Even a newly constructed home can have defects. A defect may lurking be in the design, the materials, the installation of prefabricated items or appliances, or the carpentry and construction itself. It may be obvious the day you take possession, or it may show up weeks, months, or years later. If you find things going wrong in your newly constructed home, you should ask: What are my rights against the builder? Will the builder fix the problem or reimburse me for the work? Do I have to sue? What steps should I take after discovering a defect?
This article will examine your remedies for defects in your newly constructed New York home and the actions you should take when you find them. For information about remedies for defects in previously constructed homes, see Nolo’s article: "Home Defects in New York: What Can a Buyer Do?"
Finding Defects in Newly Constructed Homes
Ideally, you will have discovered any construction defects prior to your purchase. Your builder may be obligated to tell you about design defects or material flaws found during the construction process. See Caceci v. Di Canio Const. Corp., 72 N.Y.2d 52, 526 N.E.2d 266 (N.Y., 1988).
The building department of your municipality, which will do a final inspection before declaring the house habitable, may find unsafe conditions or noncompliance with their minimum building standards. You may also find defects during your preclosing walk-through, but those will be limited to easily observable defects.
New York attorneys typically recommend you attempt to negotiate an inspection provision into your construction and purchase contract, hire a licensed inspector to inspect the property before the closing of your purchase, and demand that the builder make the recommended repairs or replacements prior to your closing.
However, not all defects will manifest, or be detected, prior to the closing, so it is important to understand your rights against the builder if defects are found days, weeks, or years after the closing.
How the Housing Merchant Implied Warranty Protects Buyers
New York law creates a warranty for new construction. This statutory warranty is called the “Housing Merchant Implied Warranty.” (It replaced a warranty that had been implied into contracts by the New York courts in the years before the 1989 passage of the law.)
Today, the Housing Merchant Implied Warranty is the exclusive warranty for all sales of new construction homes. The statutory warranty is “implied” in that it need not be written into the contract, but exists within every contract for the sale of a single family house or unit in a multi-unit residential building of five stories or less. (General Business Law §§777- 777-b.) The statutory warranty will not be implied into your contract if your new home is built on land you owned prior to construction.
The law describes the construction, materials, appliances, systems, and building components covered by the implied warranty, as well as items excluded from coverage and the length of the warranty period for each item.
In general, construction defects are covered for one year after the warranty date — the date title passed to the first new home owner. (General Business Law § 777-a (a)). Plumbing, electrical, heating, cooling, and ventilation systems are covered for two years after the warranty date. (General Business Law § 777-a (b)). Material defects are covered for six years after the warranty date. (General Business Law § 777-a (c)). Review the statute to see whether your defect is covered and for how long.
The law also describes the time notice and limitations periods for filing a lawsuit. You must notify the builder of a warranty claim, in writing, before filing suit and no later than 30 days after the warranty period expires, and give the builder a reasonable opportunity to inspect, test, and repair the defect.
While the notice to the builder is a precondition to filing a lawsuit, the opportunity to inspect, test, and repair is not. See Trificana v. Carrier, 916 N.Y.S.2d 399 (N.Y. App. Div., 2011). After notifying the builder, you may file suit any time before one year after the warranty period ends, or within four years after the warranty date. (General Business Law § 777-a).
Whether or not a condition is a defect covered under the warranty is judged by the level of skillful workmanship standard in the community. This means that to prove your case against the builder, you should submit evidence of the defect itself and the local standard for skillful workmanship. This evidence may include expert witness testimony from local architects, engineers, contractors, or others in the building trades, and the standards in local building ordinances. The level of workmanship required for your new home may be changed by the terms of contract.
If you sue, the monetary damages you may win will typically be the cost of the repairs or replacements plus the cost to repair any damage to the home caused by the warranty work. The maximum amount that may be awarded is the value of the home itself, without the land. However, a court may calculate damages as the value of the home as it should have been built minus the value of the home as it is with the defect, if it finds that amount to be more equitable under the circumstances. (General Business Law § 777-a).
What If the Buyer Has Waived Rights to Certain Warranties?
