Developers Beware: Waiver of the Implied Warranty of Habitability Does Not Apply to Subsequent Purchasers

In a recent decision the Illinois Appellate court has ruled that an initial home purchaser’s waiver of the implied warranty of habitability does not bind subsequent purchasers who purchased the home without knowledge of the waiver, even if that home was sold “as is.” As such, a subsequent purchaser can sue the original developer for a breach of the implied warranty of habitability

In Fattah v. Bim, 2015 Ill. App. LEXIS 331, (Ill. App. Ct. 1st Dist. 2015), a developer built and sold a home under a sales contract that contained a valid waiver of the implied warranty of habitability. Three years later, the initial purchaser sold the property “as is” to Fattah. Four months after the sale, the patio collapsed. Fattah then filed a lawsuit against the developer, alleging that the developer had breached the implied warranty of habitability by constructing a home with latent defects.

The Illinois appellate court held that a subsequent purchaser is not bound by an initial purchaser’s waiver of the implied warranty of habitability when the subsequent purchaser did not have knowledge of the waiver or knowingly agree to accept the waiver. The court relied on the well-settled law that although an implied warranty of habitability can be waived, the purchaser must have knowingly waived that right. The court found that there was no evidence that the subsequent purchaser knowingly agreed to accept the initial purchaser’s waiver of the implied warranty of habitability.

Additionally, the court found that the “as is” rider provision used in the sales contract between the initial and subsequent purchaser did not prohibit the subsequent purchaser’s claim against the developer. It reasoned that an “as is” rider could only negate the warranty if it had a provision which fully disclosed the consequences of waiving the warranty. Without such a provision, and merely buying a home “as is,” a subsequent purchaser does not waive its right to assert an implied warranty of habitability claim against the developer.

With this ruling developers are on notice that an initial purchaser’s signing of a waiver of the implied warranty of habitability does not obviate the developer’s liability to subsequent purchasers from latent defects.

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