Implied Warranties for Developers vs Builder-Vendors

In residential construction, there are often several parties involved in the different stages of work. For example, people seeking to build and sell homes in a new subdivision may refer to themselves as “developers” and distinguish themselves from general contractors, subcontractors, and various other parties involved in the physical work of building new homes in the subdivision. An important question arises: What is the legal significance of these various titles, and do they affect parties’ potential liability for construction defects? In particular, the designations of “developer” and “builder-vendor” are used frequently by Colorado courts when defining the parameters of construction defect liability to homebuyers. This article focuses on how Colorado courts have characterized the contractual liabilities, specifically implied warranties, of “developers” versus “builder-vendors.”

Distinguish Warranty Claims From Negligence

Negligence is a tort claim based on construction professionals’ duties to build homes in compliance with codes and recognized standards of care, which are independent of any contractual terms. Historically, construction professionals, including architects, general contractors, subcontractors, inspectors, or anyone else hired to participate in residential construction, can be subject to tort liability if damages to the home in question were caused by their work. See Cosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041, 1042 – 43 (Colo. 1983). However, this article primarily focuses on implied warranties.

Express and Implied Warranties

All warranties are considered contract claims that can be asserted by the actual parties to the contract. Courts recognize both express and implied warranties. Express warranties are promises that are explicit in the contract and any of its amendments. Implied warranties are obligations that arise based on the circumstances surrounding the transaction at issue. Forest City Stapleton Inc. v. Rogers, 393 P.3d 487, 490 (Colo. 2017).

In residential construction, a homebuyer must inevitably rely on the expertise and skill of those performing the construction. For this reason, courts have found that those involved in the business of building and selling homes always have an implied warranty of habitability in their contracts. Sloat v. Matheny, 625 P.2d 1031, 1033 (Colo. 1981). Courts use the term “builder-vendor” to refer to those in the business of building and selling homes to the public. Id. This implied warranty of habitability protects a home buyer’s right to a home that is built in a workmanlike manner and fit for habitation. Hildebrand v. New Vista Homes II, LLC, 252 P.3d 1159, 1169 (Colo. App. 2010). The implied warranty of habitability means that builder vendors are liable for repairing or replacing defective aspects of their work for the buyers with whom they contract.

Builder-Vendor and Implied Warranty

To be a “builder-vendor” in legal terms, one must be purposefully engaged in the venture of constructing homes to be sold to the public. Sloat, 625 P.2d at 1033 – 34. Imagine you are someone who works as a builder, and you decide to build your own home where you and your family will live. After several years, you sell the home you built to another party. At least one Colorado has found that, in this context, you are not a “builder-vendor,” and so there is no warranty claim the buyer can bring based on your construction of the home. Jones v. Posluszny, 2017 Colo. Dist. LEXIS 2235 at *5. This is because, in this context, you did not build the home for the purpose of selling it to the public.

In the Sloat case, the builder initially intended to construct a home for himself but later decided to sell the home before completing construction. 625 P.2d at 1034. The court in Sloat determined that the builder was a builder-vendor, and the eventual buyers could assert a claim for breach of the implied warranty of habitability based on defects in the construction. Id. This was because the builder ultimately did construct the home for the purpose of selling it. Id. In short, the specific facts are critical when courts determine whether someone is a “builder-vendor.”

Developers and Implied Warranties

As for “developers,” courts typically use this term to describe the person or business that sells lots where homes are to be built. While “developers” may not have any involvement in the actual erection of the homes, they may still be subject to liability based on implied warranties. Again, the specific facts are determinative of whether such liability exists. Rusch v. Lincoln-Devore Testing Laboratory, Inc., 698 P.2d 832, 835 (Colo. App. 1984),

In the Rusch case, a builder sued the party from whom they bought land for residential construction based on an implied warranty theory. The Colorado Court of Appeals ruled that the developer was liable to the builder based on the implied warranty that the land the developer sold to the builder was suitable for the purposes of residential construction. Id. The Court determined that this implied warranty existed because the developer, in this case, had performed preliminary soil work to prepare the land for residential construction. Id. In other words, the developer improved and sold land for the express purpose of residential construction, and it was this express purpose behind the sale that triggered the implied warranty.

While the developer’s implied warranty of suitability is different from the builder-vendor’s implied warranty of habitability and workmanlike construction, they are closely related, and their distinctions are based on the facts of specific cases. In other words, how people or businesses label their own roles in residential construction does not determine how courts classify them for liability purposes.

For example, if individuals decide to build a home on land they own for the purpose of reselling that home, those individuals can qualify as builder-vendors regardless of whether they themselves performed physical construction or whether they have experience in the business of building. Mazurek, Nielsen, 599 P.2d 269, 271 (Colo. App. 1979). In the Mazurek case, the Court determined that when landowners hire architects, contractors, and other professionals whom the landowners manage in the construction of the home, the landowners are considered builder-vendors for the purposes of the implied warranty of habitability even if they had not engaged in such a venture before. Id.

The Law is Still Evolving

Lastly, it is important to note that construction law is still evolving in Colorado, and there remains some potentially unanswered questions. For example, how much does a developer have to do to land before the implied warranty of suitability arises? Since the implied warranty of habitability has only ever applied to builder-vendors in Colorado, does that mean that builders of new homes who do not actually sell the underlying land are exempt from it? In the end, the specific facts surrounding the various parties’ actual work and responsibilities, not their own titles, will determine the applicable claims and liabilities when construction defects arise.

Rely On Our Expertise

If you are unsure as to your rights or liabilities under construction contracts, we may be able to help you. Contact us at either 303-678-0560 or 970-304-0075 to discuss your case further.

This blog is intended to provide general information and, therefore, should not be treated as legal advice. You should contact a qualified attorney for questions about legal issues.