Arizona Homebuilders Cannot Disclaim Implied Warranties

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Snell & WilmerIn late July 2021, Arizona’s Court of Appeals explained that homebuilders cannot disclaim the implied warranty of workmanship and habitability. Its opinion in Zambrano v. M & RC II, LLC certainly affects homebuilders, and may affect other contractors as it showed there may be limits regarding the ability to contract around certain warranties for public policy reasons.

The case pitted a homeowner against her homebuilder. The homeowner purchased a newly constructed home, including signing a purchase agreement, but ultimately filed suit against the builder. She alleged various construction defects, including with the foundation. While she initially included a claim in contract too, the primary issue in her litigation with the homebuilder became the alleged breach of the implied warranty of habitability and workmanship.

In response to the breach of warranty allegation, the homebuilder filed a motion for summary judgment citing the purchase agreement executed by the homeowner. The purchase agreement included multiple waivers explicitly disclaiming the warranties of habitability and workmanship. Beyond the multiple waivers, the court also noted that the homeowner had specifically initialed the paragraphs with the waivers.

Yet, despite signed waivers, the court weighed “the public policy underlying the implied warranty of habitability and workmanship against the interest in enforcing a freely negotiated waiver,” and found that it could not enforce the waivers. First, the court examined the Arizona policy favoring more protection of homebuyers, specifically referencing Arizona’s elimination of the caveat emptor rule, or buyer beware, for new homes in the 1970s, through more recent decisions bolstering the protections for homebuyers. Second, the court noted that while enforcing contracts is important, it cannot do so “when the [contract] term is contrary to an otherwise identifiable public policy that clearly outweighs any interests in the [contract] term’s enforcement.”

The decision will certainly affect future litigation against homebuilders. However, the baseline assumption should be that even if homebuilders are doing good work, if there is a problem now, clients have an additional cause of action to add to the complaint. That said, the court referenced several other states’ handling of disclaimers of warranties. Litigants on both sides may find interesting arguments in other states’ handling of the issue. Homebuilders may seek help in the legislature or may seek guidance from the Arizona Supreme Court.

But beyond homebuilders, this decision is notable for contractors in any industry as it identified a limit and argument to counter the freedom of contract. If defective work is alleged in the future, and the issue is litigated, depending on the industry, public policy arguments may be raised, and contractors and owners may need to evaluate whether the waivers of warranty obligations will be enforced.

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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