Craig Martin, Construction Attorney, Lamson Dugan & Murray LLP,

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Whether a contractor will be liable to a second purchaser, even though the contractor never contracted with the second purchaser, varies state to state. The Pennsylvania Supreme Court, in Conway v. The Cutler Group, is the latest court to rule that a subsequent purchaser lacks privity and cannot pursue an action against the builder.

In that case, the Conways purchased a home from the original owner. After living in the home for about two years, the Conways discovered water leaking around the windows. The Conways sued the builder, alleging breach of the implied warranty of habitability.

The builder defended the claim, asserting that it had not contracted with the Conways and thus had not provided any warranties to the Conways. The trial court agreed and dismissed the claim. The first level of appellate court reversed the trial court, holding that the warranty of habitability was intended to level the playing field between the builder and purchaser of a home and it should be extended to subsequent purchasers. The Pennsylvania Supreme Court disagreed and refused to extend any warranties to subsequent purchasers.

Nebraska and Iowa courts may rule differently. Iowa courts have extended the warranty of workmanlike construction of new homes to second and subsequent purchasers. Speight v. Walters Development Co., Ltd., 744 N.W.2d 108 (Iowa 2008). Nebraska courts have also extended the warranty to perform in a workmanlike manner to second purchases despite no contractual relationship in Moglia v. McNeil Company, Inc., 700 N.W.2d 608 (2005).

Take Away: Contractors may still be on the hook for construction defect claims brought by a second buyer. Although the outcome will be state specific, Nebraska and Iowa courts will likely allow the claim.

Article written by Craig F. Martin, construction attorney, Lamson Dugan & Murray, LLP.