Can a Subsequent Owner of a Home Succeed on a Claim for Implied Warranty of Habitability Related to Construction Defect in Real Estate?

Is occupancy of a home by the first owner a condition precedent to denying a subsequent owner a claim for implied warranty of habitability? This question is posed by many subsequent homeowners for construction defects against original builders. The answer in short is yes. The subsequent homeowner cannot bring a construction defect claim against the original builder, unless the defects from the current seller are not readily visible or discoverable. This is the classic, patent v. latent argument in construction defect and real estate in general.

In Colorado, under the implied warranty doctrine, a builder-vendor, i.e. one who is regularly engaged in building, is responsible for delivering a house in a condition suitable for habitation to the buyer of a newly constructed home. Gallegos v. Graff, 508 P.2d 798, 799 (Colo.App. 1973). In general, the warranty extends only to first time purchasers. However, in Utz v. Moss, 503 P.2d 365, 377 (Colo.App. 1972) the Court held where, the construction company knows, or should know, the intended purchaser and first occupant will not be the first buyer, but rather the initial home owner, the implied warranty of workmanlike construction extends to that first purchaser (not necessarily the first buyer).

Likewise, a builder-vendor cannot avoid the implied warranty by intending to live in the house himself, but later selling the house on the open market. In Sloat v. Matheny, 625 P.2d 1031, (Colo. 1981) the Court reasoned, because the buyer relies on the builder-vendor's skill and experience, the builder must bear the risk that the house is fit for use: To hold otherwise would sanction the casual avoidance of these implied warranties by a builder who could easily feign the construction of a home for personal use and then sell the home on the open market.

Sloat states, the implied warranty arises so long as there is a "commercial sale" of a new house by a builder-vendor. A commercial sale exists where a builder sells a new home to a member of the general public. Based on this case law, Robert Abrams of the law firm Abrams & Associates at Abramslaw.net, argued in a Rule 56(h) motion that the client was entitled to the implied warranty as against the construction company, even though he was technically a subsequent purchaser. He purchased the home from an officer of the company who transferred title into his own name, but never occupied the house himself. Because the officer was not a member of the general public there was no commercial sale until it was sold to the client, thereby triggering the implied warranty owed to him.

Finally, the construction company knew or should have known that the officer was not intended to be the first occupant. Therefore, they owed the client the implied warranty as if he were the first purchaser.

Robert Abrams, Abrams & Associates, LLC. Construction, Real Estate, Contracts, Litigation