Tuesday, May 20, 2014

Common Law Implied Warranties in Construction

When dealing with construction defects, lawyers seeking recovery on behalf of owners often turn to implied warranties arising under state law to provide grounds for an owner to recover for losses that otherwise might not be recoverable. Such situations arise often when the "owner" has changed from being a developer in direct privity with a contractor to being a condominium or homeowners' association with no privity.  

Today's discussion relating to this topic specifically in Florida -- but providing food for thought elsewhere also -- come from Division 1 member Jason M. Rodgers-da Cruz of Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel, P.A. of Coral Gables, Florida.  Jason's practice relates specifically to construction defect claims that often are raised on behalf of condominium associations.  This article discusses a Florida Supreme Court decision issued late last year called Maronda Homes, Inc. v. Lakeview Reserve Homeowners Ass'n, 127 So. 3d 1258 (Fla. 2013)

(Note: There are four footnotes in this article, which are denoted with a bracketed number: e.g., [1].)

Florida’s Common Law Implied Warranties: A brief review of the scope and application of Florida’s common law implied warranties. 

In representing a purchaser, developer or a developer/builder involved in a warranty dispute pertaining to a residence in the State of Florida, consider the Florida Supreme Court’s most recent ruling concerning the scope and application of common law implied warranties in Maronda Homes, Inc. v. Lakeview Reserve Homeowners Ass’n,  127 So. 3d 1258 (Fla. 2013).

In Maronda, a homeowner’s association filed suit against its developer for breach of common law implied warranties for a defective storm water drainage system serving the entire property. The association experienced buckling, splitting of pavement and asphalt, excessive flooding, soil erosion, mosquito infestation and swamp-like conditions, which directly affected the homes and access to the homes. 

The developer filed a third party action against the contractor seeking indemnification for the allegations raised by the association. The developer and the contractor filed a motion for summary judgment against the association, and relied, in part, on the Fourth District Court of Appeal’s application of common law implied warranties in Port Seawall Harbor & Tennis Club Owners Association, Inc. v. First Federal Savings & Loan Association of Martin County, 463 So. 2d 530 (Fla. 4th DCA 1985).  They argued that the defects did not meet the elements required for asserting common law implied warranties because the alleged defects did not immediately support the residences.[1]  

The trial court agreed with the developer and contractor and granted the motion for summary judgment.  The association appealed to the Fifth District Court of Appeal.  The Fifth District reversed the trial court and certified a conflict (to the Florida Supreme Court) with the Fourth District’s application of common law implied warranties in Port Seawall.  An appeal to the Florida Supreme Court ensued.   

The Florida Supreme Court conducted a historical review of the rationale and standards supporting common law implied warranties, including 1) the privity requirement between the seller and the owner,[2]  and 2) that common law warranties were not extended to investors. [3]  

The court then adopted the standard set forth by the Fifth District, known as the “’essential services’” standard.  The essential services standard provides that if the improvement provides an essential service to the habitability of the residence, then common law implied warranties apply. Conversely, if the improvement does not provide essential services to the residence, then the common law implied warranties do not apply. Further, the improvements need not be physically attached to the homes but rather provide essential services to the habitability of the home.  The court opined that the essential services standard is consistent with the “Florida requirement that the implied warranties apply to improvements that are ’immediately supporting’ a residence.”  However, the court noted that essential services do not include “items that provide mere convenience or aesthetic beauty, such as landscaping, sprinkler systems, recreational facilities or other similar improvements.”

The court also addressed the Florida Legislature’s attempt to limit common law implied warranties in Section 553.835, Florida Statutes. [4]   The legislative impetus for enacting Section 553.835, can be found in Section 553.835(1):

[t]he Legislature finds that the courts have reached different conclusions concerning the scope and extent of the common law doctrine or theory of implied warranty of fitness and merchantability or habitability for improvements immediately supporting the structure of a new home, which creates uncertainty in the state’s fragile real estate and construction industry.

Section 553.835(4) specifically limits common law implied warranties as a cause of action for an offsite improvement.  Section 553.835(4) provides, in part, that: 

[t]here is no cause of action in law or equity available to a purchaser of a home or to a homeowners’ association based upon the doctrine or theory of implied warranty of fitness and merchantability or habitability for damages to offsite improvements…

Although the court briefly reviewed the Legislature’s definition of an offsite improvement, it primarily focused on whether the statute could be retroactively applied. The Court held that the statute could not be retroactively applied as the Legislature attempted to limit vested common law implied warranties.  The court opined that Section 553.835 violated the right of access to the courts and that the Legislature’s attempt was a “clear violation of separation of powers because the Legislature does not sit as a supervising appellate court over our district courts of appeal.”  Accordingly, Section 553.835 “does not apply to any causes of action that accrued before the effective date of this section.”

In closing, if you are litigating in a jurisdiction that allows for common law implied warranties, consider: 1) the scope of the warranty; 2) to whom the warranty extends; 3) whether the legislature has attempted to limit those warranties; and 4) although not addressed in this article, whether those warranties can be or have been disclaimed.

[1]Port Seawall Harbor & Tennis Club Owners Association, Inc. v. First Federal Savings & Loan Association of Martin County, 463 So. 2d 530 (Fla. 4th DCA 1985)(declined to extend common law implied warranties to the facts in the case because "[t]he foot bridge in question and the defective work complained of involved roads and drainage in the subdivision and did not pertain to the "construction of homes or other improvements immediately supporting the residences.")
[2] Gable v. Silver, 264 So. 2d 418 (Fla. 1972).
[3] Conklin v. Hurley, 428 So. 2d 654 (Fla. 1983).
[4] The Florida Legislature enacted Section 553.835, Florida Statutes, on July 1, 2012, and intended for the statute to apply retroactively.   

No comments:

Post a Comment