The traditional maxim of “let the buyer beware” is softened in the context of Article 36-B of the New York General Business Law, which imposes a warranty in favor of the buyers of new homes and holds construction contractors to a standard of skilled workmanship.

Contractors, meanwhile, must be aware of the circumstances in which the law implies such a warranty, which exists regardless of whether it is stated in a contract: the warranty that arises upon a sale of a new home underscores the need for contractors to act scrupulously—and work skillfully—in transactions with residential home buyers.

Article 36-B of the General Business Law imposes a “housing merchant implied warranty”. But when does this warranty apply? The law imposes the warranty on “the contract or agreement for the sale of a new home.”[1] A “new home” is defined as a single family house or a for-sale unit in a multi-unit residential structure (such as a condominium) which is five stories or less, but not a dwelling constructed to be leased, a mobile home, or a house or unit in which the builder has resided for more than three years.[2]Thus, the warranty has a broad application to residential construction projects. It must be noted, however, that the Appellate Division of New York State’s Supreme Court, in Sharpe v. Mann,[3]decided that the warranty does not apply to the construction of a custom home on vacant land which the customer already owns.

The housing merchant implied warranty guarantees that a new home will be free of certain defects for a set period of time which varies as follows:

• The home must be free of defects due to poor workmanship (including violations of state and local building codes and deviations from accepted building practices) for one year;[4]
• The home must be free of defects in the installation of the plumbing, electrical, heating, cooling, and ventilation systems for two years;[5] and
• The home must be free of physical damage to load-bearing portions of the home such as the foundation, walls, floors, and roof framing for six years.[6]

The building or seller can exclude items from the housing merchant implied warranty by replacing it with a written limited warranty, but the standard of workmanship must nonetheless meet or exceed relevant building codes and ensure that the home is safe, and the limited warranty cannot reduce the warranty period or require the homeowner to submit to arbitration.[7] For that reason, even a business-savvy contractor with the assistance of an attorney must, at a minimum, construct a residential property in a skillful, workman-like manner and conform to the building code. However, the General Business Law is clear that the warranty excludes defects in work or materials that were not performed or supplied by the builder or its subcontractors and employees and defective designs provided by the builder’s design professional.[8]Essentially, a home buyer cannot use the warranty to hold a contractor accountable for acts or omissions that are the fault of third parties that the contractor cannot control.

Finally, the law establishes a procedure which homeowners must follow in order to make a claim under the warranty. First and foremost, the homeowner must provide the builder of the home with written notice, which must be received within thirty days of the expiration of the relevant warranty period.[9] At that point, the builder is entitled to a chance to inspect the home and repair the defect.[10] The court in Finnegan v. Brooks Hill, LLC[11] established that failure to comply with this procedure is fatal to any lawsuit, requiring dismissal.

Second, the homeowner must file a lawsuit to enforce the warranty within a set period of time. This period depends, like the timeframe for written notice, on the type of defect, and requires a homeowner to file suit within one year after the expiration of the applicable warranty period or within four years of the warranty coming into effect, whichever is later.[12] This basically means that a lawsuit for a breach of the warranty involving general defects due to poor workmanship or poor workmanship in the installation of the plumbing, electrical, heating, cooling, or ventilation systems will need to be filed within four years of the purchase of the home, and a lawsuit for a breach of the warranty involving defects to load-bearing portions of the home will need to be filed within seven years. On the other hand, if the builder makes repairs after being given notice of the defect, the lawsuit must be filed within one year after the last of the repairs are performed,[13] which could, theoretically, extend the limitations period even further.

In the event that a court finds that a builder breached the housing merchant implied warranty, the damages will be the costs of repairing or replacing the defective items, up to the value of the house, or the amount by which the value of the home is reduced by the defect, if the court finds this to be more proper.[14]

Article 36-B of the General Business Law substantially alters the rights and responsibilities to the parties in contracts for the construction of new homes. For homeowners, the housing merchant implied warranty means that they have a right to expect their homes to be constructed skillfully, safely, and in conformity with applicable building codes, but they must follow a strict procedure if they wish to enforce the warranty. For contractors, the housing merchant implied warranty establishes a basic level of skill which is required in the construction of new homes but codifies their right to notice and an opportunity to cure any alleged defects. In any event, the advice of an experienced attorney is recommended both when contracting for the sale of a new home and in the event of a dispute.