Defending Implied Warranty of Habitability Cases in the Wake of Recent Decisions

1. Defending Implied Warranty of Habitability Cases in the Wake of Recent Decisions May 31, 2018 #CLMChapter

2. ORIGINS OF IMPLIED WARRANTY OF HABITABILITY The warranty was imported by courts from landlord-tenant law to the construction of housing. “it is socially (and politically) desirable to impose these duties on a property owner—which has rendered the old common-law rule obsolete. To follow the old rule of no implied warranty of habitability in leases would, in our opinion, be inconsistent with the current legislative policy concerning housing standards. The need and social desirability of adequate housing for people in this era of rapid population increases is too important to be rebuffed by that obnoxious legal cliché, caveat emptor. Permitting landlords to rent ‘tumble-down’ houses is at least a contributing cause of such problems as urban blight, juvenile delinquency, and high property taxes for conscientious landowners.” Pines v. Perssion, 14 Wis. 2d 590, 595 (1961).

3. ORIGINS OF IMPLIED WARRANTY OF HABITABILITY The Illinois Supreme Court adopted the doctrine in Petersen v. Hubschman Constr. Co., 76 Ill. 2d 31 (1979). “Because of the vast change that has taken place in the method of constructing and marketing new houses, we feel that it is appropriate to hold that in the sale of a new house by a builder-vendor, there is an implied warranty of habitability which will support an action against the builder-vendor by the vendee for latent defects and which will avoid the unjust results of caveat emptor and the doctrine of merger.” Petersen, 76 Ill. 2d at 39-40. “The vendee is making a major investment, in many instances the largest single investment of his life. He is usually not knowledgeable in construction practices and, to a substantial degree, must rely upon the integrity and the skill of the builder-vendor, who is in the business of building and selling houses.” Id. at 40.

4. Who can be sued for breach of the implied warranty of habitability? Minton v. The Richards Group of Chicago¸116 Ill. App. 3d 852 (1st Dist. 1983). Builder-vendors General contractors – if the builder-vendor is “insolvent.” 1324 W. Pratt Condominium Ass'n v. Platt Construction Group, Inc., 404 Ill. App. 3d 611, 618 (2010) (Pratt I). Subcontractors – if the builder-vendor is “insolvent.” 1324 W. Pratt Condominium Ass'n v. Platt Construction Group, Inc., 2013 IL App (1st) 130744 (Pratt III).

5. Who can be sued for breach of the implied warranty of habitability? Material suppliers? - Sienna Court Condo. Ass’n v. Champion Aluminum Corp., 2017 IL App (1st) 143364. Design professionals? - Board of Managers of Park Point at Wheeling Condo Association v. Park Point at Wheeling, LLC, 2015 IL App (1st) 123452.

6. When does a claim for breach of the implied warranty of habitability need to be filed? Against a builder-vendor – 4 years, 735 ILCS 13-214 Against downstream contractors the statute does not begin to run until the plaintiff knows of the insolvency of the builder vendor. However, in Pratt III the court stated: “Where the plaintiff timely filed his action against a general contractor for construction defects, and the general contractor subsequently became insolvent, under Minton, the plaintiff could proceed against the subcontractor even if he failed to file the complaint within the applicable statute of limitations so long as the action was timely filed against the general contractor.”

7. When does a claim for breach of the implied warranty of habitability need to be filed? Is the statute of limitations really only four years? In Henderson Square Condo. Ass’n v. Lab Townhomes, LLC, 2015 IL 118139 the Illinois Supreme Court allowed claims for violation of Chicago Municipal Code §13-72-030 and breach of fiduciary duty on a lawsuit filed over 15 years after the sale of the units. Other claims, including for breach of implied warranty of habitability, were dismissed with prejudice, but not appealed by the plaintiff.

8. Who can file a claim for breach of the implied warranty of habitability? A subsequent purchaser who took subject to a waiver of the implied warranty of habitability cannot sued under that theory. Fattah v. Bim, 2016 IL 119365. A waiver of the implied warranty of habitability once waived is gone forever and is not rescurrected by transfer of the property

9. Who can file a claim for breach of the implied warranty of habitability? A builder-vendor can likely sue the general contractors and subcontractors for contractual indemnity for breach of the implied warranty of habitability, but likely not for fraud claims. 933 Van Buren Condo. Ass’n v. Van Buren, 2016 IL App (1st) 143490. With respect to issues of coverage, the court held that breach of the implied warranty of habitability is a contract claim, not a tort claim.

