Tag Archives: Implied Warranty of Workmanship and Habitability

Arizona’s Implied Warranty of Workmanship and Habitability Cannot Be Disclaimed or Waived Under Any Circumstance

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Jason Feld and Stephanie Wilson | Kahana Feld

Arizona residential construction and single-family home production is growing at a rapid pace. And just as fast as the homes are sold, homeowners are constantly seeking warranty repairs from their homebuilders. Despite having strong purchase documents with express warranty language, the Arizona Supreme Court in Zambrano v. M & RC, II LLC, 254 Ariz. 53 (2022) adopted a bright line rule that regardless of the contract, the implied warranty of workmanship and habitability (“implied warranty”) cannot be disclaimed or waived under any circumstance.  The Arizona Supreme Court opinion provides clear guidance of the law in this area on the scope of the implied warranty in contracts between homebuyers and builder/vendors, specifically on the issue of whether an express warranty can negate and effectively waive the common law implied warranty – which is a definitive violation of public policy.

The Zambrano decision involved a licensed real estate broker who bought a new single family home for herself in a newly constructed master planned community in Surprise, AZ. Zambrano entered into a valid sales contract with Scott Homes (homebuilder) which contained a stand-alone 45-page pre-printed form express warranty. The express warranty was to be the “only warranty applicable to the home.”  The contract further clarified that the buyer was expressly disclaiming (and, thus, waiving) the implied warranty. The sales documents and express warranty were signed and authorized by Zambrano. A short time later, the home developed alleged “design and construction defects” that were “either time barred or outside the coverage” of the express warranty. Zambrano filed suit for the alleged defects based on the implied warranty. Scott Homes filed summary judgment based on the Zambrano’s waiver and disclaimer of the implied warranty in the purchase agreement. The trial court granted summary judgment and the matter was appealed up to the Arizona Supreme Court.

The Arizona Supreme Court decided the issue if an express warranty can essentially trump the common law implied warranty. The Court adopted a bright line rule holding that any disclaimer or waiver of the implied warranty is unenforceable as matter of law and as a matter of public policy. The Court further held that the implied warranty could not be disclaimed or waived unless and until the Arizona legislature expressly declared it to be a right that buyers could waive or disclaim. The Court concluded that “[e]enforcing the disclaimer and waiver here would grievously injure homebuyers and the public welfare as doing so would likely spell the end of the implied warranty . . . .”   The Court acknowledged that it had “considered leaving open the possibility that a sophisticated homebuyer in some settings could negotiate to waive the implied warranty,” but rejected “that idea.”  The Court observed that “it would be next to impossible for courts to decide whether a homebuyer was sophisticated enough” and the Court nevertheless concluded that “even sophisticated homebuyers need the protection offered by the implied warranty.” 

Interestingly, the dissent relied upon long-established public policy behind the freedom to contract and a “sophisticated” homebuyer who “seeks to purchase a customized home that presents specific risks for which the homebuyer prefers to negotiate unique coverage in an express warranty.” The dissent went further to state “a homebuyer who prefers a contractual term that is less protective than the implied warranty as to one section or component of the home, in exchange for greater and broader protection in another area of the home,” and a homebuyer who “negotiate[s] a reduced purchase price in exchange for a warranty more limited than the implied warranty.” However, the majority of the Court emphatically deferred any change in the law on circumventing the common law and public policy implications of implied warranty to the legislature.

The major take-away is that without legislative intervention, the implied warranty cannot be waived, disclaimed or modified under any circumstances in Arizona irrespective of a valid contract and express warranty.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

The Unwavering Un-waivable Implied Warranty of Workmanship and Habitability in Arizona

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Robert A. Henry and Emily R. Parker | Snell & Wilmer

The Arizona Supreme Court recently issued an opinion on the scope of the implied warranty of workmanship and habitability (the “implied warranty”) in contracts between homebuyers and builder/vendors that provides clear guidance of the law in this area, specifically on the issue of whether the implied warranty can be waived or disclaimed.   It is also an interesting and helpful read for those who engage in new home residential sales and real estate transactions generally.  

