Virginia Code §55-70.1 provides new home purchasers with a number of implied warranties. It is common, however, for a new home contract to include a provision waiving those warranties and replacing them with a limited builder warranty. While many homebuilders and their attorneys believe the waiver provision will protect the builder from potential liability, some Virginia court decisions have interpreted Section 55-70.1 in a way that few legislators or real estate attorneys could have imagined. Until the legislation is amended, something our firm will be working on for the next legislative session, we wanted to put our builder clients on notice of the problem.
Virginia Code § 55-70.1 provides that vendors engaged “in the business of building or selling [new] dwellings, shall be held to warrant to the vendee that, at the time of transfer of record title or the vendee’s taking possession, whichever occurs first, the dwelling together with all its fixtures is sufficiently (i) free from structural defects, so as to pass without objection in the trade, (ii) constructed in a workmanlike manner, so as to pass without objection in the trade, and (iii) fit for habitation.” This warranty extends for one year from the date of transfer of record title or the date the vendee takes possession, whichever occurs first, with the exception of the warranty for structural defects in the foundation of new dwellings, which extends for five years from such date.
The same Code section allows the parties to waive the implied warranties by contract. In order to effectively do so, however, the waiver must strictly comply with the statute. First, “the words used to waive, modify or exclude the warranties [must] state with specificity the warranty or warranties that are being waived, modified or excluded.” For example, if the parties intend to waive the implied warranty that the dwelling is “fit for habitation,” the waiver provision must expressly and specifically state that warranty is being waived. A Richmond circuit court has held that a builder’s new home contract language waiving “all of the implied warranties under Virginia Code 55-70.1” did not comply with the statute and was an ineffective waiver.
Second, in order to be effective, the waiver must be conspicuously “set forth on the face of such contract in capital letters which are at least two points larger than the other type in the contract.” The Fairfax County Circuit Court has held that a builder’s implied warranty waiver provision was unenforceable, even though it specifically named all of the warranties and was in all capital letters, because the font size used was not at least two points larger than the other type in the sales contract.
Third, if all implied warranties are waived, the contract must state in capital letters at least two points larger than the other type in the contract that the dwelling is being sold “AS IS.” One circuit court has interpreted this language to mean that if all of the implied warranties provided by Virginia Code § 55-70.1 are to be waived, the waiver must still use the language “AS IS.” While this interpretation may be a literal reading of the statute, it exhibits a lack of understanding of almost all new home sales in Virginia. The vast majority of new home builders waive the statutory implied warranties, provide a replacement limited builder warranty, and do not intend to sell the home “AS IS.” Nevertheless, under this interpretation of the statute, the sales contract must say that the sale is “AS IS” in order to waive the implied warranties, even if the homebuilder is providing an alternative limited warranty.
The risk of having the court determine that your homebuyer can use the implied statutory warranties against you creates a serious problem for builders. The court will now replace the more objective standard under your limited builder warranty with the far more elastic and subjective standard of the statute—i.e., whether the home you built is “free from structural defects…, constructed in a workmanlike manner…, and fit for habitation.” As you would expect, these standards can mean whatever your most problematic homeowner wants them to mean.
If you have any questions about whether your contract language effectively waives these implied warranties, please call Garth Wainman or Matt Westover at (703) 680-4664.