Contractors and Homeowners: Does this new Washington case impact your warranty or claims period?
In Washington, it has been typical for construction contracts and builder addendums to new home purchase and sale agreements to provide the owner/buyer with a one-year warranty. The warranty rights vary, but some of these contracts use this warranty language to change what would be a six-year statute of limitations, to a one year period.
In 2022, the Washington Supreme Court took aim at such claims limitations, and as a result, these contracts should be reviewed carefully to make sure they are in fact binding.
The court in Tadych v. Noble Ridge Construction reviewed whether or not builder’s warranty addendum could in fact limit the statute of limitations to one year rather than the normal six year period. A hyperlink to read the entirety of the case is here: https://www.courts.wa.gov/opinions/pdf/1000499.pdf. In that case, a developer, sold a house to the Tadychs. The purchase and sale agreement for the house included a one year warranty. The one-year warranty also purported to reduce the six-year statute of limitations for claims arising from faulty or otherwise problematic construction, to just a the one-year warranty period. The Court ultimately held in a 4-3 majority that the limitation of claims to one year, was not binding, and the Tadych’s were entitled to the full six-year statute of limitations.
Noble Ridge’s warranty stated:
(b) Warranty. The warranty provided in this section is in lieu of all other warranties, including any express or implied warranties of fitness, merchantability or habitability otherwise provided under the laws of the State of Washington or any other law applicable to the Project or this Agreement. Any claim or cause of action arising under this Agreement, including under this warranty, must be filed in a court of competent jurisdiction within one year (or any longer period stated in any written warranty provided by the Contractor) from the date of Owner’s first occupancy of the Project or the date of completion as defined above, whichever comes first. Any claim or cause of action not so filed within this period is conclusively considered waived. This warranty shall be void if a person or firm other than the Contractor performs or reperforms any work within the scope of this Agreement. (Emphasis added by the Court).
While the dissenting opinion of the Court notes that “people are generally free to contract for a shortened time to bring a legal claim” (EPIC, 199 Wn. App. at 271), the majority opinion of the court held that this limitation was unenforceable because the Tadych’s contract was unconscionable. Unconscionability comes in two varieties: substantive and procedural.
Substantive unconscionability is an unfairness of the terms or results or where the contract is one-sided or overly harsh. Procedural unconscionability is where the facts and circumstances surrounding the execution of the contract are unfair. Factors include: (1) how the contract was entered; (2) whether the parties had a reasonable opportunity to understand the contract’s terms; (3) whether the important terms were hidden in a maze of fine print; and (4) whether there was meaningful consideration (payment) for the terms.
In its analysis of procedural unconscionability, the court noted that the Tadychs were laypersons without counsel, Noble Ridge drafted the contract, the term did not stick out in any way from the rest of the contract, and there was no indication that the warranty was bargained for, negotiated, or that any separate consideration was paid. The court additionally noted that the warranty offered by Noble Ridge “has little, if anything, to do with a warranty. It operates as the opposite of what would be considered a warranty.”
Regarding substantive unconscionability, the majority opinion reasoned that “the contract’s provision is one sided in favor of the contractor with no benefit to the homeowner” and that “the policies underlying statutes of limitations generally: to allow sufficient time to investigate a claim while protecting against defending stale claims.”
Practically speaking, this ruling has implications for both builders and home buyers and owners moving forward, and we have outlined those below:
For builders and contractors:
Old form contracts should be reviewed to make sure that the warranty and claims language is in fact enforceable in light of the Tadych case. The Tadych court did not give a concrete structure (pun intended) as to what would have been a reasonable claims period limitation, it merely found that what was presented in that case was unconscionable and unenforceable. It may be that property worded, limiting claims to a two-year statute of limitations or a six month period after the warranty period, may be enforceable. It also seems likely that if the claims limitation is detailed and clearly bargained for, including perhaps some separate consideration, such language may be enforceable. Additionally, if a contractor is providing a warranty and a claims limitation, it should be clear and obvious what the terms and conditions of each are so that it is not all contained in one section titled “Warranty” as it was in the agreement at issue in the Tadych case.
For Buyers of New Homes and Owners hiring contractors:
Construction contracts and builder’s addendums to real estate purchase and sale agreements are sometimes presented as “take it or leave it” since they are more often than not, a form that is often re-used by the contractor or new home seller/builder. Given the high dollar value of these agreements, they should be reviewed by an attorney with experience in this area of law. This is particularly true since with this new case law, it seems that many form contracts are outdated, and this is an area where it would be worthwhile to propose edits rather than simply accept the terms of the agreement. At a minimum, even if the contractor or seller will not change their terms, you will gain an understanding of the critical time frames in these types of agreements.
For any questions regarding construction warranties, construction contracts, or builder’s addendums, please contact us or give us a call at 206-438-9083.
Holmquist & Gardiner, PLLC has made this content available to the general public for informational purposes only. The information on this site is not intended to convey legal opinions or legal advice.