First Appellate Court Clarifies the Implied Warranty of Habitability

March 15, 2017

On February 17, 2017, the First District Appellate Court issued a new decision which confirmed and clarified Illinois law regarding the implied warranty of habitability. The decision, Sienna Court Condominium Ass’n v. Champion Aluminum Corp., 2017 IL App (1st) 143364, came as a result of three consolidated appeals. The Decision confirmed and clarified three aspects of the implied warranty of habitability. First, the court confirmed that the implied warranty of habitability does not extend to design professionals or material suppliers that do not participate in the construction. Second, the court confirmed that subcontractors remain potentially liable to homeowners under the implied warranty of habitability. Finally, the court clarified that “the insolvency of the builder-vendor is the determining factor” as to whether subcontractors are liable under the implied warranty of habitability.

With respect to design professionals, the court declined to extend the implied warranty of habitability to design professionals because (1) the implied warranty of habitability is traditionally applied to those who engage in construction and (2) architects do not construct the actual structures; instead they perform design services. The Court applied existing Illinois law to conclude that the implied warranty does not extend to material suppliers that do not perform construction work.

Next, the court refused to extend its prior decision in Minton v. The Richards Group of Chicago, 116 Ill. App. 3d 852 (1st Dist. 1983), which allowed the implied warranty of habitability to be asserted against subcontractors when the builder-vendor is insolvent. The court held that the insolvency of the builder-vendor could not justifying expanding the implied warranty against an entirely different category of defendant. In addition, with respect to claims against subcontractors, the Sienna decision explains that insolvency means that the builder-vendor’s liabilities exceed the value of its assets and it has stopped paying debts in the ordinary course of business. The applicable date for determining the builder-vendor’s insolvency is the date on which the complaint is filed. The purchaser bears the burden of establishing that the builder-vendor is insolvent before it can proceed against the subcontractor on such a claim.

The last decision to come out of Sienna is that insolvency is the “bright line rule” for claims under Minton, not whether the purchaser has “no recourse” against the builder-vendor. This is based on the court’s prior decision in 1324 W. Pratt Condominium Ass’n v. Platt Construction Group, Inc., 2013 IL App (1st) 130744. The Sienna decision holds that any potential recovery from an insurance policy held by the insolvent builder-vendor does not preclude an implied warranty of habitability claim against subcontractors that participated in the construction. Additionally, the recovery of proceeds from an insolvent developer’s “warranty fund” does not bar the cause of action.

As with any construction related issue, the attorneys at Rock Fusco & Connelly, LLC, can help you make informed legal decisions to protect your best interests.