The case: Zambrano v. M & RC, II LLC, 254 Ariz. 53 (2022). The takeaway holding: the implied warranty of workmanship and habitability cannot, under any circumstances, be disclaimed or waived.  

From a practice perspective, the foregoing is likely all one needs to ultimately know.  However, the majority opinion (authored by Justice Timmer) and the dissent (authored by Justice King, and joined by Justice Bolick) are in these authors’ opinions worth a read for those who want a better understanding of the contours of how “public policy” plays into the analysis of the enforceability of contract terms, especially in the real estate context and even more particularly in connection with contracts for the sale of new homes. The careful analysis of both the majority opinion and the dissent provides an excellent history of the implied warranty, the public policy behind it, and its scope and application in the context of competing public policies, most notably the freedom to contract. 

Zambrano involved a buyer (whom the dissent observes was herself a licensed real estate broker) who purchased a new home in a “new subdivision” via a sales contract that included an express warranty from the builder relating to the home. The express warranty (contained in a separate forty-page preprinted form) was to be the “only warranty applicable” to the home.  The contract further clarified that the buyer was  expressly disclaiming (and, thus, waiving) the implied warranty. The home subsequently developed alleged “design and construction defects” that were “either time barred or outside the coverage” of the express warranty.  The buyer thus filed suit for the alleged defects based on the implied warranty, and the trial court granted summary judgment to the builder based on the buyer’s waiver/disclaimer of the implied warranty in the purchase agreement.     

After a thorough analysis of the issues and arguments, the Arizona Supreme Court decided to adopt a bright line rule.  It held that the disclaimer—any disclaimer or waiver—of the implied warranty is unenforceable as matter of law—as a matter of public policy and the common law—in Arizona.  The Court further held that the implied warranty could not be disclaimed or waived unless and until the Arizona legislature expressly declared it to be a right that buyers could waive or disclaim.  The Court concluded that “[e]nforcing the disclaimer and waiver here would grievously injure homebuyers and the public welfare as doing so would likely spell the end of the implied warranty . . . .”   The Court acknowledged that it had “considered leaving open the possibility that a sophisticated homebuyer in some settings could negotiate to waive the implied warranty,” but rejected “that idea.”  The Court observed that “it would be next to impossible for courts to decide whether a homebuyer was sophisticated enough” and the Court nevertheless concluded that “[e]ven sophisticated homebuyers need the protection offered by the implied warranty.” 

The dissent took issue with this analysis and, in particular, the Court’s bright line rule.  Relying on the long-established public policy behind the freedom to contract, among other things, the dissent appeared troubled by the Court’s intrusion into “the parties’ ability to determine their own best interests” in the contractual context, and in particular when parties agree to an express warranty in lieu of the implied warranty.  The dissent, for example, listed hypotheticals that it believed should not cause concern to anyone, from a public policy perspective or otherwise.  For example, a “sophisticated” homebuyer who “seeks to purchase a customized home that presents specific risks for which the homebuyer prefers to negotiate unique coverage in an express warranty,” “a homebuyer who prefers a contractual term that is less protective than the implied warranty as to one section or component of the home, in exchange for greater and broader protection in another area of the home,” and a homebuyer who “negotiate[s] a reduced purchase price in exchange for a warranty more limited than the implied warranty.” 

The back and forth between the majority and the dissent on the issues goes on.  But ultimately (and unless and until the legislature says otherwise) the law is clear.  Caveat vendor: the implied warranty cannot be waived, disclaimed or modified in Arizona under any circumstances. 

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Arizona Supreme Court Confirms Importance of Implied Warranties of Workmanship and Habitability

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Creighton P. Dixon | Snell & Wilmer

In late September 2022, Arizona’s Supreme Court issued a new opinion important for any person or company working in residential construction. The Court’s opinion in Zambrano v. M & RC II LLC, et al affirms the importance of the implied warranties of workmanship and habitability for new home construction. The new opinion is consistent with the lower court of appeal’s conclusion, but provides significant analysis of the issue that may influence future cases. Here, following a brief summary of the case, we offer some initial takeaways.

