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What you need to know about warranties.

Construction ended more than a year ago, and you gave the buyer a one-year warranty. It stated that all materials were new, that all work was performed professionally, and that you would remedy any defects due to faulty materials or workmanship that appeared within one year. Yesterday, the owners found a problem and said you should fix it at no charge. Because more than a year has passed, you want to tell them it's not your problem. Can you do that without making yourself liable?

EXPRESS WARRANTIES

You may be surprised to learn that most courts considering this question have said that a general express warranty like the one described above extends, rather than limits, liability for faulty construction. Courts have held that an express warranty that obligates the builder to repair defects that appear or develop within one year does nothing more than establish that the builder has a contractual duty to correct any such defect for that time.

However, if the defect appears after that time, the warranty does not prevent the owner from recovering money damages for breach of the general express warranty of workmanship, breach of implied warranties, or breach of the contract. The builder may be liable for an indefinite period of time.

IMPLIED WARRANTIES

In addition to express warranties, you must be aware of implied warranties. These warranties are imposed by courts and legislatures and exist apart from any representations you make. They may extend to new and subsequent buyers. Implied warranties take two forms: habitability and good workmanship.

The implied warranty of habitability means that a home must be structurally sound, must provide its inhabitants with a reasonably safe and sanitary place to live, and must be reasonably fit for human habitation.

Under the implied warranty of good workmanship, the home must be built to the standard of quality prevailing at the time and place of construction.

The defects covered by these implied warranties vary by state. Generally, the warranties are limited to latent defects-- that is, they do not extend to defects the owner knew of or could have discovered upon reasonable inspection. Consequently, defects these warranties cover include leaky roofs, cracks in basement walls, and defective septic systems.

You may be liable for a breach of an implied warranty for a reasonable time after the house is finished. What is reasonable depends on the facts of each case. Generally, builders are protected from indefinite liability by a statute of repose, which limits the time within which a harmed person may sue the person who caused the harm.

In some states, the parties--by an express agreement--may disclaim or waive the implied warranties.

The suggested contract provisions in this article are simply illustrations. They should not be used without the approval of an attorney experienced in construction contract law in your state.

RECOMMENDATIONS

Your best defense against unintended warranty liability is a well-written contract. Before executing your next contract, consider the following.

If you want to make your one-year repair warranty the owner's only route in case of faulty workmanship, include the clause, "The buyer understands that the sole remedy under this limited warranty agreement is repair as set forth here."

Review your contract to be sure there are no other warranties in other sections. Also, have the owner waive tort and contract remedies. Or you can limit the time for bringing suit.

Modify a general express warranty, such as "All work and materials will be of good quality, and free from defects," with this statement: "Any claim for breach of this warranty must be brought within _ years from the date of substantial completion."

If possible, expressly disclaim all implied warranties. An express warranty will not be interpreted as a waiver of implied warranties. If state law prohibits you from disclaiming implied warranties, expressly limit the duration of implied warranties (for example, two years from substantial completion).

QUALIFYING CLIENTS

Q

How do you qualify your clients?

--R.L., Concord, Calif.

A

There is more to analyzing potential clients than running numbers to see if they qualify. A good custom builder will evaluate many factors when deciding how to price and deal with potential clients. Here are some of the ones I look at.

* What are the clients' expectations? Clients with unrealistic expectations will be extremely difficult to satisfy. If you feel their expectation level is too high, you can either bring these expectations to a more realistic level, or charge enough to fulfill the clients' wishes. Unfortunately, the second alternative is often unrealistic, because you won't be competitive with other builders who aren't astute enough to build in compensation for their clients' aspirations.

It's your responsibility to educate your clients early in the process about the costs of construction and what can and cannot be achieved. Too many clients expect levels of performance that are unattainable or $1,000 items for $200.

* If they are a couple, how do they communicate with each other? Building a custom home over a period of four to seven months (or longer) requires you and your clients to communicate almost constantly. If communication with your clients is going to be difficult, it's important to find that out before the process starts so you can compensate by lengthening the construction period, scheduling meetings in off hours, or visiting the site more often to clarify questions.

Also, if you think the clients communicate with each other in a rude or unconstructive way, you can expect the same. The way they communicate with each other is a good indicaation of how they will communicte with you. Early on, you have to decide whether you can deal with people who exhibit these characteristics, and if you can, how much you wish to charge for the pleasure.

* Are they financially qualified? Financial qualification is related to the type of business you run and the price range in which you operate. In the higher price ranges, particularly if you are building on the clients' lot, it is much less important to qualify the clients (because you already know that they have equity) than it is if you are building at the lower end of the price scale.

Many builders use a Realtor to help them qualify the client. Or, you can arrange for your clients to meet with your lender early in the process to verify that they are financially able to complete the project.

There is nothing wrong with raising the issue of costs and budget in your first client meeting. If the clients come with a plan, after examining it you can say, "This house appears to be in the $175,000 to $200,000 price range, depending upon what amenities you include. Is that what you had in mind?" Similarly, without a plan, you can certainly ask the question, "What price range are you looking for?"

Remember: You don't need to be shy or afraid of upsetting the client. You have every right to know whether the client is qualified before you invest your time and energy in pricing the home.

* Do their financial qualifications and their expectations match? Even if clients have realistic expectations, their expectations don't matter if they don't have the ability to pay for the project. Do not delude yourself into thinking that somehow the clients will be able to get more money or you will be able to cut costs.

Deal frankly and clearly with the clients up front and explain that, based on their ability to pay, there are things that must be deleted from their house. Typically, this will mean either a smaller house or lower quality amenities and finshes. Early in the process, a good builder shows clients many alternatives that will reduce the cost of the project so it matches their qualifications.

Make sure that both you and the clients understand exactly what they are getting and what they are paying. This is the secret to getting along with your clients and building a strong reputation.
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Title Annotation:includes related article on contract wording
Author:Jaffe, David S.
Publication:Builder
Date:Oct 1, 1993
Words:1325
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