Buyers of New Construction Beware: The Breach of Implied Warranty of Habitability in Illinois Further Erodes

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Historically, the purchaser of a newly constructed home took the property at his or her own risk if they failed to discover a hidden or latent defect in the home’s design or construction prior to the closing of the sale. It used to be that after the sale closed an aggrieved buyer of new construction would not be able to pursue claims against the developer who performed the shoddy work. In 1979, the Illinois Supreme Court recognized the harshness of the doctrine of caveat emptor and out of the ashes of disappointed expectations rose the doctrine of breach of the implied warranty of habitability – a legal theory that protects a purchaser’s legitimate expectation that the home will be reasonably suited for its intended use. Quite recently, an Illinois Appellate Court took steps to further erode the already fading implied warranty of habitability when the buyer, who usually purchases the new construction from a developer, tries to sue the company that performed the shoddy work – the contractor – directly.

In 1400 Museum Park Condominium Association v. Kenny Construction Company, et al, an Illinois Appellate Court held that a buyer of new construction may not pursue a claim for breach of the implied warranty of habitability against the general contractor responsible for the shoddy construction. The court’s reasoning was based in part on the Illinois Supreme Court’s recent decision in Sienna Court Condominium Association v. Champion Aluminum Corporation, 2018 IL 122022 holding that a purchaser of a newly constructed condominium cannot pursue a claim for breach of the implied warranty of habitability against a subcontractor where the subcontractor had no contractual relationship with the purchaser. Because the implied warranty of habitability is a creature of contract law, the Supreme Court reasoned that in order for an implied warranty to exist, the buyer must have a contractual relationship with the subject of his or her ire – the subcontractor. Because there was no contractual privity between the buyer and the subcontractor, the Illinois Supreme Court held that regardless of the nature of the defect, no cause of action existed between the purchaser and the subcontractor.  While the unit owners and condo association in 1400 Museum Park Condominium Association could have pursued a direct action against the developer with whom they had a contract, as is often the case, once the developer sold all of the units, the developer had no assets and was insolvent and suing the developer would have been pointless. The purchasers, therefore, were left to sue the general contractor directly. Although the general contractor obviously had a contract with the now-defunct developer, that relationship was insufficient to permit the condo purchasers, with whom no contractual relationship existed, to directly sue the contractor that actually performed the work for breach of the implied warranty of habitability.

Construction law in Illinois is constantly evolving.  While general contractors and sub-contractors welcome these recent court decisions, for owners, the pendulum may be slowly swinging back to the days of caveat emptor. For more information regarding regarding these, or similar issues, please contact Howard L. Teplinsky at hteplinsky@lgattorneys.com or (312) 368-0100.

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“For the times they are a-changing’.” Illinois Supreme Court rules that the Implied Warranty of Habitability does not apply to subcontractors.

For over 30 years, since Minton v. Richards Group of Chicago, 116 Ill.App.3d 852 (1st Dist. 1983), subcontractors in Illinois have been potentially liable to homeowners for breach of the implied warranty of habitability even though there was no contract between the subcontractor and owner.  The implied warranty of habitability is a judicially created doctrine used to protect residential homeowners and buyers from construction latent defects that interfere with the habitability of their home.  Specifically, this implied warranty was created to protect an innocent homeowner’s expectations of a defect free property by holding a contractor or its subs accountable for latent defects that made the premises uninhabitable.

That all changed on December 28, 2018.  In Sienna Court Condominium Ass’n v. Champion Aluminum Corp., 2018 IL 122022, the Illinois Supreme Court set aside over thirty years of established law and held that the implied warranty of habitability does not apply to a subcontractor unless it has a direct contractual relationship with the homeowner or buyer.

Sienna Court was a dispute regarding the habitability of a two-building 111 residential unit development located in Evanston, Illinois.  The units and common areas in the building contained several latent defects that affected the habitability of the units and common areas.  The condominium association filed suit against several parties including subcontractors, for breach of the implied warranty of habitability.  The condominium association did not have a direct contractual relationship with the subcontractors.  The trial and appellate courts allowed the lawsuit to proceed on this theory of liability following Illinois law under the Minton case.

On appeal, the Illinois Supreme Court ruled that the implied warranty of habitability had its genesis in contract law as opposed to tort law.  Accordingly, for the condominium association to proceed on a theory of a breach of the implied warranty of habitability against a subcontractor, there would have to be a contractual relationship between the parties.  Because no such contractual relationship existed between the condominium association and the subcontractor, the claim for breach of the implied warranty of habitability was dismissed.

The times have now changed.  Subcontractors no longer need to be fearful of being sued by a homeowner or buyer under the implied warranty of habitability for latent defects to a property unless they have an actual contract with the party – something that is rare.

For more information regarding construction litigation, please contact:

Roenan Patt at: (312) 368-0100 or rpatt@lgattorneys.com.

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