NEW HOUSING AND HOME IMPROVEMENT WARRANTIES Minn. Stat , et. seq. Winter 2004

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1 I. IMPLIED WARRANTIES NEW HOUSING AND HOME IMPROVEMENT WARRANTIES Minn. Stat , et. seq. Winter 2004 A. Overview: Every contract to build or remodel a home in Minnesota, even if there is no written contract, has implied warranties. In summary, they are as follows: 1. One Year - fix anything that goes wrong; 2. Two Year - covers HVAC, electric and plumbing; and 3. Ten Year - major construction defects. B. Building Standard Defined. 1. Pre May 30, 2001, the standard is: structural, mechanical, electrical and quality standards of the home building industry for the geographic area in which the dwelling is situated. 2. May 31, 2001 to December 31, 2004, the standard is: the State Building Code. 3. January 1, 2004, the standard is: materials and installation standards of the State Building Code. II. NEW DWELLINGS (New Construction) A. Warranties apply only to dwellings constructed for the purpose of habitation. B. To be subject to the new dwelling warranties, the structure must not have been previously occupied. C. Substance of the warranties. 1. The statute provides that each new dwelling shall remain free from defects caused by faulty workmanship and defective materials due to noncompliance with building standards for a period of one year after the warranty date.

2 a. Note: Building standards may be more strict than building codes. b. Example: Metro Builders constructs a home for the Miller family. Seven months after the Miller family moves into the home, the cement driveway begins to crack and there are numerous pop-outs. Investigation shows that the concrete had too much moisture in it when it was poured and was improperly cured. Metro Builders must replace the driveway at no cost to the Miller family. (Note: the concrete supplier and cement contractor may be liable to Metro Builders for the cost of replacement). 2. The statute imposes a two-year warranty that the new dwelling shall be free from defects caused by faulty installation of plumbing, electrical, heating and cooling systems. 3. The statute provides that each new dwelling shall be free from major construction defects for a period of ten years. Major construction defects are defined as actual damage to load-bearing portions of the dwelling, including damage to subsidence and lateral support, not due to said movement caused by floods, earthquakes or other material disaster. a. Example: Minnesota Builders designs and builds the Michael family a home. The home has a vaulted living room ceiling, including a center beam at the peak. Six years after the Michael family moves in, they discover that their living room walls are bowing, the roof leaks and it must be replaced. Minnesota Builders is liable to replace the roof and ceiling, and correct the wall damage. b. Example: Michael Construction builds a home for the Otters. The home is structurally fine when it was built, but over the years water has gotten into the walls through a poorly installed window. Mold and fungus have rotted the load bearing portion of the walls. Since the structure was fine at completion, the warranties have been met. III. HOME IMPROVEMENT (Remodeling) A. Where the home improvement consists of a major structural change or an addition to a residential building, the statutory warranties are the same as those implied in the new dwellings section B. Where the home improvement does not involve an addition or major structural change, only the one-year implied warranty is effective.

3 C. If the home improvement consists of plumbing, electrical, heating or cooling system, only the two-year warranty applies. IV. PROVISIONS AFFECTING BOTH THE NEW DWELLING AND THE HOME IMPROVEMENT SITUATIONS A. Lack of privity is no defense. The statutory warranties provided by the statutes survive the passing of legal or equitable title in the dwelling to the vendee (owner or buyer). Example: The same situation as above with the vaulted ceiling, except that three years after the initial closing the Michael family sells the home to the Bruce family. Minnesota Builders remains liable for the work to the Bruce family. B. The date the warranty becomes effective for a new dwelling is the earlier of: 1. The date of the initial vendee s first occupancy of the dwelling; or 2. The date on which the initial vendee takes legal or equitable title in the dwelling. C. In the case of a home improvement, a warranty date is the date on which the home improvement work was completed. D. The statutory warranties cannot be waived absent the provision of equivalent warranties, and such equivalent warranties are approved by the commissioner. V. EXCLUSIONS A. In order for the warranties to be effective, the vendee must notify the builder of the loss or damage in writing within six months after the vendee discovers or should have discovered the loss or damage. B. The warranties do not apply to personal injury caused by the defect or to damage caused to other property by the defect. C. Warranties do not apply to defects in design, installation or materials which the owner supplied or installed under his own direction. D. Warranties do not apply to loss or damage from normal wear and tear. E. Warranties do not apply to loss or damage caused by normal shrinkage by drying of the dwelling or home improvement within building standard tolerances.

4 F. Warranties do not apply to loss or damage from dampness and condensation due to insufficient ventilation after the occupancy. G. Warranties do not apply to loss or damage from negligence or improper maintenance or alteration of the dwelling by the owner or someone other than the builder. H. Warranties do not apply to loss or damage from changes in grading by the owner or someone other than the builder. I. Warranties do not apply to landscaping or insect damage. J. Warranties do not apply to loss or damage from failure to maintain the dwelling or home improvement and good repair. K. Warranties do not apply to loss or damage which the owner, when feasible, failed to minimize. L. Warranties do not apply to loss or damage which occurs after the home is no longer used as a primary residence. M. Warranties do not apply to actual loss or damage generally designed as acts of God, so long as the damage is not caused by failure to comply with building standards. N. Warranties do not apply to loss or damage due to soil conditions where the owner purchased the land from someone other than the builder and had the builder construct the home on the property. O. Warranties do not apply in cases of home improvement work, loss or damage due to defects in existing structure not caused by the home improvement. P. WARNING: The legislation is considering removing several of these exclusions, particularly the ones dealing with moisture problems in the home. VI. REMEDIES A. Damages for breach of new dwelling warranties are limited to: 1. The amount necessary to remedy the defect or breach; or 2. The difference between the value of the dwelling without the defect and the value of the dwelling with the defect.

5 B. Damage for breach of home improvement warranties are limited to: 1. The amount necessary to remedy the defect or breach; or 2. Specific performance. VII. WRITTEN DISCLAIMER A. If the home was occupied by the builder prior to sale, these warranties may be avoided. 1. Home must have been previously occupied. 2. The attached Notice must be given to the buyer prior to signing the purchase agreement. B. If the builder has lived in the home for over one year, the builder may also make the home ineligible for the Contractor Recovery Fund -- again, give the attached disclaimer prior to signing the purchase agreement Rinke-Noonan and David J. Meyers, St. Cloud, Minnesota - All Rights Reserved David J. Meyers U.S. Bank Plaza 1015 W. St. Germain Street, Suite 300 P.O. Box 1497 St. Cloud, MN Direct: (320) Office: (320) Fax: (320) Toll Free: [email protected] Rinke-Noonan Web Page: David J. Meyers resides in St. Cloud and is licensed to practice law in Minnesota and Wisconsin State and Federal Courts. He is certified as a Real Property Specialist by the Minnesota Bar Association

6 The property located at was constructed by me and has been occupied by my family and me. This is notice to you that under Minnesota Statutes Section any claim arising as a result of any construction on this property will not be covered under the statutory warranties established by Minnesota Statute Chapter 327A. Because this home has also been occupied by me as my residence for over one year, it will also not be eligible for reimbursement from the Contractor s Recovery Fund under Minnesota Statutes Section Builder s Signature We have received a copy of this disclosure on, 20, prior to signing a purchase agreement for the above property.