Zambrano is about a dispute between a homebuyer and the homebuilder regarding the purchase of a new home. As a part of the purchase, the homebuyer signed a preprinted contract that attempted to disclaim or waive the implied warranties of workmanship and habitability.2 The homebuilder instead offered an express warranty. When issues developed with the home, the homebuyer filed a lawsuit to enforce the implied warranties of workmanship and habitability. Ultimately the Arizona Supreme Court determined and held that the implied warranties of workmanship and habitability cannot be waived. With that context, here are four things homebuilders (and buyers!) should note.

First, the opinion sets forth why the implied warranties of workmanship and habitability are critical. The opinion noted warranties of workmanship and habitability are important for homebuyers as their enforcement is usually the best vehicle for a homebuyer to sue their homebuilder. For various reasons, including the defense of the economic loss doctrine, homebuyers may not be able to sue but for the implied warranties. Theoretically, this could leave a homebuyer without any remedy at all if the new home was unlivable.

Second, and relatedly, the majority reflected on the limited remedies available for homebuyers who pursue a claim with the Registrar of Contractors. While some money may be recoverable (e.g. from the Residential Recovery Fund), it may not be sufficient to address a catastrophic problem with the home. Typical homeowners may struggle to decide whether a lawsuit or a complaint with the Registrar of Contractors is the appropriate way to advance their dispute as they compare the costs and timelines associated with the two forums. Though this opinion did not necessarily change that calculus, it does ensure and preserve that choice.

Third, the decision is likely limited to new construction. The majority’s opinion explains that the implied warranties of workmanship and habitability exist in part to protect home buyers who do not have full access to information. The opinion explained older homes are distinct because buyers can theoretically see how they have weathered over time.

Fourth, attorneys in Arizona should become familiar with the case. Both the majority’s opinion and dissent contain substantial analysis that will likely be cited in motions and briefs for years to come for many issues not even limited to construction. For example, the opinion will likely be cited to support an argument that a contract provision should not be enforced on policy grounds. With that in mind, we expect this summary of initial takeaways is only the beginning of the conversation about the Zambrano opinion and its importance going forward.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Would You Like the Implied Warranty? A Look at Disclaimers of the Home Construction Warranties

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Mark W. Vyvyan | Fredrikson & Byron

New homebuyers often discover imperfections in their newly-constructed homes. Some of these imperfections are construction defects and others are simply part of the construction process. Homeowners may assume they have warranty coverage against construction defects, but they have often signed documents disclaiming or limiting warranty coverage. In a recent case, the Arizona Court of Appeals decided that a disclaimer of implied warranties in a residential construction agreement was unenforceable and found that the homeowner had a viable claim under implied warranties of workmanship and habitability. Zambrano v. M & RCII, LLC, No. 1 CA-CV 19‑0635 (Ariz. Ct. App. July 29, 2021).

Zambrano signed an agreement to purchase a new home being constructed by her builder. That agreement included an express limited warranty and also stated that any ““implied warranties of merchantability, fitness for a particular purpose, habitability and workmanship are hereby disclaimed . . .”“ After closing, Zambrano discovered what she believed to be construction defects, including popped nails in the drywall and foundation problems. She sued her builder asserting a breach of the implied warranties of habitability and workmanship. Relying on the contractual disclaimer, the builder received summary judgment dismissing Zambrano’’s implied warranty claim. On appeal, the court discussed the Arizona Supreme Court’’s 1979 elimination of the rule of caveat emptor (buyer beware) for newly built homes. Relying on that 1979 ruling, as well as the absence of any subsequent legislation supporting the enforceability of warranty disclaimers, the Zambrano court found that the contractual waiver of implied warranties was unenforceable. The Zambrano court reached its decision despite acknowledging a trend in some states to allow waiver of implied warranties.

