OUR MOST OFTEN-ASKED QUESTIONS FROM CLIENTS:

QUESTION:
Is it a fact that the builder owes warranties to me against construction defects or failure even if these are NOT stated in the contract I have with him?

ANSWER: Yes. The builder owes you a lot more than is stated in the contract.

DISCUSSION:
In Arizona, the builder is both "seller" and "builder" in the sale of a new home. As such, his exposure to liability must be measured from both perspectives.

  1. SELLER'S LIABILITY: Arizona law requires sellers of homes to tell potential purchasers about any material defects they are aware of. Hill v. Jones, 151 Ariz. 81, 85, 725 P.2d 1119 (Ct. App. 1986).

    Even if there was a mistake as to the defects, a case where neither buyer or seller knew of the defects, the buyer may seek a rescission of the entire agreement and a return to the status quo ante. Renner v. Kehl, 150 Ariz. 94, 722 P.2d 262 (1986). See more on rescission, "G," below.
  2. BUILDER'S LIABILITY

    A. GENERALLY:It is also well settled in Arizona that the builder owes an implied warranty of workmanship and materials and habitability with respect to the home. Kubby v. Crescent Steel, 105 Ariz. 459, 466 P.2d 753 (1970), (habitability) Nastri v. Wood Brothers Homes, Inc. 142 Ariz. 439, 690 P.2d 158 (1984), and cannot even be disclaimed by the builder even in writing, Hembree v. Broadway Realty & Trust Co., 151 Ariz. 418, 729 P.2d 288 (1986) and applies even if the builder was not building the house originally for resale, such as a model or for himself, Dilling v. Fisher, 142 Ariz. 47, 688 P.2d 693 (1984), as the purpose of the warranty is strictly to protect ALL home purchasers by holding home builders accountable for their work, Richards v. Powercraft Homes, Inc., 139 Ariz. 242, 678 P.2d 427 (1984). Even a disclaimer against the very item that is defective contained in the original builder's agreement with the first buyer will not affect a successor buyer's rights against the builder, Nastri, id..

    Such warranties run with the property such that direct contractual privity is not required to maintain an action against a builder vendor of a home for a breach of implied warranty of workmanship and habitability in a claim for a defective, latent conditions Richards, id. Accord: Donnelly Construction Co. v. Oberg/Hunt/Gilleland, 139 Ariz. 184, 677 P.2d 1292 (1984). Richards held that homeowners, whether or not they were in privity with the builder were entitled to recover damages for breach of implied warranty that the home was habitable and constructed in a workmanlike manner, in that there was no indication that the original owner substantially changed the structure of the home where the defective workmanship could not have been determined from reasonable inspection prior to purchase.

OUR NEXT MOST-ASKED QUESTION:
Is it true that the builder who builds a new home or remodels or repairs a home only has to stand behind his or her work for two years in Arizona?

ANSWER: No. The builder in Arizona must sand behind his or her product for a minimum of 6 years, but no more than 8 years if first discovered after the 6th year, or else he or she is in breach of the implied warranties in contract set forth, above. He or she is also liable in a joint claim of negligence for 2 years AFTER DISCOVERY.

DISCUSSION:
There are probably three relevant statutes of limitations.

The first, torts, like negligence, is governed by ARS 12-542, and is a two year statute.

The second, contract, is six years pursuant to ARS 12-548, but subject to discovery and the ultimate repose statutes above, which has yet to be totally tested.

The third is ARS 12-552, which provides a limitation of eight years after substantial completion of improvement to real property. However, if the injury occurs in the eighth year (or was not discovered until then), an action may be brought within one year after the date of the injury or discovery of the latent defect. The cases above seem to extend that to be from the time the cause of action accrued by the failure of the component, though this is still not entirely clear in Arizona. This section covers implied warranties in contract.

THE THIRD MOST-ASKED QUESTION: IT'S A BUILDER/INSPECTOR ISSUE: In summary and stated simply:

QUESTION:
Can a Builder, after entering into a sale contract by which he agrees to build and deliver a specific home to a Buyer (for which the Buyer is bound by the contract to pay) bar a registered Home Inspector engaged by the Buyer to inspect the property from coming upon the property unless the Home Inspector provides financial assurances to the Builder in excess in amount of coverage of that required of the Inspector by state law under the BOTR or can the Homebuilder bar the Home Inspector by the by use of the threat to void warranties otherwise protecting the Buyer or a threat to suspend performance upon or terminate the construction contract or any warranty on it, implied by law or express, owed to the Buyer?

