In late September 2022, Arizona’s Supreme Court issued a new opinion important for any person or company working in residential construction. The Court’s opinion in Zambrano v. M & RC II LLC, et al affirms the importance of the implied warranties of workmanship and habitability for new home construction. The new opinion is consistent with the lower court of appeal’s conclusion, but provides significant analysis of the issue that may influence future cases. Here, following a brief summary of the case, we offer some initial takeaways.
Zambrano is about a dispute between a homebuyer and the homebuilder regarding the purchase of a new home. As a part of the purchase, the homebuyer signed a preprinted contract that attempted to disclaim or waive the implied warranties of workmanship and habitability.2 The homebuilder instead offered an express warranty. When issues developed with the home, the homebuyer filed a lawsuit to enforce the implied warranties of workmanship and habitability. Ultimately the Arizona Supreme Court determined and held that the implied warranties of workmanship and habitability cannot be waived. With that context, here are four things homebuilders (and buyers!) should note.
First, the opinion sets forth why the implied warranties of workmanship and habitability are critical. The opinion noted warranties of workmanship and habitability are important for homebuyers as their enforcement is usually the best vehicle for a homebuyer to sue their homebuilder. For various reasons, including the defense of the economic loss doctrine, homebuyers may not be able to sue but for the implied warranties. Theoretically, this could leave a homebuyer without any remedy at all if the new home was unlivable.
Second, and relatedly, the majority reflected on the limited remedies available for homebuyers who pursue a claim with the Registrar of Contractors. While some money may be recoverable (e.g. from the Residential Recovery Fund), it may not be sufficient to address a catastrophic problem with the home. Typical homeowners may struggle to decide whether a lawsuit or a complaint with the Registrar of Contractors is the appropriate way to advance their dispute as they compare the costs and timelines associated with the two forums. Though this opinion did not necessarily change that calculus, it does ensure and preserve that choice.
Third, the decision is likely limited to new construction. The majority’s opinion explains that the implied warranties of workmanship and habitability exist in part to protect home buyers who do not have full access to information. The opinion explained older homes are distinct because buyers can theoretically see how they have weathered over time.
Fourth, attorneys in Arizona should become familiar with the case. Both the majority’s opinion and dissent contain substantial analysis that will likely be cited in motions and briefs for years to come for many issues not even limited to construction. For example, the opinion will likely be cited to support an argument that a contract provision should not be enforced on policy grounds. With that in mind, we expect this summary of initial takeaways is only the beginning of the conversation about the Zambrano opinion and its importance going forward.