Read the builder’s contract carefully. It can require you to waive the Housing Merchant Implied Warranty and accept a limited or modified warranty in its place. (General Business Law § 777-b (3)). But this won’t hold up in court if it’s buried in fine print: The contract terms replacing the statutory warranty must be conspicuous, mention the existence of the implied warranty, and state that the limited warranty excludes or modifies the implied warranty. However, the law gives an example of far less explicit language that will suffice: “There are no warranties which extend beyond the face hereof.” (General Business Law § 777-b (3)(c)).
The builder must also supply you with a copy of the limited warranty prior to your signing the contract, and attach a copy of the limited warranty. (General Business Law § 777-b (3)(a) and (b)).
The limited warranty must state all of the information required in Section 777-b(4). (General Business Law § 777-b(4)). Standards set in the limited warranty must meet or exceed standards in the local building code or the locally accepted building practice where code provisions do not apply. Building standards set in the limited warranty that fall below local building standards, or render the home unsafe, are considered void under New York law. (General Business Law § 777-b (4)(e)(i).)
Buyers May Claim Breach of Contract for Custom Homes
If your new home was built on land that you previously owned, it is a “custom home.” The Housing Merchant Implied Warranty, including the coverage requirements, notice requirements, and time limitations, does not apply to custom homes.
Your remedy for custom home defects is to sue the builder for breach of contract. To succeed, you will have to show either that the home was not built according to any plans and specifications or drawings made a part of the contract, or that it was not built up to the standards promised in the contract.
Your damages for defects in a custom home will typically be the amount required to fix the defect. However, the court may award you the difference between the value of the home with defects and its value without defects.
Courts usually award the difference in value when the builder substantially performed the contract in good faith and the cost of remedying defects would be unreasonable compared to the value of the home, or when repairs might render the home uninhabitable. See Lyon v. Belosky Const. Inc., 669 N.Y.S.2d 400 N.Y.A.D. 3 Dept. (1998).
Alternatives to Filing a Lawsuit
The time and cost involved with a lawsuit often make other forms of dispute resolution attractive to both parties. You may be able to negotiate an acceptable settlement with the builder yourself or through your attorney. If the builder is amenable to negotiation, but you have not been able to reach a settlement consider jointly hiring a mediator to help. A mediator will review the contracts, inspection reports, and other evidence you provide, and work with both sides to resolve the matter.
Some construction contracts require that disputes be settled through binding arbitration. Arbitration differs from mediation in that it is more like a court proceeding. The arbitrator hears the facts and evidence at a hearing, and makes a decision much like a judge would do. However, in New York, the builder is not permitted to require binding arbitration in any limited warranties replacing or modifying the Housing Merchant Implied Warranty, and must pay for any voluntary arbitration. (General Business Law § 777-b(4)(h).)
If the Builder Files for Bankruptcy
You cannot make any demand on, sue, or enforce a judgment against a builder who has filed for bankruptcy prior to your lawsuit. 11 U.S.C. § 362.
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 build your home’s defective components, such as plumbers, electricians, and carpenters. You have two years from the date you found out or reasonably should have known of your right to sue the subcontractor to do so.
Suggested Actions When You Discover a Defect
Act quickly to protect your rights immediately after discovering a home defect. Your ability to demand repairs or damages under warranties and contract terms are limited by time. Here are some initial actions to take:
- If you purchased a newly constructed home and the land from the builder, review your contract looking for any limited or modified warranty that may replace the Housing Merchant Implied Warranty.
- If you purchased a custom home on land you already owned, review your contract for the plans and specifications, drawings, any other builder’s obligations, and any agreed-upon procedures for notifying the builder of a defect, or any binding arbitration requirements.
- Follow any procedure for notifying the builder contained in either the Home Merchant Implied Warranty, any limited or modified warranty that replaced the statutory warranty, or in your contract if you purchased a custom home on land you already owned.
- Keep copies of all your correspondence with the builder, as well as work orders and receipts for any repair work you have had done.
- Take photographs of the defect and any damage caused by the defect, as well as after-repair photographs. Be sure to date and describe what’s in each photo for future use as evidence.
You may also bring in a licensed inspector to help you understand the defect and make your case against the builder. An experienced real estate attorney will be able to help you understand and protect your rights against the builder.