Legal Duties of Builders & Developers

DEVELOPER’S LEGAL DUTIES

A developer of new residences has two duties which have been created at
Common Law: 1) a fiduciary duty to the property owners to transfer common areas in
good repair and, 2) to impliedly warrant that the dwelling is free from latent defects.

Both of the above duties have been established by decisional law. The South
Carolina Supreme Court decision in April 2002 of Concerned Dunes West Residents vs.
Georgia Pacific Corp., 562 S.E. 2d 633, established a liability of developers at the time
of turnover as follows:

“That is to say, the developer has a fiduciary duty to the property owners association to transfer common areas that are in good repair; if the developer transfers substandard common areas, the developer must at the time of transfer, provide the POA with the funds necessary to bring the common areas up to a standard of reasonably good repair. The developer who breaches this duty, by transferring common areas that are not in reasonably good repair and without the funds necessary to bring the common areas up to standard, is liable to the POA for all damages proximately flowing from the breach, including damages for the continued deterioration of these areas. 562 S.E.2d 633 at 638. (Ex. 8)

    The implied warranty of habitability was first created by the Court of Appeals
in the decision of Carolina Winds Owners Assoc. v. Joe Harden Builder, Inc., 1997 S.C. 74,
374 S.E.2d 897 (1988), followed thereafter by the Supreme Court’s decision in Kennedy
v. Columbia Lumber & Mfg. Inc., 299 S.C. 335, 384 S.E.2d 730 (S.Ct. 1989) as the Court
has noted, liability arises not from fault, but because the vendor, by initial sale, has
placed the residence in the stream of commerce and has received a fair price for it.

    In their sales contracts, at Sun City, the seller has attempted to void or disclaim
these implied warranties granted by Court decisions. The seller states that in exchange
for receiving the Del Webb home warranty, "You agree to look solely to the warranty as
the means of recourse in the event of any defect claim related to the home or property.
To the extent permitted by law, you hereby waive (1) any and all additional warranties,
express or implied, to which you may be otherwise entitled, including without limitation,
implied warranties of merchantability, fitness for a particular purpose, habitability, or
workmanlike construction, and (2) any claim for incidental, secondary, or consequential
damages incurred as a result of any defective material or workmanship in the home or property."

    Based on a recent State Supreme Court decision, it appears that this attempted
disclaimer of the implied warranty of habitability would not be successful. The Court has
stated that such disclaimer will only be upheld where all three of the following conditions
are met - the disclaimer MUST be 1) conspicuous, 2) known to the buyer, and 3)
SPECIFICALLY BARGAINED FOR. "This standard is to be applied strictly and will be
met only in RARE circumstances. It will protect buyers but also give them freedom to
purposefully bargain for a price discount or other desired benefit." Kirkman v. Parex,
369 S.C. 477, 632 SE 2d 854 (S.Ct. 2006)

    The emphasized language of the opinion shows that only rarely will a disclaimer
of implied warranties be enforced, and in order for it to be valid, seller will have to
demonstrate that there were negotiations - and they culminated in the buyer getting a
price discount or something important thrown in by the seller to induce the buyer to agree
to disclaim common law warranties. This is a difficult burden for the seller to prove
- and it cannot be proved in a mere form contract.

    The bottom line here is that the developer/seller will have a legal obligation to the
purchasers to warrant the exterior of these houses beyond the terms of the Del Webb
warranty and in accord with Court decisions.