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Lofts at Fillmore Condo. Ass’n. v. Reliance Commercial Construction, Inc. ( - 8/19/2008

Arizona Supreme Court Holds That Residential Homebuyers May Bring Suit for Breach of the Implied Warranty of Workmanship and Habitability Against a New Home Builder Who Is Not Also the Vendor of the Home.

Developer contracted with Reliance Commercial Construction, Inc. (“Reliance”) to convert a building owned by Developer into condominiums.  Developer then sold condominium units to individual buyers, who formed The Lofts at Fillmore Condominium Association (“the Association”).  The Association subsequently brought claims against Reliance asserting breach of the implied warranty of workmanship and habitability.  The trial court granted summary judgment for Reliance and the Court of Appeals affirmed, finding that the implied warranty claim was barred because the Association had no contractual relationship with Reliance, i.e., there was no privity.  The Association appealed. 

In a unanimous decision, the Arizona Supreme Court vacated the Court of Appeals opinion and reversed the trial court judgment.  The Court first held that a builder who is not also the vendor of a new home impliedly warrants that construction has been done in a workmanlike manner.    Citing Columbia Western Corp. v. Vela, 122Ariz. 28, 33, 592 P.2d 1294, 1299 (App. 1979), and Richards v. Powercraft Homes, Inc., 139Ariz. 242, 678 P.2d 427 (1984), the Court explained that “the implied warranty arises from the construction of a new home, whether or not the builder is also a vendor of the home.”   Quoting Richards, the Court also explained that the policy underlying the implied warranty is “to protect innocent purchasers and hold builders accountable for their work.”  139Ariz. at 245, 678 P.2d at 430.  Based on these principles, the Court concluded that the implied warranty arises from construction of a new home, regardless of the identity of the vendor.

The Court next held that the Association could bring an action against Reliance for breach of the implied warranty, despite the lack of privity between the parties.  Citing Richards again, the Court explained that the policies underlying the implied warranty would not be furthered by limiting the warranty to situations in which the homebuyer had privity with the builder.  The form of the business deal chosen by the builder and vendor should have no bearing on an innocent buyer’s ability to seek redress.

The Court rejected Reliance’s argument that eliminating the privity requirement would expose residential homebuilders to expanded liability and would negatively impact theArizona economy, noting that homebuilders have long been subject to such liability.  The Court also rejected the argument made by Reliance that the failure to require privity would chill attempts between developers and builders to allocate responsibility for contract damages arising out of construction defects.  Nothing in the Court’s opinion prevents or discourages such agreements. 

Justice Hurwitz authored the unanimous opinion.

Posted On: 8/26/2008