Home Warranties: Common Legal Questions & Answers

Here is some insight for dealing with the legal issues that surround home warranties.

(Originally published in Office Hours)

Issues surrounding the applicability and enforceability of home warranties often vex our construction clients.  

Consider this example:

Harry Homeowner contracts with George the General Contractor.   The contact between Harry and George has a “standard” one-year warranty provision.  

George contracts with Steve the Subcontractor for the installation of a driveway.  There is no contract directly between Harry and Steve. 

One month after the construction is complete, George’s business falls off and he leaves the Mahoning Valley without a trace.  

Harry becomes dissatisfied with his driveway and wishes to have it addressed under the warranty, but quickly realizes that George can’t be found. 

Harry demands that Steve fix the driveway, based on the warranty.

Speaking generally, Harry will be without a cause of action against Steve.  

Warranties are contracts.  Ohio contract law mandates, as a general principal, that a contract must exist between parties in order to enforce a warranty. 

In other words, the parties must be “in privity” with one another before one may sue for breach.  If an action is brought directly by Harry, Steve will have a very defensible position because privity of contract does not exist between the two parties.  

This equation changes if George is available to respond to Harry’s driveway claim.  Consider this:

Harry is dissatisfied with the work performed on his driveway, and he asserts a claim on the warranty against George.   George has a sub-contract with Steve.

Harry’s claim against George is appropriate since they have a warranty contract between them.   George’s recourse, then, is against Steve pursuant to the terms of their sub-contract.  

Some common questions that we answer are as follows:

1.  Aren’t all construction home warranties limited by one year?

No.  Warranties are born out of contracts and contractors are free to warrant their work for as long (or short) of a time period as they are able. 

Boilerplate contacts, however, typically limit the warranty period to one year, but this varies from contract-to-contract.  

Contractors will want to make certain that they are satisfied with the length of the warranty in the contracts between both the owner and general contractor and also between the general contractor and subcontractor. 

In Ohio, there is no law limiting the warranty period to one year.   This is a matter that is left to the parties.

2.  As a general contractor, am I not insulated from potential liability after the expiration of the warranty period?

Not necessarily.   There are a number of statutes of limitation governing claims based on contract.  

For example, the applicable Ohio statute mandates that “…an action upon a…contract…shall be brought within fifteen years after the cause therof accrued.”  

This means that a contractor can be subject to liability on the contract for (up to) 15 years after the alleged breach.

Additionally, some claims may be barred by Ohio’s statute of repose after ten years.

In either case, however, a contractor’s susceptibility to claims will typically extend well beyond the one-year timeframe. 

The warranty basically gives the customer the advantage of having a claim addressed without having to prove cause.

3.  Can I shorten the statute of limitations in my contract?

Yes. In Ohio, parties are free to shorten the statute of limitations period. 

4.  Do AIA contracts limit my exposure to one year?

No.  The general conditions found in AIA contracts do not specifically limit your liability to an owner to one year.  

Contractors will often mistakenly believe that AIA Document A201-2007 (formerly A201-1997) limits their liability to one year.   This is often not the case.

Contractors should make certain that they are satisfied with the warranty time limitations in their contracts. 

Additionally, they should make certain that their contracts are clear on these issues, as ambiguity is the lifeblood of any lawsuit. 

You should work with your lawyer to develop a contract that best limits your liability.

 

Matthew D. Gurbach can be reached at mgurbach@hhmlaw.com or at (330) 744-1111.