Daily Development for Thursday, September 5, 2002

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

VENDOR/PURCHASER; WARRANTY OF QUALITY; HABITABILITY: Disclaimer of implied warranty of habitability in sale agreement for condo unit must specifically reference the "implied warranty of habitability."

Board of Mangers v. Wilmette Partners, 760 N.E.2d 976 (Ill. 2001).

Note that, although this case involves a condo development, there is nothing in the case to suggest that it would not also apply to any sale of a new residence, whether or not in a condominium.

A Condominium owners association brought action against the developer/seller of condominium units ("Defendant"), asserting a claim of breach of implied warranty of habitability in regard to the building's garage. The structural integrity of the garage had begun to fail due to a design flaw and, as a result, the condominium owners could not use the second floor of the parking garage for its intended purpose.

The sales agreements used by the developer had contained a waiver of warranties, but the Association claimed that since the disclaimer in the sales contract failed to specifically mention the "warranty of habitability," and instead referred to "warranties of fitness for particular purpose and merchantability," the waiver was fatally flawed. The trial court disagreed and dismissed Plaintiff's claims. The Illinois court of appeals affirmed the trial court's ruling, following the lead of another appeals court panel. These courts had reasoned that the Illinois Supreme Court, in first declaring the existence of a implied warranty of habitability, had declared that it was analogous to the implied warranty of merchantability and fitness under the UCC. Consequently, these courts had concluded that the description "merchantability and fitness"

in the waiver was sufficient.

The Illinois Supreme Court, however, held that the warranty of habitability, while sharing many of the characteristics of the warranties of fitness for a particular purpose and merchantability, the theories are not "interchangeable." According to the court, the warranty of habitability is "distinct by its very nature." As a result, in order to be effective, a waiver of the warranty of habitability in a sales contract must specifically refer to the "warranty of habitability."

Comment 1: The court, in describing the implied warranty of habitability, characterized it as a "warranty that the house, when completed and conveyed to the vendees, would be reasonably suited for its intended use." The court does not say why a disclaimer of a warranty that the premises is "suited for a particular purpose" differs from this kind of warranty. Perhaps the concern was that the use of UCC-style language might lead some to apply UCC definitions to the concept. But the court doesn't say this, nor give any other clue as to what the difference is between the warranty of habitability and warranty for a particular purposes (i.e. use as a residence.)

Comment 2: The court refers to its decision in Board of Directors of Bloomfield Club Recreation Ass'n v. Hoffman, Group, Inc., 712 N.E. 2d 419 (Ill. 1999), where the court found that the implied warranty of habitability for new homes does not apply to a clubhouse, and drew a distinction between a "fitness for use" warranty and a implied "habitability" warranty, noting that there it had created no implied "fitness for use" warranty binding upon developers with respect to structures built for purposes other than for residential purposes. This shows that the implied warranty of habitability is narrower than a "fitness for use" warranty, but does not explain why it does not fall completely within such a warranty, nor why a disclaimer of any warranty of fitness for use would not also be a disclaimer of any implied warranty of habitability.

Comment 3: In short, the editor is nonplussed by the opinion. If the court wants to read these disclaimers so narrowly as to render them virtually always unenforceable, then why not just declare them void?

They are generally void in rental housing, and the court states in Bloomfield Club that the warranties in rental and sold housing are virtually the same in Illinois.

If anything, the disclaimer of a waiver of "fitness for use" likely is phrased in a way more likely to be comprehensible to the average consumer than the term "warranty of habitability."

Comment 4: The result, in any event is clear. Builders would be well advised to be quite specific in modelling after the court's advice. The plaintiff invited the court to approve the form of disclaimer prepared by the Chicago Bar and discussed in an article in the 1984 Chicago Bar Record 364, Appendix 1, (May June 1984). The court stops short of endorsing this waiver, but says good things about it. What a muddle!!

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.

Parties posting messages to DIRT are posting to a source that is readily accessible by members of the general public, and should take that fact into account in evaluating confidentiality issues.

ABOUT DIRT:

DIRT is an Internet discussion group for serious real estate professionals. Message volume varies, but commonly runs 5 ‑ 10 messages per workday.

Daily Developments are posted every workday.

To subscribe to Dirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Subscribe Dirt [your name]

To cancel your subscription to Dirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Signoff Dirt

For information on other commands, send the message Help to the listserv address.

DIRT has an alternate, more extensive coverage that includes not only commercial and general real estate matters but also focuses specifically upon residential real estate matters. Because real estate brokers generally find this service more valuable, it is named "Brokerdirt." But residential specialist attorneys, title insurers, lenders and others interested in the residential market will want to subscribe to this alternative list. If you subscribe to Brokerdirt, it is not necessary also to subscribe to DIRT, as Brokerdirt carries all DIRT traffic in addition to the residential discussions.

To subscribe to Brokerdirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Subscribe Brokerdirt [your name]

To cancel your subscription to Brokerdirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Signoff Brokerdirt

DIRT is a service of the American Bar Association Section on Real Property, Probate & Trust Law and the University of Missouri, Kansas City, School of Law. Daily Developments are copyrighted by Patrick A. Randolph, Jr., Professor of Law, UMKC School of Law, but Professor Randolph grants permission for copying or distribution of Daily Developments for educational purposes, including professional continuing education, provided that no charge is imposed for such distribution and that appropriate credit is given to Professor Randolph, DIRT, and its sponsors.

DIRT has a WebPage at: http://www.umkc.edu/dirt/