Two questions have been raised to me frequently in my practice with Home Builders: The first is whether a home owner’s potential claims and remedies against a builder are limited to those things contained in the New Home Warranty Act, and the second is whether a builder, through his contract, can effectively limit an owner’s claims (or more importantly, remedies) to those things contained in the New Home Warranty Act. Both of these seem like simple questions, but as you can see below, they do not produce simple answers (hence, the need for an article).
First, some basics. The New Home Warranty Act is a statutory warranty that applies to any person (or their entity) which constructs a home or “engages another to construct a home, including a home occupied initially by its builder as its residence, for the purpose of sale.” There are really two warranties: The first is a warranty for the first year after the “warranty commencement date” (which means the date that either title was conveyed to its initial purchaser — any person for whom the home was built, or the first person to whom the home was sold upon completion of construction — or the home was first occupied, whichever comes first) the home will be free from any defect due to non-compliance with “building standards.” The second warranty is for six years, again, following the warranty commencement date, that the home will be free from “major structural defects” which are defined within the Act.
The Act contains a number of exclusions and exceptions which are specifically listed within the four corners of the statute. The Act requires that notice be provided and an opportunity provided by the owner and an opportunity be given to the builder to cure any defects in the house before either the owner undertakes any repairs by himself, or files suit under the Act. In turn, the builder is required to provide the initial purchaser written notice of the terms of the New Home Warranty Act at closing. The builder’s failure to do this may result in an extension of the warranty period. An owner has thirty (30) days from the expiration of the appropriate warranty period to file a civil action under the Act. This acts as a statute of limitations for claims under the New Home Warranty Act. Damages are limited to the reasonable cost of repair or replacement necessary to cure the defect, and total damages shall not exceed the original purchase price of the home, plus, attorneys’ fees and court costs. The owner is required to comply with the notice provisions of the New Home Warranty Act before filing a civil action against the Builder. If the Owner does so, the Act specifically provides that the Court “shall” dismiss the action “without prejudice,” but the action may be re-filed once the Owner has complied with Notice requirements of the Act.
The previous version of the New Home Warranty Act, which was amended in 2004, provided that nothing in the Act affected an owner’s right to seek remedies of common law. That provision was taken out and replaced with a provisions stating “nothing in this chapter shall prevent the owner from filing a cause of action based on breach of contract and remedies attendant to such a cause of action.” Therefore, at first blush, it seems logical that the Act has, without stating as much, become the “exclusive remedy” to home owners making claims for defective construction against their home builder. This logical conclusion, however, did not seem so “logical” to the Courts in Mississippi. In 2005, the Mississippi Court of Appeals in a case, Little v. Miller, citing to the language of the 2004 amendments, expressly held that a common law remedy sought by a home owner is not excluded by the New Home Warranty Act. Therefore, potential home owner claimants may seek the relief provided under the New Home Warranty Act against their builders for defects in construction of their homes, but are not limited just to those remedies, or exclusions. They also may make a claim under general negligence or the implied warranty of “good workmanship,” which was pronounced in the George G. Gilmore v. Garrett case of 1991.
Under the General Common Law (including the implied warranty), there is a six-year statute of repose (limitations) that runs from the date that the house is complete and transferred to a third party, not the builder. This six years runs for any defect, “major structural” or not. Further, under the Common Law, property damage is measured by not only the cost of repair and remediation, but also any diminution in value caused by the defect, even if repaired. The one thing that the Common Law does not provide for, however, is a right for recovery of attorney fees, except under extreme circumstances.
So how do you protect yourself? As the Court of Appeals has rendered the New Home Warranty Act for Home Builders a virtual “Maginot Line,” the simple answer is not that simple. We have been recommending that builders add provisions in their contracts with owners that provide that all disputes between the owner and home builder are to be decided through arbitration, and that the claims and remedies be limited to those contained in the New Home Warranty Act. We have also recommended to our builder clients that their contracts require strict compliance with the Notice provisions contained in the New Home Warranty Act, and that a copy of the New Home Warranty Act is attached to the contract so that the builder’s Notice provisions to the owner are automatically met.
Can a builder limit an owner’s right and remedies to the New Home Warranty Act by contract? The jury is out on this issue. There is some law in other states that seems to say “yes.” However, this issue has never been addressed by the Courts in Mississippi, to our knowledge. That is why we recommend that if such a limiting clause if employed in your contracts, that it is employed in conjunction with an Arbitration Agreement, because Arbitrators are not bound to follow the law as courts are, and, it has been our experience that Arbitrators tend to rely on provisions found in contracts more than “case law” in fashioning their remedies.
However, one thing is for sure: That you cannot limit the rights and remedies of a home owner to something that the Act affirmatively provides to them. The Act specifically establishes a “minimum” requirement which cannot be waived by the owner or reduced by the builder.
Thus, we come full circle to the issue of contracts. While a builder will not make himself immune from suit by an owner by ways contained in his written contract, he certainly can put himself in a better position to defend himself in the event that a claim is made if he has a written contract in place with certain and specific provisions that, while may be limited, they still provide for the “minimum” protections as provided by the New Home Warranty Act.