In August 2015, we reported on a controversial decision from the First District Appellate Court that impacted the ability of builders and developers to protect themselves from liability for breach of the Implied Warranty of Habitability. The First District Illinois Appellate Court, in Fatah v. Bim (2015 IL App (1st) 140171), addressed the question of what happens when the purchaser of a newly constructed house, who had agreed to waive the Implied Warranty of Habitability, subsequently sells the house. In Fatah, nine months after the subsequent purchaser bought the house from the original purchaser, a raised back patio supported by a retaining wall collapsed (there was no other damage other than the collapse of the back patio). The subsequent purchaser sued the builder, claiming a breach of the Implied Warranty of Habitability.

The Appellate Court found that the evidence presented at trial was undisputed: the subsequent purchaser had no knowledge of the waiver of the Implied Warranty of Habitability and was not a party to the waiver agreement between the builder and the original buyer. The court stated that the builder presented no evidence that the subsequent purchaser was the original buyer’s successor and/or assign to the original real estate sales contract such that he would be bound by the waiver agreement to which he was not a party. The court also held that the “as is” provision did not effectively disclaim the Implied Warranty of Habitability or bind the subsequent purchaser to the original purchaser’s waiver. 

Our previous alert raised concerns regarding the Appellate Court’s decision, based on the potential impact of the ruling upon the ability of developers, builders and sellers to protect themselves from the effects of the decision. Some of the issues raised by the Appellate Court’s decision concerned the possible need for developers, builders and sellers to record such a waiver and whether recording would even be sufficient in the eyes of a reviewing court. Another concern was whether additional contract protections would be needed to minimize exposure to claims for breach of the warranty. 

The Illinois Supreme Court seems to have agreed with these concerns. In reversing the Appellate Court, the Supreme Court held that allowing a subsequent purchaser to have rights that are greater than the owner from whom the property was purchased would be inequitable. Moreover, the Supreme Court found that a waiver of the Implied Warranty of Habitability is, effectively, meaningless if liability can be revived any time the house is sold.