ANSWER: No.

Here's the problem:
Builders are telling Homebuyers and Home Inspectors: (1) that neither the Homebuyer nor his Inspector may examine a home already sold to the Buyer and at that time under construction for that Buyer; or, (2) that the inspection may only be done if the Home Inspector provides extensive financial guarantees and relationships directly to the Builder that exceed those required by state law for Home Inspectors; and/or, (3) that the Builder's warranties of workmanship owed to the homebuyer are void or avoidable as to any component the Home Inspector might access inspect; and/or (4) the Builder will refuse to perform his warranties or terminate the contract or construction progress if the Homebuyer or Home Inspector contests any of the foregoing.

Part or all of these contentions and acts are wrong in whole or part. I will address that here only as a mater of licensure law.

The Builder, in addition to the authority set forth, below owes the Homebuyer certain performances as set forth under the licensure laws and rules of the Registrar of Contractors. The Builder owes the Buyer a workmanshiplike product under R4-9-108, owes the implied warranty of workmanship and habitability under the caselaw interpreting "sound workmanship" as set forth in Kubby v. Crescent Steel, 105 Ariz. 459, 466 P.2d 753 (1970), Nastri v. Wood Brothers Homes, Inc. 142 Ariz. 439, 690 P.2d 158 (1984), Richards v. Powercraft Homes, Inc., 139 Ariz. 242, 678 P.2d 427 (1984), and the implied covenant of good faith and fair dealing (the consumer's unharassed right to assure receipt of comporting product and to receive lawful treatment) as set forth in Wagonseller v. Scottsdale Mem. Hosp., 147 Ariz. 370, 383, 710 P.2d 1025 (1985). In addition, the law and rules of the Arizona Board of Technical Registration ("BOTR") regulating home inspection have the status of law and are "codes of the state." The BOTR rules regulate what a Home Inspector is required to have for proof of financial responsibility to inspect in the state of Arizona, mandates loyalty to the customer and prohibits financial or business connections with the party whose work is to be inspected (the Builder) which would impair the impartiality of the Home Inspector inspecting him. Lombardo v. Albu 199 Ariz. 97, 14 P.3d 288 (2000) provides that licensure rules are standards of care and that violations of rules are "failures per se." Arizona State Real Estate Department v. American Standard Gas & Oil Leasing Service, 580 P.2d 15, 119 Ariz. 183 (Ariz.App., 1978) holds the same for violations of licensure statutes.

The long and short of it is that there is a good argument that the Builder cannot make the above demands under his own licensure and to do so is a licensure violation. The Builder is bound to obey his contract, the licensure law and regulations and cannot threaten to breach his contract with the Buyer through contract suspension, performance suspension, warranty termination or avoidance that is prohibited. I will briefly discuss this:

From the ROC perspective:
ARS 32-1154 states that a construction licensee "shall not commit" any of an enumerated series of acts or omissions. One enumerated "act or omissions" is at "1. Abandonment of a contract or refusal to perform after submitting a bid without legal excuse for the abandonment or refusal (see the only legal excuses set forth by statute below). Others of relevance are "7. The doing of a wrongful or fraudulent act...resulting in another person [Buyer, Home Inspector] being substantially injured.."; "12. Failure to comply with any...codes [the statutory and regulatory law of the ROC and BOTR, et al.] of the federal government, state or political subdivisions of the state; "13. Failure...to comply with this Chapter"[see below statutes form this Chapter]; "16. False, misleading or deceptive advertising whereby any member of the public may be misled or injured"; "17. knowingly contracting beyond the scope of the license..of the licensee." In addition and as will be shown as relevant later, there is "3. Violation of any rule adopted by the registrar." [See relevant rules, below.]

ARS 32-1159 A. provides that a "covenant, clause or understanding in, collateral to or affecting a construction contract ...that purports to indemnify, to hold harmless or to defend the promisee from or against liability of loss or damage resulting from the sole negligence of the promisee or the promisee's agents, employees or indemnitees is against public policy of this state and is void. [Thus, any clause of a construction agreement or a side agreement which tries to excuse the Builder from his lawful duties is void.]

