebuyer that the home was properly constructed by the builder.

Furthermore, the Superior Court pointed out that the warranty arises to protect a homebuyer from defects that would not be apparent during a reasonable inspection, and if the law did not require a builder to be accountable under the warranty simply because the home was transferred before the defect was uncovered, the new homebuyer would have no recourse against the builder. Since, according to the Superior Court, many defects take years to materialize, the policy considerations behind the law should not be ignored simply because of a transfer in homeownership.

Although the Superior Court’s ruling in Conway expands the reach of the implied warranty of habitability beyond the initial homebuyers, the homebuyer ultimately has the burden of proving that the defect was latent, attributable to the builder’s design and the defect made the home inhabitable. Furthermore, any such action must be commenced within the statute of limitations period of 12 years after completion of the construction of the home. •