Residential Construction Contracts

Residential Construction Contracts

September 8, 2009

Introduction

Minnesota Statutes chapter 327A was recently amended to require that contractors include the existing statutory implied residential construction warranties as express warranties in all contracts for new home construction and contracts for home improvements. The amendment applies to all such contracts entered into on or after August 1, 2009. Contractors who fail to provide owners with these statutory warranties in writing may be subject to a license enforcement action by the Minnesota Department of Labor and Industry.

Statutory Warranties for Residential Construction

Minnesota Statutes sections 327A.01 to 327A.08 provide owners with protection from construction defects caused by faulty workmanship and defective materials in both new home construction and home improvements. The one-year, two-year, and ten-year statutory warranties cover different kinds of construction defects for different periods of time. The “warranty date” is the date from and after which the statutory warranties are effective. For new home warranties, the warranty date is the earliest of either the date of the initial purchaser’s first occupancy of the home or dwelling, or the date on which the initial purchaser takes legal or equitable title to the home or dwelling. For home improvements, the warranty date is the date on which the home improvement work was completed.

New Home Warranties: Minnesota Statutes section 327A.02, subdivision 1 sets forth the warranty requirements for every sale of a completed home or dwelling and every contract for the sale of a home or dwelling to be completed. The term “dwelling” refers to a new building, not previously occupied and constructed for the purpose of habitation. Section 327A.02, subdivision 1 requires that the contractor warrant to the purchaser that:

(a) during the one-year period from and after the warranty date, the dwelling shall be free from defects caused by faulty workmanship and defective materials due to noncompliance with building standards;

(b) during the two-year period from and after the warranty date, the dwelling shall be free from defects caused by faulty installation of plumbing, electrical, heating, and cooling systems due to noncompliance with building standards; and

(c) during the ten-year period from and after the warranty date, the dwelling shall be free from major construction defects due to noncompliance with building standards.

Home Improvement Warranties: Minnesota Statute section 327A.02, subdivision 3 sets forth the warranty requirements for home improvement work involving major structural changes or additions to a residential building. The term “home improvement” refers to the repairing, remodeling, altering, converting, or modernizing of, or adding to a residential building. Section 327A.02, subdivision 3 requires that the contractor warrant to the owner that:

(a) during the one-year period from and after the warranty date, the home improvement shall be free from major construction defects due to noncompliance with building standards;

(b) during the two-year period from and after the warranty date, home improvement work involving plumbing, electrical, heating or cooling systems shall be free from defects caused by the faulty installation of the system or systems due to noncompliance with building standards; and

(c) during the ten-year period from and after the warranty date, the home improvement shall be free from major construction defects due to noncompliance with building standards.

The term “building standards,” as used in the one-year and two-year warranties for new homes and home improvements, refers to the materials and installation standards of the State Building Code in effect at the time of the construction or remodeling. The term “major construction defects,” as used in the ten-year warranties for new homes and home improvements, refers to actual damage to the load-bearing portion of the dwelling or home improvement which affects the load-bearing function and is likely to affect use of the dwelling or home improvement for residential purposes.

Exclusions: In order to make a warranty claim under Minnesota Statutes chapter 327A, the owner must report the loss or damage at issue to the contractor in writing within six months of its discovery. If the owner fails to do so, the owner may still have viable claims against the contractor outside of the statutory warranties, such as a claim for negligent construction. Other circumstances in which liability will not extend to the contractor under Minnesota Statutes chapter 327A include, but are not limited to, the following:

(a) the loss or damage is caused by defects in design, installation, or materials which the owner supplied, installed, or directed to be installed;

(b) the loss or damage is caused by negligence, improper maintenance, or alteration of the dwelling or the home improvement by parties other than the contractor; and

(c) the loss or damage is caused by the owner’s failure to maintain the dwelling or the home improvement in good repair.

Remedies: An owner may bring suit against a contractor for breach of any of the new home warranties or home improvement warranties above and seek recovery of damages arising out of the breach or an order for specific performance requiring that the contractor fulfill its obligations under the statutory warranties. Damages for breach of the new home warranties are limited to either the amount to remedy the defect or breach, or the difference between the value of the dwelling without the defect and the value of the dwelling with the defect. Damages for breach of the home improvement warranties are limited to the amount necessary to remedy the defect or breach.

Conclusion

Contractors can comply with the new requirements in Minnesota Statutes chapter 327A by writing the text of Minnesota Statutes sections 327A.01 to 327A.08 directly into their residential construction contracts, or by attaching the statutory warranties to their contracts and incorporating the attachment into their contracts by reference. The text for the statutory warranties can be found at the website of the Minnesota Office of the Revisor of Statutes at www.revisor.leg.state.mn.us/statutes/?id=327A. The amendment to Minnesota Statutes chapter 327A underscores the necessity of regular contract review to ensure compliance with current law. A close reading of chapter 327A also highlights the importance of understanding and following the requirements for owners seeking to preserve or pursue warranty claims.

This discussion is generalized in nature and should not be considered a substitute for professional advice. © FWH&T

Fabyanske Westra Hart & Thomson
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