Dennis I. Wilenchik
Wilenchik & Bartness, P.C.
2810 North Third Street
Phoenix, Arizona 85004
(602) 606-2810 (T)
(602) 606-2811 (F)
diw@wb-law.com
What is a Construction Defect?
What is a Construction Defect?
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Defects in original design
Defects in construction or workmanship
What effect do express or implied
warranties have on construction defects?
Does “substantial conformity” to the plans
and specifications suffice?
What is a Construction Defect?
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Various Construction Standards
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Registrar of Contractors standards
Industry Standards and Guidelines prepared
by local HBA
Local Building Code or IBC
NAHB’s Residential Construction
Performance Guidelines
What is a Construction Defect?
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What defects are typically not covered by
warranties:
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Consumer products
Damages caused by ordinary wear and tear
Damages caused by lack of maintenance or improper
maintenance
Damages caused by homeowner or by others
Damages caused by acts of God or nature
Damages to items expressly listed as not warranted
and that are not latent
Time Limits
Time Limits
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The Statutes of Limitations place a two-year limit for
personal injury claims (A.R.S. § 12-542) and a six-year
limit for claims based on the contract claims (A.R.S. §
12-548).
The Statute of Repose places an eight or nine year limit
on claims against those who develop and sell real
property, or perform or furnishes the design,
specifications, surveying, planning, supervision, testing,
construction or observation of construction of an
improvement to real property. See, A.R.S. § 12-552.
Time Limits
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In Evans Withycombe, Inc. v. Western
Innovations, Inc., CA-CV 04-0196 (Ariz.App. Div.
1 5/11/06), the Arizona Court of Appeals affirmed
the dismissal of Evan Withycombe's contract
claims, warranty claims, negligence claims, and
its claims for indemnity based on contract
against its subcontractors where Evans
Withycombe waited until after the expiration of
A.R.S. § 12-552 to file a third-party complaint
against its subcontractors.
Time Limits
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Senate Bill 1374 (currently pending in
Arizona Legislature):
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A.R.S. § 12-552 will be changed to provide
that it does not “apply to an action or
arbitration based on indemnity that is brought
by a person against whom a timely action or
arbitration was brought.”
Express Warranties
Express Warranties
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An express limited warranty provides a
Homebuilder 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 construction defect.
Express Warranties
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Express Warranties can limit:
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The length of time that the warranty remains
in effect;
The specific components that are covered;
The extent of liability for damage; and
The available methods of resolving disputes.
Express Warranties
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The possibility of an express warranty is being
extended every time a Homebuilder makes a
statement regarding the quality of the work, or
about fixing problems after completion.
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Additional promises concerning quality or
customer service may be found in sales
advertisements or in the builder’s
correspondence with the customer.
Express Warranties
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Without a written record of the promise, the
customer’s expectation definitely could differ
from that of the Homebuilder.
The Homebuilder may be unaware of particular
statements made by 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 express warranty.
Express Warranties
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These situations can be potentially
avoided if, by its terms, the written express
warranty document is acknowledged to be
the sole and exclusive warranty provided
by the warrantor.
Express Warranties
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CAUTION: To avoid a claim of
misrepresentation, or a possible violation
of the state’s consumer protection laws,
take extra care to assure that advertised
promises do not conflict with the express
written warranty terms.
Express Warranties
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Typical Express Warranties:
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Usually one year for all covered items.
Some items carry longer warranties:
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Foundations or load bearing components (5-10 years)
Plumbing and electrical (often 2 years)
Some items are not warranted by the Homebuilder at
all:
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Appliances
Consumer goods
Express Warranties
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Non-warranted items such as appliances and
consumer goods are covered by the Magnuson
Moss Act, 15 USC §§ 2301-2312 (2000)
However, the Act requires a sale of consumer
product by a supplier to a buyer “for purposes
other than resale.” See e.g., Parrot v.
DaimlerChrysler Corp., 212 Ariz. 255, 130 P.3d
530 (3/21/06) (holding that because buyer
purchased vehicle for resale and leased to
plaintiff he had no warranty claim).
Express Warranties
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The Magnuson Moss Act does not require
builders to provide their customers with
any warranty.
By excluding consumer products entirely
from the warranty provided Homebuilders
will avoid triggering the requirements of
the Magnusson Moss Act.
Express Warranties
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Other typical exclusions:
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Exterior features such as landscape and
driveways
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.
Express Warranties
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Other typical exclusions:
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Lodging expenses while repairs made;
Lost wages for time spent away from work;
Payment for mental anguish;
Medical Bills and damage awards for personal injury;
Cost of inspections or experts hired by owner;
Expenditures for third party repairs; and
Legal fees.
Express Warranties
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DISPUTE RESOLUTION: Homebuilders 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 the Right To
Cure Statutes (A.R.S. § 12-1361 et seq.) and
allows Homebuilders to create their own right to
written notice of defect, right to inspect and right
to exclusive repair or replacement.
Implied Warranties
Implied Warranties
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Work should be done in a “workmanlike” manner
and reasonably fit for its intended use.
Warranty of habitability provides that a 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.
Implied Warranties
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Applies only to “latent” defects that affect
use or livability of the home. An implied
warranty will not extend to defects that the
average purchaser could have discovered.
Implied Warranties
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The implied warranty applies to subsequent
purchasers without notice who had a reasonable
inspection occurred. Richards v. Powercraft, 139
Ariz. 242, 678 P.2d 427 (1984). Reasonable
inspection does not require an expert or
professional home inspector.
