Tag: fattah

As-Is Rider in Real Estate Contract Doesn’t Defeat Implied Warranty of Habitability in Home Sale – Fattah v. Bim Deconstruction – Part II of II)

The Fattah v. Bim (2015 IL App (1st) 140171) developer defendant seemed to have double protection.  Not only did the person it sold the home to (Buyer 1) waive the implied warranty of habitability, but Buyer 1’s buyer – the plaintiff – took the home “as-is” pursuant to a contract rider.

Despite the added layer of protection, the court still allowed the plaintiff’s case to proceed against the developer defendant. It’s reasons:

– the “as is” rider was part of the contract between plaintiff and Buyer 1: it has no bearing on plaintiff’s rights versus the defendant;

– even if the “as is” rider did impact plaintiff’s rights versus the  defendant,  the rider wouldn’t negate the implied warranty of habitability;

– that’s because the “as is” rider (in the plaintiff-Buyer 1 contract) didn’t mention the implied warranty of habitability or a waiver of it;

– where a purchaser agrees to accept a house “as is” and the “as-is” provision doesn’t refer to any implied warranties in general and also doesn’t disclose the consequences of waiving an implied warranty, the as-is provision can’t be viewed as a valid disclaimer that a home builder/developer can rely on.

(¶¶ 34-35)

The court also fond that when a purchaser accepts a home as-is, a builder/developer still has to carry its burden of proving the home buyer   knowingly waived the implied warranty of habitability “by showing a conspicuous provision [that] fully discloses the consequences of [the waiver.]”  Since the defendant failed to meet its burden, the as is rider didn’t defeat the earlier waiver of the implied warranty of habitability on the house.

The court further circumscribed the implied warranty waiver signed by Buyer 1.  It held that a waiver of an implied warranty of habitability protects only the person identified in the contract.  It doesn’t extend to unwitting parties (like the plaintiff) unless there is a clear intent for that waiver to apply to a third party.

The as-is rider precludes the plaintiff from pursuing Buyer 1 (who sold the home to plaintiff) for damages based on home defects but it does not impact plaintiff’s rights versus the developer.  The developer defendant was not party to the as-is agreement between plaintiff and Buyer 1  wasn’t a named beneficiary of it.

Now What?

While the plaintiff obtained a reversal of summary judgment in the builder’s favor, he still hasn’t won the case.  He must now carry his burden of proving the defendant breached the implied warranty of habitability.  He must prove: (1) latent defects in the house, (2) that interfere with the reasonably intended use of the house and (3) the latent defects manifested themselves within a reasonable time after the house was purchased.  

The court agreed that the patio collapse constituted a latent defect.  Plaintiff will now have to establish elements (2) and (3) – that the patio defects interfered with plaintiff’s use of the home and that he learned of the defects a reasonable time after he bought the house.

 

Implied Warranty of Habitability Waiver Doesn’t Bind Second Home Buyer: Deconstructing Fattah v. Bim (IL 1st Dist.)(Part I of II)

Fattah v. Bim, 2015 IL App (1st) 140171 will likely be viewed as a significant victory for homeowners (and a correlative loss for builders) in residential construction disputes.

The plaintiff bought a million-plus dollar home in Chicago’s northern suburbs from the defendant homebuilder “as-is” and subject to an earlier waiver of the implied warranty of habitability signed by a prior purchaser (“Buyer 1”) who sold the house to the plaintiff.

In reversing a bench trial judgment for the defendants, the court answered some important questions concerning the scope and enforceability of disclaimers contained in the sale of real property in Illinois.

Facts:

The sale of the home from defendant to Buyer 1 included a written waiver of the implied warranty of habitability that specifically provided it was binding on the seller, the purchaser, and any successors.

The plaintiff bought the property from Buyer 1 “as is” three years after Buyer 1 bought it.  The contract’s as-is rider provided, among other things, that the seller (Buyer 1) shall not be responsible for “the repair, replacement or modification of any deficiencies, malfunctions or mechanical defects on the Property or to any improvements thereon” and that Buyer 1 makes no representation or warranty to plaintiff concerning the Property’s condition, zoning or suitability for its intended use.

Despite this broad Rider’s language, the contract still required Buyer 1 to disclose known material latent defects.

Four months after plaintiff moved in, the patio collapsed and plaintiff sued the defendant homebuilder.  The trial court found for defendant at trial on the basis that Buyer 1’s implied warranty waiver extended to the plaintiff.  Plaintiff appealed.

Result: Reversed:

Rules/Reasoning:

The appeals court found that the earlier implied warranty of habitability waiver did not bind the plaintiff.  The court’s reasoning:

– the implied warranty of habitability is a creature of public policy that aims to protect innocent purchasers of new houses who discover latent defects in their homes;

– the implied warranty of habitability recognizes that the purchaser, who is generally not knowledgeable in construction practices, has to rely n the integrity and the skill of the builder-vendor, whose business is home building;

– it (the implied warranty of habitability) applies not only to builder-vendors, but also to subcontractors and developer-vendors;

– subsequent home buyers can be protected by the implied warranty of habitability.  This is because a “subsequent purchaser is like the initial purchaser in that neither is knowledgeable in construction practice and must rely on the expertise of the person who built the home to a substantial degree.”

– the warranty of habitability exists independently of a contract between the builder and twice-removed buyer and extends only to “latent defects which manifest themselves within a reasonable time after the purchase of the house.”

– despite the strong public policy reason behind the implied warranty of habitability, a “knowing disclaimer” of the warranty doesn’t violate Illinois public policy;

– one who seeks to benefit from a disclaimer has the weighty burden of establishing that the disclaimer is (1) conspicuous, (2) fully disclosed (along with its consequences) to the buyer, and (3) mutually agreed on by the parties.

(¶¶ 23-25).

With these principles in mind, the court found that Buyer 1’s waiver of the implied warranty of habitability was valid as it appeared prominently in the sales materials and recited the waiver’s impact of the Seller’s rights.

The court then considered whether Buyer 1’s waiver of the implied warranty was binding on plaintiff – a subsequent purchaser who lacked knowledge of the earlier waiver.

Finding that Buyer 1’s waiver did not bind plaintiff, the court noted there was no agreement between plaintiff and defendant and the waiver of the implied warranty of habitability never was brought to plaintiff’s attention.

The court held that an implied warranty of habitability can only be waived where it’s done so “knowingly.”  Here, the plaintiff wasn’t party to Buyer 1’s waiver and testified she wasn’t aware of the waiver when she (plaintiff) bought the house.  Since defendants didn’t refute plaintiff’s testimony, it failed to prove plaintiff knowingly bought the property subject to Buyer 1’s waiver of the implied warranty.  As a result, the waiver didn’t bind the plaintiff.

(¶¶ 28-31)

Take-aways:

1/ The implied warranty of habitability extends to subsequent home purchaser for latent (not overt) defects;

2/ A disclaimer or waiver of an implied warranty offered by a prior buyer won’t bind a subsequent buyer where that later buyer offers evidence that she lacked knowledge of the disclaimer or waiver and that the disclaimer’s importance wasn’t pointed out to her.