Illinois Expands Reach of Implied Warranty of Habitability to Subsequent Purchasers

House.1In deciding an issue of first impression, an Illinois appellate court expanded in early May the application of the implied warranty of habitability. “Implied warranty of habitability” is a group of words that fails to roll smoothly off the tongue and that may send some readers running for the hills knowing that the words that follow will likely be legal-ish and, well, boring. As a nod to coolness and to cut down on the Ugh Factor in reading this post, I’ll refer to the warranty as the IWH in this brief post.

The IWH is a good thing for home buyers, home owners and, in turn, subrogating property insurance carriers. The IWH is also an American thing—at the time its application was first gaining traction, the 1950s, it represented a departure from property laws that had been imported and derived from the “buyer beware” laws of Great Britain.[1]

While the IWH is a baby boomer in U.S. law, it’s a Gen X-er in Illinois, being first recognized in the early 1970s. Illinois courts describe the IWH (in what some may take as fightin’ words) as a “creature of public policy” and “judicial innovation.”[2]  The purpose of the IWH is geared towards protecting innocent purchasers of new homes from harm caused by construction defects that the purchasers couldn’t have discovered at the time the home was purchased.

For the last 3 decades, the protections for homebuyers built into the IWH have extended to subsequent purchasers of a home. Illinois recognizes that, like the first purchaser of a home, subsequent purchasers of the same home “rely on the expertise of the person who built the home to a substantial degree.” However, Illinois courts have traditionally allowed builders to disclaim and home buyers to waive the IWH despite the strong public policy behind the doctrine. Such waivers, if not prevalent, are commonplace in home purchase and home construction contracts.

The Illinois First District Appellate Court recently held in Fattah v. Bim that an otherwise “good” waiver of the IWH between a home’s builder/seller and the home’s first purchaser may not bar an IWH claim made by a subsequent purchaser against the builder/seller. In Fattah, Buyer #1 purchased a newly constructed home from Bim. The purchase contract included a waiver of the IWH but it did not include language extending the application of the waiver to purchasers beyond Buyer #1. Fattah then bought the home from Buyer #1 three years after the home was first sold. Only 5 months after the second sale of the home, portions of the structure started to collapse.

The appellate court rejected the notion that the waiver of the IWH extended to Fattah because there was no evidence that Fattah was aware of the waiver or otherwise made a party to the waiver by its terms. Illinois’ previous extension of the IWH to subsequent purchasers, coupled with the lack of language in either the original sales contract or the sales contract between Fattah and Buyer #1 that would have notified Fattah of the waiver’s existence, mandated the favorable outcome for Fattah. Even the presence of an “as-is” clause in the contract between Fattah and Buyer #1 failed to trigger the waiver in favor of the builder. In remanding the case for further proceedings, the appellate court noted that “[i]nterestingly, while lack of privity defeats the waiver, lack of privity does not defeat the warranty.”

The Fattah case illustrates an avenue of recovery around a contractual waiver, lends legitimacy to pursuing contractors based on implied warranty theories, and begs you to consider the IWH theory of liability even when your insured is a second or third purchaser and agreed to an “as-is” clause in buying a home.

[1] Michael A. Brower, The “Backlash” of the Implied Warranty of Habitability: Theory vs. Analysis, 60 DePaul L. Rev. 849 (2011); Roger L. Price & M. Ryan Pinkston, The Implied Warranty of Habitability in Illinois: A Critical Review, 98 Ill. Bar J. 92, 93 (Feb. 2010).

[2] Fattah v. Bim, 2015 IL App (1st) 140171 ¶ 21 (May 1, 2015).

 

 

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