The Zambrano decision highlights the differing ways in which jurisdictions have dealt with implied warranties and attempts to disclaim them. In some states, such as Wisconsin, the legislature has enacted laws implying a warranty of workmanship in residential construction contracts which do not include an express warranty. Wis. Stats. § 706.10(7). In other states, the courts have taken an approach similar to Arizona, and have implied warranties on new construction under the common law. See Dobler v. Malloy, 214 N.W.2d 510 (N.D. 1973); Carlson Homes, Inc. v. Messmer, 307 N.W.2d 564 (N.D. 1981). Still other jurisdictions, such as Minnesota, have legislatively imposed express statutory warranties on residential construction. Minn. Stat. Ch. 327A.

A home is a large investment for both builders and homebuyers. Accordingly, due to the varying approaches to warranty coverage, both builders and homebuyers should be careful to familiarize themselves with the warranty laws applicable in their state.

Builders Beware: The Implied Warranty of Workmanship and Habitability Is Set in Stone

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Andrew Alvarado and Todd Baxter | Dickinson Wright

To protect homebuyers, Arizona law provides for certain warranties to be included in every contract. The most significant of those warranties, the implied warranty of workmanship and habitability, requires builders to construct homes following industry standards to ensure they are free from defects and fit for habitation. 

The practical effect of that “implied” warranty is that even if it is not included in the parties’ contract, Arizona courts will insert it and hold the builder responsible for complience. A builder cannot avoid that warranty by simply leaving it out of the contract. 

Instead of leaving the warranty out of the contract altogether (which would not affect the “implied” warranties), some builders seek to limit their liability and obligations to buyers by negotiating for specific express warranties in the contract and disclaiming and waiving all other warranties. One of the primary arguments in support of that practice is that both parties benefit from that bargain: the buyer receives the protection of the express warranty, and the builder limits its liability. That practice may make sense in theory, but given the reality that buyers are typically less sophisticated and far less knowledgeable about construction practices than builders are, is it fair?

The Arizona Court of Appeals recently answered that question with a resounding “no,” holding that the implied warranty of workmanship and habitability cannot be waived even if the parties agree to do so in writing.

In Zambrano v. M & RC II, LLC, 49 Arizona Cases Digest 21, the home purchase agreement contained the following provision:

THE HOME BUILDER’S LIMITED WARRANTY REFERENCED ABOVE IS THE ONLY WARRANTY APPLICABLE TO THE PURCHASE OF THE PROPERTY. ALL OTHER EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, HABITABILITY AND WORKMANSHIP ARE HEREBY DISCLAIMED BY SELLER AND ITS AFFILIATES AND WAIVED BY BUYER, ANY IMPLIED WARRANTY THAT MAY EXIST DE[S]PITE THE ABOVE DISCLAIMER IS HERE-BY LIMITED.

The homebuyer not only signed the purchase agreement but also initialed that specific provision.

The express warranty also contained the following disclaimer:

WE make no housing merchant implied warranty of habitability or any other warranties, express or implied, in connection with the sales contract or the warrantied HOME, and all such warranties are excluded, except as expressly provided in this BUILDER’S LIMITED WARRANTY. There are no warranties which extend beyond the face of this BUILDER’S LIMITED WARRANTY.

The buyer subsequently sued the builder, alleging that because there were certain construction defects in the home, the builder had breached the implied warranty of workmanship and habitability. However, the builder argued that since the buyer had waived the implied warranty, it could not be held liable, and the buyer’s claim was dismissed.

The Arizona Court of Appeals disagreed and explained that although there is strong public policy in favor of allowing parties to freely contract, there is an even stronger policy in favor of protecting homebuyers in this state.

The Zambrano court established that “a new home buyer cannot waive – and a builder cannot disclaim – the implied warranty of workmanship and habitability. This prohibition precludes a waiver even when, as here, the builder gives an express warranty in consideration for the waiver.”

While other states still allow builders to provide for an express warranty in lieu of the implied warranties (and allow buyers to waive the same), Arizona law no longer allows that practice – the implied warranty of workmanship and habitability is set in stone. Accordingly, builders in Arizona should understand that those provisions in their current contracts are not enforceable and should remove them from their contracts moving forward.