10. Who can file a claim for breach of the implied warranty of habitability? 765 ILCS 506/9.1(b) states: (b) Board of Managers' standing and capacity. The board of managers shall have standing and capacity to act in a representative capacity in relation to matters involving the common elements or more than one unit, on behalf of the unit owners, as their interests may appear.

11. Who can file a claim for breach of the implied warranty of habitability? The Illinois Supreme Court has yet to determine whether a condominium association has standing under the Illinois Condominium Property Act (“the Act”) to legally recover for allegations of property damage to condominium unit owners’ personal property. In dicta, the Court stated that “it is clear that a condominium association generally has standing to pursue claims that affect the unit owners or the common elements.” Henderson Square Condo Ass’n v. Lab Townhomes, LLC, 2015 IL 118139, ¶ 75.

12. Who can file a claim for breach of the implied warranty of habitability? Several courts, both state and federal, have held that a condominium association lacks standing to advance a claim for damage to personal property of individual unit owners. Surprisingly, this holding has so far been provided in the insurance coverage cases that have arisen out of disputes related to underlying claims of breach of the implied warranty of habitability.

13. Who can file a claim for breach of the implied warranty of habitability? Allied Prop. & Cas. Ins. Co. v. Metro North Condo. Ass’n, 850 F.3d 844, 845 (7th Cir. 2017) and Westfield Ins. Co. v. Nat’l Decorating Serv., 863 F.3d 690 (7th Cir. 2017) have both held that the condominium association does not have standing to assert claims for individual property damage

14. Where do we go from here? PLA was granted by the Illinois Supreme Court in Sienna Court Condo. Ass’n v. Champion Aluminum Corp., 2017 IL App (1st) 143364. This case concerns several important issues, including whether a claim for breach implied warranty of habitability can be asserted against material suppliers and design professionals who did not perform construction work and whether an otherwise insolvent builder who had recoverable insurance would preclude claims of breach of the implied warranty of habitability against subcontractors.

15. Construction Defects andthe Loss of Habitability Norman B. Golinkin, S.E., P.E., AIA, LEED AP SEA, Ltd.

16. Residential Ceiling Metal-plate-connected wood roof trusses at 24” on center Gypsum board ceiling fastened to truss bottom chords with nails and adhesive However…

18. Residential Ceiling What went wrong?

19. Residential Ceiling Inconsistent nail spacing from truss to truss, and along the length of each individual truss Spacings ranged between 9” and 25” Industry standard required 7” maximum nail spacing, 12” if a bead of adhesive is also used

20. Residential Ceiling Adhesive was laid in 2’-long strips spaced at 24” on center A “bead” of adhesive is construed as a continuous, uninterrupted application of material along the full length of the framing member

21. Residential Ceiling Deficiency in the installation of the gypsum board resulted in collapse of the ceiling and a resultant loss of use of the home

22. Wood Flooring Damage Single-family residence Built 2004 Remodeled 2010-2011 Remodeling included installation of solid wood flooring throughout the home

27. Wood Flooring Damage Flooring buckled in strips approximately 4’ wide and as high as 3” Prevented doors from opening

28. Wood Flooring Damage Per industry standards, solid wood flooring is not appropriate for below-grade installation Instances where soil surrounding the building is 3” or more above floor level at any point

29. Wood Flooring Damage Flooring installed October 2010 Broken water pipe damaged new flooring at the end of January 2011 Damaged flooring replaced in February 2011 Basement dried with fan and dehumidifiers to ~40%-45% RH Wood acclimated Moisture level of concrete floor slab was not measured prior to wood installation

30. Wood Flooring Damage What went wrong? Wood flooring installed in an inappropriate location Possible that insufficient drying of flooded floor area during remediation compounded buckling problem

31. Single-family home in Wisconsin Built in 1994 Multi-level, low-slope roof EIFS cladding Metal frame windows

35. Single-family home in Wisconsin Homeowner found areas of soft drywall during first 3 years

38. Single-family home in Wisconsin Window installer recommended biennial caulking of windows Additional interior moisture damage found circa 2003-2007 Window installer/caulking company determined caulk not properly maintained

39. Single-family home in Wisconsin Destructive testing revealed severe moisture damage to building structure