Wednesday, August 20, 2014

PA Supreme Court rules - Homeowner warranties only apply to first purchaser

The PA Supreme Court has just decided a case of first impression in which it held that warranties provided to homeowners who are the first purchases of newly constructed homes applies only to the first purchaser, and not to subsequent ones.

The Pennsylvania Supreme Court has ruled that homeowners' warranties against defects apply only to a property's first buyer, and cannot be passed along in subsequent sales.
The unanimous decision, reversing a Pennsylvania Superior Court decision, said homeowners' warranties are based on the contractual relationship between a builder of a new home and its purchasers. There is no such relationship between the developer and subsequent purchasers, the court said in an opinion written by Justice Seamus P. McCaffery.
In finding that such warranties can only be exercised by first purchasers of new homes, the court rejected the reasoning of Superior Court, which said such warranties are aimed at equalizing the "disparate" positions of home sellers and buyers, and exist even in the absence of any contract between the two.

The Court went further in describing how there was no privity of contract between the home builder or developer and subsequent purchases. So for example, if person A buys a newly built home with a 20 year warranty from Builder X, then 2 years later decides to sell it to Person B the warranty does not transfer by operation of law. This could be a significant detriment to new home buyers trying to sell before the expiration of such warranties, and might result in a decrease of the selling price for new homes.

The Court also addressed that this issue is primarily one of legislative, not judicial purview, and that should the legislature choose to enact legislation to provide for transferable warranties they are able to do so.

It would also seem not to affect any contracts which expressly provide for transferability of warranties. However, in my experience these are few and far between.

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