Developers and Construction

Board of Contributors: Developers may be on hook for additional construction liability

Posted on Tuesday, January 4, 2011

For centuries, builders and sellers of residential homes, whom we will collectively call "developers," were protected from construction liability by the Latin legal doctrine known as caveat emptor — "let the buyer beware." This ancient doctrine imposed on a buyer the responsibility to discover any defects on a piece of property, or its improvements, before completing its purchase. In essence, unless otherwise imposed by the purchase contract, a developer sold the property without any warranty on the quality of construction.
However, over the years, the rule of caveat emptor has steadily eroded, and developers have become responsible for discovering, disclosing, and repairing a wide variety of property defects. The Florida Legislature has, in effect, eliminated this doctrine for sales of condominium units in Florida by imposing on developers warranty obligations for both new construction and conversion of rental housing to condominium ownership.
Homeowner communities, however, although not subject to any statutory warranty protection, have been extended some protection through Florida case law. That protection results from the recent case of Lakeview Reserve Homeowners v. Maronda Homes. The Lakeview case may expose developers to increased and unexpected liability, and may afford homeowners with a higher level of protection than ever seen in Florida previously.
Since the seminal 1972 case Gable v. Silver, developers in Florida are deemed to give an implied warranty that a newly constructed home is "habitable" — or reasonably fit for ordinary use as living quarters. A developer breaches this warranty if the home does not meet objective, ordinary standards to be expected of other homes of comparable quality. For example, selling a South Florida home with a nonfunctioning air-conditioning system might be a breach of the warranty, since a home without air-conditioning is not reasonably fit for human habitation. However, a home that contains a fully functional but very noisy air-conditioning system would not breach the warranty, even if the buyer was hyper-sensitive to the sound.
Until the Lakeview case, Florida courts had consistently held that the implied warranty of habitability extends only to the construction of the home itself, and improvements "immediately supporting" the home structure, such as water wells and septic tanks. For example, the courts have previously and consistently held that the implied warranty of habitability did not apply to improvements like a defective seawall abutting unimproved residential lots, or to the common elements in a residential subdivision, including roads and drainage areas.
However, the 5th District Court of Appeal’s Oct. 29 holding in Lakeview has reinterpreted the "immediately supporting" standard by reversing a lower court dismissal of action by a homeowners association alleging defects in roadways, retention ponds, underground pipes and drainage systems constructed within the community distinctively outside of the home structures. The court reasoned that the "immediately supporting" standard established by the Florida Supreme Court is not limited to things that are directly attached to the home but should be broadly construed to include anything that provides a "service essential to the habitability of the home." The court’s decision appears to limit warranty protection to owners buying for occupancy rather than those buying for investment.
The Lakeview test means that developers must be cautious to ensure that all systems and services that can be construed as "essential" to habitability are in good and working condition at the time of conveyance, without latent defects. It may be difficult to ascertain which services qualify as essential and which do not. The Lakeview opinion includes an illustrative list of services that are supposedly not essential to habitability, including landscaping, sprinkler systems, recreational facilities, and security. Unfortunately, this list is not exhaustive or authoritative.
The Lakeview court acknowledged that its opinion is directly contradictory to an opinion rendered by the 4th District and has certified the conflict for resolution by the Florida Supreme Court.
Unless the case is reversed on appeal or not followed by other appellate courts, Florida homeowners in newly built residential communities may have additional warranty protection and developers, on the other hand, may face potential additional liability for community facilities they construct. Daily Business Review
Martin A. Schwartz and Alex Schimel

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