The Construction Counselor

To many homebuilders, warranties are straightforward. The contract says “one-year builder warranty,” so the only warranty they offer is a one-year period of warranty or “callback” coverage. Simple. However, in reality, the landscape of warranties is much more complicated than just the explicit language of the contract. This article is intended to offer a broad summary of warranty law in Iowa to give homebuilders a better understanding of the types of warranty coverage.

Express and Implied Warranties

There are two general types of warranties: express and implied. 

An express warranty is an intentionally and clearly stated warranty about the condition, quality or nature of a good or property. Express warranties are most often explicitly stated in the contract or some related exhibit, addendum or attachment. The scope and duration of the express warranty can be whatever the contracting parties agree upon. For example, the warranty could cover an entire home for one year, the structural components for 10 years, or the entire home except certain elements for five years. The warranty can note any inclusions, exceptions or other terms the parties see fit so long as they are stated in the contract.

In contrast, implied warranties are just that — implied. They are not expressly stated but instead are implied in and underlie contracts where a homebuilder builds a home for a buyer. There are several different types of implied warranties, most notably the implied warranty of workmanlike construction (IWOWC) addressed herein, as well as various warranties under the Uniform Commercial Code (UCC) such as the implied warranty of merchantability and implied warranty of fitness for a particular purpose, which are not addressed herein. These implied warranties apply to both spec homes (homes built without a specific buyer in mind) and custom homes (designed and built specifically for a particular buyer) alike. However, they often go overlooked by homebuilders.

Implied Warranty of Workmanlike Construction

The IWOWC is an implied warranty that was created by the courts to allow buyers to hold homebuilders accountable for the quality of construction. The doctrine recognizes that buyers are usually in an inferior negotiating position when purchasing a home due to their lack of expertise in construction, the complexity of modern homes, and the fact that many defects in construction are latent. In other words, some defects are not immediately observable (even by a trained inspector) and instead are discovered months or years later. The IWOWC is intended to address this inequity by requiring all buildings to be constructed “in a reasonably good and workmanlike manner” and “be reasonably fit for the intended purpose.”  Kirk v. Ridgway, 373 N.W.2d 491, 493 (Iowa 1985). The fundamental idea is that — regardless of what the contract says — the base assumption between the parties was that the home would be built within reasonable professional standards.

To successfully prove a breach of the IWOWC, a buyer must show: (1) that the house was constructed to be occupied by the buyer as a home; (2) that the house was purchased from a builder who had constructed it for the purpose of sale; (3) that when sold, the house was not reasonably fit for its intended purposes or had not been constructed in a good and workmanlike manner; (4) that, at the time of purchase, the buyer was unaware of the defect and had no reasonable means of discovering it; and (5) that by reason of the defective condition, the buyer suffered damages. Speight v. Walters Dev. Co., 744 N.W.2d 108, 111 (Iowa 2008). Note that a homebuilder’s work does not need to be entirely free from any defect. Rather, it must only be consistent with the ordinary and reasonable quality, care and competence of the profession. 

Note too that it is not a requirement that the buyer be the original purchaser of the home; the IWOWC is transferable to subsequent purchasers, who may also bring a claim against a homebuilder. Iowa courts have reasoned that this implied warranty is a judicial creation — not solely a contractual creation — and that homebuilders should not be relieved from liability for defective construction merely because a subsequent sale occurred. However, jurisdictions are split on this issue, and many states do not allow subsequent purchasers to bring a claim for breach of the IWOWC against homebuilders given the lack of direct contractual relationship between the parties.

Waiver

Some homebuilders opt to have provisions in their contracts for residential construction that state that the buyers waive any and all implied warranties whatsoever in favor of the express warranties provided in the contract. However, it is currently a matter of unsettled law in Iowa whether a waiver of implied warranties is broadly enforceable such that it waives all implied warranties, including the IWOWC, UCC implied warranties, and any other warranty. Iowa courts have never directly considered whether such waivers are enforceable. Courts in other jurisdictions have reached mixed results; a minority have found the waivers enforceable as to all implied warranties, while the majority have found that at least the IWOWC cannot be waived. These courts reason that a homebuilder’s responsibility to perform the work consistent with reasonable industry standards is so fundamental to the contract that it cannot be waived, particularly given that buyers are often less sophisticated in construction and have less bargaining power to negotiate terms. As a result, most courts have held that buyers should have some additional protections beyond the language of the contract, primarily the IWOWC. 

Time Restrictions

Like any legal claim, there are time restrictions on when a buyer must bring a claim for breach of implied warranty. These restrictions most often take the form of a statute of limitations or a statute of repose.

A statute of limitations sets a time limit for bringing a lawsuit based on when the injury or harm occurs or is discovered. In contrast, a statute of repose sets an absolute deadline to file a lawsuit based on a specific act regardless of when the harm occurs or when it was discovered. In the context of construction, that act is completion of the work. In other words, regardless of when any harm occurred or was discovered, there is a maximum limit from the date of completion of the work to file a claim under the statute of repose. 

In Iowa, the statute of limitations for claims based on breach of a written contract, including a claim for breach of an express warranty, is 10 years. Iowa Code § 614.1(5)(a). Note that this does not mean the warranty itself lasts 10 years. Instead, this is the time period during which the customer has the right to file a claim based on a breach of contract or express warranty. For breach of implied warranty claims, which are by their nature unwritten, the statute of limitations is generally five years. Iowa Code § 614.1(4). 

For implied warranty claims arising from residential construction, the statute of repose — the absolute outer limit for filing any claim after completion of the work — is 10 years. Iowa Code § 614.1(11)(a)(2). If the defect is discovered within one year before the repose period expires, the period is extended by one year. Iowa Code § 614.1(11)(c).

These time restrictions are important to our legal system in that they promote prompt filing of claims and offer finality once they expire. If a buyer were to file a claim against a homebuilder outside of the time limit provided by either a statute of limitations or a statute of repose, the homebuilder would be entitled to dismissal on that ground. 

Key Takeaways

• A contract between a homebuilder and a buyer contains more than just express warranties; it also includes implied warranties, most notably the implied warranty of workmanlike construction.
• The implied warranty of workmanlike construction is intended to enforce the base assumption between the parties to the contract that the home would be built within reasonable professional standards.
• Iowa courts have not yet determined whether implied warranties can be waived by the parties to the contract. Regardless, express warranty claims are subject to Iowa’s statute of limitations, and implied warranty claims are subject to both the statute of limitations and the statute of repose.

For more information or questions, contact Jodie McDougal or Jack O’Brien.