Warranties

A warranty is a promise that a property has a particular quality or is in a certain condition. A seller of a residential unit often makes warranties with respect to the property. Similarly, a landlord often makes warranties with respect to a dwelling unit rented to a tenant.

For both sales and leases, warranties may be express or implied. An express warranty is usually based on language set forth in the parties’ written contract, but occasionally an oral statement may create an express warranty. For example, the seller of a used home may tell the buyer that the roof does not leak. If the roof leaks shortly after the buyer purchases, the buyer may prevail in court on a warranty cause of action with proof that the roof was defective at the time of closing. A seller's express warranties often relate to the physical condition of the improvements, but sometimes they extend to other characteristics of the transaction such as the land itself or the legal status of the property. A seller may represent that the lot is suitable for a septic sewer system or that the zoning allows the current residential use.

An implied warranty is not based on express language. It arises by operation of law. There are two distinct bases for implying warranties. First, a court may imply a warranty as an interpretation of the parties’ contract. Based upon the surrounding circumstances, the court seeks to ascertain the parties’ actual expectations with respect to property quality. Assume, for example, that a contract for the purchase of a new house specifies that the improvements will include a particular home security system and that the contract has no express warranty that the system will actually work. If the home security system does not function properly, a court may imply a warranty as the basis for ordering the seller to fix the problem or pay damages. Second, a court may imply a warranty as a construction of the parties’ contract, imposing an obligation to arrive at a just or fair result. For example, in most states, a tenant is protected by an implied warranty of habitability, which applies even in cases when the tenant rented a dwelling unit that was noticeably dilapidated. The scope of a tenant's implied warranty varies according to state law. At a minimum, the warranty covers defects and conditions that make the premises unhealthy or unsafe. In many states, the warranty also covers problems that make the premises “unlivable” to a person of ordinary sensibilities even when there is no health or safety concern.

Implied warranties in the sale of real property, including housing, were once extremely rare. Under the rule of caveat emptor (“let the buyer beware”), a buyer had no assurances of property quality other than express warranties included in the contract. In the 1960s, courts in the United States, influenced by the implied warranties for the sale of goods contained in the Uniform Commercial Code, began rejecting caveat emptor by imposing an implied warranty of quality on merchant sellers of new homes. By the 1980s, most states had established some type of warranty protection. The scope of the implied warranty varies but is often defined in terms of good workmanship (not necessarily a “perfect house”), as [Page 772]reflected by the practices followed by other builders in the community.

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