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Seller’s Disclaimer Of the Implied Warranty of Habitability Will Not Extend to General Contractor
The Illinois Appellate Court recently held that a disclaimer provision that, on its face, applies only to the seller of property, will not be extended to any other party. 1324 W. Pratt Condo. Assoc. v. Platt Constr. Group, Inc., No. 1-11-1474, 2012 WL 2369561 (1st Dist. June 21, 2012) (hereinafter “Pratt II”).
In Pratt II, the developer entered into a contract with Platt Construction Group under which Platt was hired as the general contractor to construct an eight-unit residential building. Platt entered into a subcontract with EZ Masonry to complete the masonry work on the building. In March, 2005, after the building was completed, the developer entered into individual real estate contracts with each of the eight condominium purchasers. Neither Platt nor EZ Masonry entered into a direct contract with the purchasers. Each residential purchase contract contained a one-year limited warranty for certain structural components in the units. The warranty also contained an explicit disclaimer of the implied warranty of habitability as to the seller:
(c) WAIVER-DISCLAIMER. THE SELLER HEREBY DISCLAIMS AND THE PURCHASER HEREBY WAIVES THE IMPLIED WARRANTY OF HABITABILITY DESCRIBED IN PARAGRAPH 10(B) ABOVE AND THEY ACKNOWLEDGE, UNDERSTAND AND AGREE THAT IT IS NOT PART OF THE CONTRACT.
Effective [sic] and Consequences of this Waiver-Disclaimer. Purchaser acknowledges and understands that if a dispute arises with Seller and the dispute results in a lawsuit, Purchaser will not be able to rely on the Implied Warranty of Habitability described above, as a basis for suing the Seller or as a basis of a defense if Seller sues the Purchaser.
In late 2005, the developer was involuntarily dissolved. Shortly thereafter, the unit owners discovered water leaks in several areas of the building. The condominium association (“Association”) filed a complaint against the developer and the general contractor, alleging, among other things, a breach of the implied warranty of habitability. In 1324 W. Pratt Condo. Assoc. v. Platt Constr. Group, 404 Ill. App. 3d 611 (1st Dist. 2010) (Pratt I), an earlier appellate decision in the same case, the appellate court reversed the circuit court’s dismissal of the association’s implied warranty of habitability claim against Platt as contractor, and remanded the case. In doing so, the appellate court specifically held that “the warranty applies to builders of residential homes regardless of whether they are involved in the sale of the home.” Pratt I, 404 Ill. App. 3d at 618. Thus, the Association could maintain its claim against the contractor.
Less than two months later, the Association filed its third amended complaint alleging only a breach of the implied warranty of habitability against the developer, Platt, and EZ Masonry (this complaint became the basis for Pratt II). EZ Masonry filed a motion to dismiss, arguing that since Platt was solvent, it was improper to bring this claim against a subcontractor. Platt also filed a motion to dismiss, alleging that the unit owners had explicitly waived the implied warranty of habitability in their real estate contracts.
The circuit court granted the motions to dismiss solely based upon the alleged waiver of the implied warranty of habitability. The circuit court specifically discounted EZ Masonry’s claim that while Platt was solvent, the Association could not go forward with its claim against EZ Masonry, and denied its motion on this ground. In its written order, the circuit court stated that Pratt I had modified Minton v. Richards, and had extended the implied warranty of habitability to subcontractors without the need to first show that the purchaser had no recourse against the builder and/or vendor.
The Pratt II appellate court reversed the circuit court’s decision, agreeing with the Association’s argument that the circuit court’s ruling regarding the disclaimer was contrary to the public policy behind the implied warranty of habitability, which had always been to protect purchasers of new homes from latent defects created by faulty construction. Although the Illinois Supreme Court has specifically recognized that a knowing disclaimer of the warranty is not against public policy, it has also made clear that the burden of establishing a knowing waiver rests on the builder/vendor, and that any disclaimer must be strictly construed against the builder/vendor. Peterson v. Hubschman Construction Co., 76 Ill. 2d 31, 43 (1979).
The appellate court found that the disclaimer provision cited above clearly applied to the seller, and not any other party, including Platt or EZ Masonry. As the public policy of the warranty is to protect homeowners and to construe disclaimers against builder/vendors, “we see no reason why, under the plain language of the aforementioned disclaimer provision, we should attempt to circumvent the clear and unambiguous intent of the parties and extend the disclaimer to include parties other than the seller.” Pratt II, 2012 WL 2369561 at *8. Although the warranty is a creature of public policy, the disclaimer of such a warranty is governed by contract law. As the disclaimer did not protect Platt or EZ Masonry, the circuit court erred in granting their motion to dismiss on this basis. The Pratt II court found that as a result of Platt’s motion to dismiss being based solely on this ground, the Association could proceed with its cause of action against it.
However, the Association could not proceed with its cause of action against EZ Masonry. The appellate court rejected the Association’s argument that Pratt I had modified or extended Minton in any way, and held that because Platt was still solvent, the Association could not proceed against the subcontractor.
Practically, this decision reaffirms the public policy of protecting purchasers from latent defects, by reinforcing that the implied warranty of habitability extends to claims against general contractors who are not in privity of contract with the residential owner. Moreover, it confirms that subcontractors will have exposure to such claims if the general contractor is insolvent. Last, the decision limits the scope of the disclaimer of the implied warranty of habitability against the seller when the language does not contemplate that anyone other than the seller should be protected.