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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Estimates are Opinions, Not Fact and Not Actionable

The internet has unquestionably provided unparalleled access to information to the public, both consumers and businesses, not seen since Johannes Gutenberg invented the printing press.  One such benefit of the access the internet has provided is in real estate.  Several websites now allow users to get estimates on almost every property imaginable.  Zillow is one of these websites which provides “Zestimates.” Although this knowledge can be useful to potential purchasers, some owners may take issue with these valuations.  This exact situation occurred in Patel v. Zillow, Inc.

In Patel v. Zillow, Inc., the United States Court of Appeals for the Seventh Circuit reviewed the dismissal of a lawsuit brought by homeowners who took issue with Zillow’s “Zestimate” of their property that they were trying to sell.  Before the lawsuit was filed, they learned that Zillow’s “Zestimate” of their property was below their asking price.  Zillow’s “Zestimate” listed the property at approximately $160,000 less than Plaintiffs’ listing.  Plaintiffs contended that the “Zestimate” scared away potential buyers.  Plaintiffs asked Zillow to increase the “Zestimate” or to remove them from the database.  Zillow declined.  Plaintiffs filed their lawsuit.

Plaintiffs brought suit under the Illinois Real Estate Appraiser Licensing Act contending that Zillow was appraising real estate without a license.  Plaintiff also filed claims under the Illinois Uniform Deceptive Trade Practices Act and under the Illinois Consumer Fraud and Deceptive Business Practices Act.  Plaintiffs argued that Zillow’s “Zestimate” was unfair and misleading.  The District Court (the trial court) dismissed all of Plaintiffs’ claims.

The Seventh Circuit upheld the trial court’s decision.  The Seventh Circuit noted that the Illinois Real Estate Appraiser Licensing Act did not create a cause of action for a private citizen.  More importantly, as to Plaintiffs’ claims under the Deceptive Trade Practices and Consumer Fraud Acts, the Court stated that these acts deal with statements of fact and that Zestimates are opinions, not fact.  Accordingly, where a valuation is explicitly labeled as an estimate, there is no deception.

If your business has current litigation, including claims under the Illinois Uniform Deceptive Trade Practices Act or Illinois Consumer Fraud and Deceptive Business Practices Act, or your business would like a complimentary business “check-up” to help spot any potential liability under those acts, please contact Roenan Patt. (312) 368-010;  rpatt@lgattorneys.com or any of our business attorneys.

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