You’ve purchased a brand new home directly from a builder in Illinois, but after a few days, weeks. or months, you discover that it has one or more defects: cracks are forming in tiles and brick work, the kitchen floor is sinking, or a wall begins to buckle. What are your rights against the builder? Is the builder responsible for fixing defects or reimbursing you for damages? Can you sue the builder? What should you do when you discover a defect?
This article will examine the builder’s responsibilities to you — the buyer -- for defects in your newly constructed home in Illinois. It will also describe the remedies to which you may be entitled from the builder, procedures you may be required to follow to resolve a dispute with the builder, and suggested actions when you find a new-home defect. For information about remedies for defects in previously constructed homes, see "Illinois Buyers' Remedies After Discovering Home Defects."
Has the Builder Breached Your Purchase Contract?
Before you bought your newly constructed home, and most likely before construction commenced, the builder asked you, as the buyer, to sign a form contract. This contract governs all aspects of the construction of the home and the closing of your purchase. The builder may have attached detailed plans and specifications for the construction of the home to the contract, or the contract may refer to a model home name or number, so that the detailed plans and specifications of the model home become part of the contract.
If the home is not built to the specifications described in the contract or the specifications of the referenced model home, the builder may be liable to you for a breach of the contract. The builder may also be liable to you if the quality of the home is not as described in the contract specifications or as described in specification sheets or advertisements given to you to induce you to purchase the home.
However, the builder may not be responsible to you for each and every variation from the contract or home model specifications. If the variation is small, and within certain generally accepted construction standards, or within allowed variations described in the contract, the house is deemed to conform to the contract specifications, and the builder is not required to make any repairs or pay damages.
Builder Liability When Your Contract Contains an Express Warranty
Your builder many have required you to waive your rights under the contract or any other rights you may have under the law (see the discussion of the Implied Warranty of Habitability below) and instead provided you with an express warranty. The express warranty defines all of the terms and limitations of the builder’s future responsibility to you. It will also describe your maintenance obligations, the procedures you are supposed to follow to make a claim under the warranty, the steps the builder must take in response to your claim (ie. investigation, inspection, repair or replacement), and how disputes under the warranty will be resolved.
The express warranty will typically be limited, meaning that it covers only certain construction defects, and only for a limited period of time—often, but not always, one year. The warranty may also exclude certain defects in materials or damage caused by ordinary wear and tear, abusive use, or lack of maintenance, extreme weather conditions, and other elements that are not controlled by the builder. For example, limited warranties often exclude foundation cracks, items covered by a manufacturer’s warranty, and environmental issues.
Your Contract May Require Binding Arbitration Instead of Court
If either your contract or the express warranty provided by the builder contains a binding arbitration clause, you may not sue the builder in a government court. Rather, you must submit any claim that the builder did not resolve to an arbitrator — which, in this type of case, means a person or private company with expertise in home construction hired to resolve disputes between the buyer and the builder.
The arbitrator is usually chosen by the builder, and named in either the contract or the express warranty. When you sign the contract and accept the express warranty, you agree to used the named arbitrator and comply with the arbitrator’s decision. You may not appeal the arbitrator’s ruling to another arbitrator, nor to a government court.
During the arbitration process, you will submit your written claim to the arbitrator, and the builder will submit a written response. Upon receiving these documents, the arbitrator will schedule a hearing. Prior to the hearing, the arbitrator may visit and inspect the home, or conduct a prehearing conference by telephone. This helps the arbitrator understand the heart of the dispute and give the parties an opportunity to reach a settlement without a hearing.
During the hearing, you and the builder may submit written or photographic evidence to the arbitrator. You may also question your witnesses and cross examine the builder’s witnesses, similar to a trial in court. At the conclusion of the hearing, or sometimes several days later, the arbitrator will provide you, and the builder, with a written decision. The decision will state whether or not the builder is liable to you and, if the builder is liable, prescribe the remedy — the repairs, replacement, or money damages the builder owes you because of the defect.