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A house can pass all code requirements
and still subject to implied warranty claims
Implied Warranties
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Provision of alternative homeowner
warranties will not necessarily obviate the
implied warranty.
The implied warranty is not unlimited; it
does not require builder to act as an
insurer for subsequent vendees.
Implied Warranties
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Claims are subject to Statute of Repose,
codified at A.R.S. § 12-552. The Statute of
Repose lasts 8 or 9 years depending upon the
knowledge of the homeowner.
The standard to determine whether a breach
has occurred is one of reasonableness in light of
the surrounding circumstances (i.e., the age of
home, maintenance, the use to which it has
been put, etc.).
Implied Warranties
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Disclaimers of implied warranty are
generally not allowed as a matter of public
policy unless they are negotiated and
clear and unequivocal and knowingly
obtained
Implied Warranties
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An Arizona 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, 142
Ariz. 439, 620 P.2d 159 (App. Div. 2 1984).
Under this reasoning a recorded disclaimer or
release would be helpful.
Notice and Right to Repair Laws
Notice and Right to Repair Laws
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Codified at A.R.S. § 12-1361 et seq.
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Widespread construction defect litigation
has created a liability insurance crisis.
Notice and Right to Repair Laws
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Generally allow a Homebuilder to able to inspect
the structure(s) to determine the nature and
cause of the alleged defects, and to assess
possible repairs and replacements before
homeowner can file a lawsuit.
Allows Homebuilder to make an offer to repair or
replace any alleged defects, to have the alleged
defects repaired or replaced or to provide
monetary compensation to the purchaser.
Notice and Right to Repair Laws
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90 days before filing suit, purchaser shall give
written notice to the seller specifying in detail the
basis of the dwelling action.
After receipt of the written notice the seller may
inspect the dwelling. Within 60 days after
receipt of the written notice, the seller shall send
to the purchaser a written response to the
purchaser's notice. (If the seller does not
provide a written response the purchaser may
file a dwelling action without waiting for the
expiration of 90 days)
Notice and Right to Repair Laws
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Within 20 days after receipt of the seller's offer,
the purchaser shall provide a good faith written
response.
Within 10 days after receipt of the purchaser's
response, the seller may make a best and final
offer to the purchaser in writing.
If no resolution is reached within 90 days, the
purchaser can file a lawsuit against the seller.
Notice and Right to Repair Laws
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Senate Bill 1374 (currently pending in
Arizona legislature)
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A.R.S. § 12-1363 will be changed to provide
as follows: “For the purposes of this
subsection, ‘reasonable detail’ includes a
detailed and itemized list that describes each
alleged defect and the location of each
alleged defect in EACH dwelling THAT IS
THE SUBJECT OF THE NOTICE.”
Alternatives to Notice and Right
to Repair Laws
Alternatives to Notice and Right
to Repair Laws
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Limitation of Buyer’s remedies:
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Limit Buyer’s remedies to repair and/or replacement
of alleged defective item
As part of the contract, provide Seller with automatic
right to inspect and/or conduct testing
As part of contract, provide Seller with automatic right
to repair and/or replace any alleged defect.
Eliminate “class action” lawsuits by contract
Alternatives to Notice and Right
to Repair Laws
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Limitation of Buyer’s remedies (continued):
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Propose mediation of claims
If mediation is not successful, binding arbitration
should be the final venue of claim
Each party should bear their own attorneys’ fees, or
fees and costs should be expressly provided for in the
contract
Consider allowing limited discovery and joinder of
subcontractors or other parties and consolidation with
other claims
Alternative Dispute Resolution
Alternative Dispute Resolution
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Provide for a mandatory confidential mediation
with shared costs
If mediation is unsuccessful, provide for
mandatory arbitration:
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Arbitration clauses have been routinely upheld (Pulte
Case)
Courts can refer cases to mandatory arbitration in
state court if claim is under $50,000.
American Arbitration Association has a fast track
program for cases under $75,000. Completion within
60 days.
Additional Venues
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Small Claims Court: for claims under
$2,500. Typically cannot have an attorney
present.
Office of Administrative Hearings: for
claims where homeowner files a
Complaint with the Registrar of Contractor.
OAH typically does not award costs or
fees
How to Handle Homeowner
Claims
How to Handle Homeowner
Claims—Pre-Closing of Home
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Educate salespersons
Document communications in writing
Keep organized, complete, and accurate
records
Create a paper trail
How to Handle Homeowner
Claims—Walkthrough
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Provide buyer with contact information of
Homebuilder and subcontractors
Review warranty obligations of Homebuilder
with buyer (including information re: consumer
appliances)
Review areas of maintenance
Have a knowledgeable representative conduct
walk-through
Document walkthrough
Provide buyer with notebook of information to
review about the home
How to Handle Homeowner Claims:
Customer Service and Warranty Claims
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Avoid damaging admissions
Timely investigate all complaints
Timely respond to complaints in writing
Document all communications in writing
Keep organized, complete, and accurate
records
Procure signed waivers before entering a home
and/or conducting inspections or repairs
How to Handle Homeowner Claims:
Customer Service and Warranty Claims
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Don’t allow spoliation of evidence where
appropriate
Get the subcontractors and insurance
companies involved where appropriate
Hire experts where appropriate
How to Handle Homeowner
Claims
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Be Proactive!
Follow up!
Don’t promise too much and deliver too
little!
Exceed expectations!
Protect the attorney-client privilege
If appropriate, communicate with
homeowner before and during litigation