By: Tina M. Paries
Owners who experience latent defects in their newly-constructed homes often find that they have no recourse if the developer is no longer in business. Under traditional contract principles, owners cannot seek to recover from the subcontractors who actually performed the defective work because there is no privity. In other words, the subcontractors only have contracts with the developer and owe no obligations to the owners. In Illinois, this privity requirement has been relaxed over the years, allowing owners to pursue direct claims against subcontractors under a theory known as the “implied warranty of habitability.” Although many Illinois trial and appellate courts have recognized such claims as a matter of public policy, the Illinois Supreme Court finally weighed in on the issue and reversed the whole body of law on December 28, 2018.
In Sienna Court Condominium Association v. Champion Aluminum Corp., the condominium association for a residential building filed suit against the developer, seeking to recover damages the unit owners sustained as a result of multiple construction defects. The developer, however, filed for bankruptcy. The association then amended its complaint to name the individual subcontractors responsible for the construction under a claim for breach of implied warranty of habitability. The subcontractors sought dismissal and argued that since the implied warranty of habitability is based solely on the developer’s contractual obligation to convey to an owner a home that is fit for its intended purpose, they could not be held liable.
The Illinois Supreme Court agreed and held that the association could not maintain a claim against the subcontractors. In so holding, the Court found that the warranty of habitability is an economic loss that is implied in the contract of sale from the developer to the owner. To characterize the claim as a tort would undermine the contractual relationships between the developer and subcontractors and impose a duty on the subcontractors that does not exist; this is so, whether or not the developer is solvent or has filed for bankruptcy. The Court further reversed a recent case that had held otherwise. This case is a significant victory for subcontractors.