The Implied Warranty of Habitability
Your new home builder may also be liable to you under the Implied Warranty of Habitability, a warranty created by the Illinois courts to protect purchasers of new homes who discover latent defects but may have no other recourse against the builder. The name of the Implied Warranty of Habitability can be misleading, however, because it is not limited to defects that would make the home uninhabitable. This warranty includes all latent defects that interfere with the buyer’s expectations that the home will be reasonably suited for its intended use. (See the case ofPetersen v. Hubschman Const. Co., Inc., 76 Ill.2d 31 (Ill., 1979).)
Relief to you, as the buyer under the Implied Warranty of Habitability, is limited by time. You can sue the builder under the Implied Warranty of Habitability any time before ten years from the time of the act or omission that caused the defect -- design, planning, supervision, management, or construction-- or four years from when the act or omission was discovered. (735 ILCS 5/13-214(b).)
Your builder may have required you to waive your rights under the Implied Warranty of Habitability as part of your contract. Read the contract carefully to determine whether it includes this waiver.
However, such a waiver will not be enforced by the Illinois courts unless it is clear that you knew about it, and agreed to it, when you signed the contract. To meet that standard, the waiver must be written in clear and specific language, and be conspicuous within the contract. To be considered conspicuous, the waiver should be printed in a larger font than the rest of the contract, and located where it will be easily seen, and not in the boilerplate.
What If the Builder Files for Bankruptcy?
You cannot make any demand on, nor sue, a builder who has filed for bankruptcy prior to your lawsuit. The laws protect bankruptcy filers from lawsuits and potential liability. However, if your builder has already filed for bankruptcy, you may be able to sue the subcontractors — members of the various home building trades who helped the builder build the defective components of your home (such as plumbers, electricians, and carpenters).
If you sue the builder, and after you file suit the builder files for bankruptcy, you have two years from the date you found out or reasonably should have known of your right to sue the subcontractor.
Your Remedies If the Builder Is Found Liable
If found liable, the builder may be required to repair the defect or pay money damages to you to compensate you for your loss. Potential damage amounts may be set by terms in your purchase contract. However, if the contract does not specify the formula for calculating damages, damages are usually calculated by subtracting the value of the defective property from the value of the property as it would have been without the defect. The values are set as of the time of the sale. To determine these values, the parties often hire separate appraisers, and compare their conclusions.
Or, in the case of a settlement, the parties may agree to the bound by the decision of one appraiser. Recently, courts have been awarding aggrieved buyers the cost of repairs to correct the defects. Repair costs, however, are not used if the repair would require unreasonable damage to the home.
Your New Home Builder Need Not Give You a Disclosure Form
Although Illinois law makes sellers of existing homes liable to buyers for failing to deliver a disclosure form (as described in "Illinois Home Sellers: Disclosures Required Under State Law," this law does not apply to a newly constructed home that has never been occupied. So if your seller is the home builder, and you are the first occupant, the seller will not be expected to give you a disclosure form, and can not be found liable to you for having failed to do so.
What to Do When You Discover a Defect
Act quickly after discovering a home defect, because the builder’s liability, whether by contract, warranty, or law, is limited by time. Take steps to protect your rights immediately, in particular by:
- reviewing your contract looking for the plans and specifications, any other builder’s obligations, and any agreed-upon procedures for notifying the builder of a defect
- reviewing any specification sheets or advertisements for the home model referenced in your contract
- reviewing any express warranty provided by the builder, looking particularly for any specific coverage, or coverage exclusion, that might apply to the defect in question, and any procedure you are required to follow to make a claim, including binding arbitration
- reviewing any manufacturer’s warranties for any defective system or appliance given to you by the builder or left by the builder in the home
- following any procedure for making a claim or complaint about a defect required in the contract or in an express warranty, and
- writing a demand letter to the builder, describing the defect, why the builder is responsible, and asking for a specific repair, or dollar amount for the repair (absent a different procedure required by the contract or express warranty).
You may wish to contact the attorney who helped you negotiate your contract, or who closed your purchase, or another experienced real estate attorney to help you with these steps.