Contractor Liability Under Implied Warranties in Residential Construction

The Arizona Supreme Court recently ruled that homeowners (and homeowner associations on behalf of homeowners) may sue residential homebuilders on an implied warranty of workmanship and habitability even if the homebuilder was not also the vendor of the homes and the homebuilder had no other direct relationship with the homebuyer. See The Lofts at Fillmore Condominium Assoc. v. Reliance Commercial Construction, No. CV-07-0416-PR (Ariz. filed Aug. 19, 2008) (http://www.supreme.state.az.us/opin/pdf2008/ACV070416PR.pdf).

How does this work in Nevada?
Nevada has not addressed the situation at issue in Arizona's Lofts at Fillmore case where the homebuilder was not also the vendor or a joint venturer with the vendor of the homes. The Nevada Supreme Court, however, has held that where a homebuilder is a joint venturer with the vendor, both the homebuilder and the vendor are jointly and severally liable to the homebuyer for breach of the implied warranty of habitability. See Radaker v. Scott, 109 Nev. 653, 855 P.2d 1037 (1993).

Here is what we know under Nevada law: (1) A hombuilder that is also a vendor is liable to a homebuyer for breach of the implied warranty of habitability. (2) A homebuilder that joint ventures with the vendor is liable to a homebuyer for breach of the implied warranty. The Nevada Supreme Court in Radaker extensively discussed the history of the implied warranty of habitability as being based in public policy. The Court agreed with numerous other courts that the implied warranty was based on sound public policy: "We agree with the virtual consensus among courts in our sister states that the implied warranty of habitability reflects a naturally expected and sound public policy." Radaker, 109 Nev. at 661, 855 P.2d at 1042. The Court then adopted the implied warranty for Nevada. Id.

By basing the implied warranty of habitability on public policy rather than on contract, the Radaker decision provides a stepping stone for the Nevada Supreme Court to go down the path of Arizona and extend the implied warranty when there is no contractual privity between the homebuilder and the homebuyer. The Arizona court in Lofts at Fillmore also based its decision to extend the implied warrant on public policy grounds. "We stressed in Richards that, given the policies behind the implied warranty – to protect innocent buyers and hold builders responsible for their work – any reasoning which would arbitrarily interpose a first buyer as an obstruction to someone equally deserving of recovery is incomprehensible." Lofts at Fillmore at 9-10 (internal quotations and citations omitted). It is not unthinkable then for Nevada to go one more step like Arizona has and hold that a homebuilder can be liable to a homebuyer for breach of the implied warranty even if the homebuilder is merely a contractor of the vendor and has no direct relationship with the homebuyer and gains no direct benefit from the sale of the home. We'll have to wait and see when such a case presents itself to the Nevada Supreme Court.

Regardless of how loosely Nevada may in the future apply the implied warranty of habitability, any claims based on the implied warranty by a homebuyer would almost certainly be subject to the requirements of Nevada's construction defect statutes (NRS 40.600 - 40.695). Therefore, at a minimum, a homebuilder would have to be given notice of the defect and an opportunity to cure it before an action can be commenced by a homebuyer.