3 Things Builders Should Know About Warranty Issues
This article addresses three significant points about builder warranties.
1. A One-Year Warranty Period is not a One-Year Statute of Limitation
Many builders and others in the construction industry mistakenly believe that they have no potential liability to a homeowner after the end of a one-year written homeowner warranty. They mistakenly equate the warranty period with a statute of limitation. In fact, in almost all cases, potential liability continues for much longer than one year.
While warranties vary, generally, the one-year period is merely the period during which a warranty issue can arise or, depending on the terms of the warranty, during which a homeowner can provide notice of a warranty issue. A homeowner will generally have six years from the date of notice in which to initiate a suit or arbitration proceeding.
Builders should also understand that the one-year warranty period generally does not apply at all to claims other than warranty claims, such as ones for negligence, breach of the underlying construction or sale contract, or fraud. Most of the time, those claims can be asserted for between four and six years after closing or substantial completion depending on the claim. In some circumstances, homeowners can assert fraud claims for as long as eight to ten years. In short, a warranty period is not a statute of limitation.
2. A Warranty Should Require that Claims be Made During the Warranty Period
If a builder intends that a homeowner must provide notice of a warranty claim within the warranty period, which is generally a builder’s intent, the warranty should specifically state that notice is required during that period. Otherwise, a homeowner may be able to submit a warranty claim after the warranty period as long as the defect existed during that period.
The warranties provided by the Greater Atlanta Home Builders Association, Inc., for example, include the following or similar language: “The [warranty] notice must specify the problem in detail and must be given to the Seller within the Warranty Term. The Seller shall not be responsible for problems as to which a required, timely notice has not been given.” A warranty that simply states that there is a one-year warranty is insufficient to establish when notice of a warranty claim must be given.
The statutory warranty mandated in some situations by the contractor’s licensing law may also require that the time for warranty claims be included in the warranty because, as discussed below, that law requires that the warranty include “claim procedures.”
3. A Written Warranty is Required by the Contractor Licensing Law
Georgia’s contractor licensing law requires a licensed residential contractor to offer a written warranty in connection with any contract to construct, or superintend or manage the construction of, any single-family residence where the total value of the work or activity or the compensation to be received by the contractor for such activity or work exceeds $2,500. “Single family residence” means a “one or two family residence” as defined in the current edition of the state minimum standard International Residential Code (IRC).
At a minimum, the warranty must describe the following: (a) Covered work and activities; (b) Covered exclusions; (c) Standards for evaluating work and activities, which standards shall be those set forth in the current edition of the Residential Construction Performance Guidelines as published by the National Association of Home Builders; (d) The term of the warranty, including commencement date(s) or event(s); (e) Claim procedures; (f) Contractor response options (such as repair, replace or compensate); and (g) Assignable manufacturer warranties.
Prior to the execution of a contract of the sort described above, the licensed residential contractor must also attach a complete copy of the written warranty (or an identical blank standard form of it) to the contract or otherwise make it available for review.
Builders should have their warranties periodically reviewed to ensure they are up to date and protective of the builder’s rights.