Iowa Court of Appeals Rejects Argument to Impose Implied Warranty upon Land Developers

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On April 16, 2014, land developers and sellers breathed a sigh of relief after the Iowa Court of Appeals ruled that a purchaser of a residential building lot cannot sue the land developer for perceived deficiencies with the excavation and dirt work performed by that land developer. Rosauer Corp. v. Sapp Development and WC Development, 2014 WL 1499861 (Iowa App. April 14, 2014) (unpublished). 

By way of background, the defendant-developer in the matter, WC Development, owned by Todd Sapp (“Sapp Development”), had purchased farmland in the Sioux City area and created a residential subdivision. During this process, Sapp Development had certain excavation and dirt work performed on the land. Sapp Development sold the lot in question to a realtor, who in turn sold it to the end purchaser, Rosauer Corporation (“Rosauer”), who planned to build two townhomes on the lot. Prior to closing on the purchase of the lot, Rosauer chose not to perform any type of soil testing or boring. After the closing, and  in later preparation for construction of the townhomes, Rosauer’s engineer recommended removal and replacement of the previously poured and compacted fill dirt and other related work, which allegedly amounted to approximately $75,000 worth of work.  After such work was completed, Rosauer built and sold the townhomes.  
 
In June of 2010, Rosauer filed suit against Sapp Development, seeking over $75,000 worth of damages and alleging that Sapp Development owed an implied duty to Rosauer to essentially warrant that the lot was suitable for building upon and alleging that Sapp had breached that duty. As most home builders and other general contractors in Iowa know, regardless of any express warranties that a home builder or general contractor may provide to the owner, there are also implied warranties under Iowa law. Most significantly, Iowa law imposes upon home builders and general contractors an implied warranty of workmanlike construction to the client-owner, as well as to the successive owners of that property for up to 15 years (pursuant to Iowa’s “statute of repose”).  Under this common law, homeowners can sue their builders for breach of this implied warranty of workmanlike construction regardless of the expiration of any express warranties. As a side note, the HBA of Iowa and other related homebuilding associations have been working hard in recent years to enact legislation that would reduce the current 15-year statute of repose, which is one of the longest in the nation. 

At trial, and in the later appeal, Rosauer argued that this same implied warranty of workmanlike construction should be imposed upon land developers and sellers in their sale of building lots. Rosauer pointed to other state courts, including Illinois, North Carolina, and Colorado, which have recognized this legal principle. Sapp’s responsive arguments were, in short, that the Iowa Supreme Court has never recognized the extension of this implied warranty to the sale of building lots and that the rule of caveat emptor should apply in the sale of land. Rosauer lost at trial and, thereafter, filed an appeal.

Thereafter, on April 16, 2014, the Court of Appeals issued its decision, agreeing with Sapp Development’s position and affirming the dismissal of Rosauer’s suit against Sapp Development. In its decision, the Iowa Court of Appeals held that to allow a “purchaser and commercial investor like Rosauer to benefit from an implied warranty of workmanlike performance” imposed upon the land developer and its excavation contractor would “outpace our existing precedence.” The Iowa Court of Appeals further noted that it would leave any possible extension of the implied warranty of workmanlike construction to the Iowa Supreme Court. Thus, for now, land developers and sellers should breathe a sign of relief, but should also consider inclusion of additional language in their purchase agreements and contracts to insulate them as much as legally possible from these types of claims by the purchaser. Rosauer has since filed a request for the Iowa Supreme Court to hear the case. As of the writing of this article, this request is still pending, so there may be more to come on this case later this year.

 

Topics:  Appeals, Construction Contracts, Construction Disputes, Construction Litigation, Construction Site, General Contractors, Real Estate Development

Published In: Civil Procedure Updates, General Business Updates, Construction Updates, Residential Real Estate Updates, Zoning, Planning & Land Use Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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