ARS 32-1129.03 A. provides those circumstances under which a Builder can interrupt his performance [fail to give warranties, discontinue with the job, the project or fulfillment of his obligations under the contract] without penalty or liability of breach of contract and it permits interruption only because of encountering hazardous material or substances. ARS 32-1129.04 allows suspension only for non-payment by the Buyer or a refusal to approve a billing or job estimate. Nowhere does either statute provide for "ceasing performance of any obligation--a warranty for workmanship or obligation or progress on the job--because the other party in contract (the Buyer) wants to inspect, himself or through a Registered Inspector in full compliance with the BOTR and working for him, what he is buying." If the contractor refuses warranties or to continue with the whole or any part of the job under contract for ANY OTHER REASON, he is in violation of licensure and liable for breach, damages, attorneys fees and costs both to the Buyer and the Inspector ("any person", see the regulation, below). There is no exception allowing suspension or termination of the Builder's duties "because the other contract party wants and will pay for a home inspection by a lawfully registered and insured Inspector" or because the "other contract party wants the warranties required by law." To do so is itself a breach of licensure regulations.

R4-9-131 especially prohibits as having special "gravity" the following acts or omissions: The Builder "2. Failed to perform work for which money was received" [terminates performance because of a home inspection or terminates a warranty he unconditionally owes by law]; "3. Executed or used any false or misleading documents for the purpose of inducing a person to enter into a contract or pay money for work to be performed" [threatening to suspend performance or void warranties that cannot lawfully suspect or void after the purchase contract is signed]; "4. Made false or misleading statements for the purpose of inducing a person to enter into a contract or to pay money for work to be performed" [ditto as to section 3., immediately foregoing]; "11. Performed work that has caused loss or damage to the structure, its appurtenances or property being worked upon or which has caused loss or injury to any person" [unlawful voiding of warranties or termination or slow down of performance--here there would be damages and liability to the Buyer and the Home Inspector].

In sum, a contractor owes the warranties and contract performance as agreed to and as required by law to the consumer, whether or not expressly set forth by the contractor and even if the contract contains a disclaimer against it. To threaten to void warranties (or voiding them) or to threaten to suspend or terminate performance (or to do so) for any reason OTHER than encountering dangerous substances or materials at the site or by reason of non-payment by the Buyer is a violation of regulation and law. An agreement even contending it can be done is a violation of regulation and law and a regulatory misrepresentation.

Not discussed here but certainly an issue are the Builder's liabilities for intentional or negligent interference with the Inspector/client contract; regulatory and common law trade liability for restraint of the Inspector's registered trade; anti-trust; liability for fraudulent schemes under ARS 13-2310, et. seq., and 44-1522(A), et. seq., all of which have applicability. No Builder can attempt on a broad spectrum to actively restrict or interfere with the Home Inspection trade and void a consumer's right in violation of it's own licensure without violating the other public and common laws regarding unlawful schemes or restraints of trade.

Notably, all Builder contracts state in them "this is the final agreement and supersedes all others and the only terms between Builder and Homebuyer are those contained in this agreement" and none of them contain any clauses in which the consumer has agreed to void warranties or inhibit the home inspector as in the above. The Builder drafted his own contract and omitted any such terms. It therefore cannot be argued that the Homebuyer somehow agreed to this (assuming any buyer can be asked to agree to anything that violates the Builder's licensure in the first place).

There is more. If the Inspector has to provide all of these huge financial assurances to the Builder (some even asking that the Inspector co-insure the Builder for $1 million on his AUTO INSURANCE!), why is the Realtor, appraiser, bank-loan construction progress inspector, city inspectors and owner not also asked to do so? Why just the private home inspector? In addition, through thousands of litigations, this office has leaned that the Builder is NOT ASKING FOR THESE FROM HIS SUBS, either! Thus, this is targeted strictly at Home Inspectors and for very obvious reasons. Last year they did thousands more inspections than any other vendor, including city and county, and found thousands more defects than all of the foregoing other inspectors put together! It's all about the Builder wanting to hide his sins. It's all about getting his hands on the money.

 

 

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