Supreme Court Voids One-Year Builder Warranties
On October 27, 2022, the Washington Supreme Court pronounced in a 5-4 ruling that the one-year builder warranty was “substantively unconscionable and, therefore, void and unenforceable” because it deprived the home buyer of the 6-year statute of limitations for construction defects contained in RCW 4.16.310[1], benefited the builder, was not set out prominently in the builder’s warranty, was not negotiated for, and provided no benefit to the home buyer. The decision, known as Tadych v. Noble Ridge Construction, Inc., will have a major impact on builder warranties for new construction in Washington state. Any builder warranty less than the 6-year statute of limitations is now potentially void and unenforceable. If you are negotiating a builder warranty, either as the builder or home buyer, you should consult with your attorney considering this Supreme Court decision.
In this case, the Tadychs (home buyers), occupied their new home in April 2014 and had until April 2015 to file any claim against the builder, Noble Ridge Construction, for any construction defects. In February 2015, within the one-year contractual warranty period, the Tadychs noticed that the house had shifted and that the floors were unlevel. They met with Noble Ridge and a construction expert to discuss this situation, and Noble Ridge assured them that the house was properly constructed. Between 2015 and 2016, additional issues with the house arose and again the Tadychs informed Noble Ridge, who again promised to perform additional repairs, but no repairs were performed. The Tadychs then hired another construction expert who concluded that the house suffered from significant construction defects, including (1) water intrusion, (2) code violations, (3) poor structural framing, and (4) poor structure ventilation. The Tadychs sued Noble Ridge for breach of contract in 2017, two years after the builder’s warranty expired, but three years before the statute of limitations for construction defects would have passed.
The one-year limitation on construction claims that the Supreme Court voided was buried in the warranty paragraph in Noble Ridge’s 14-page boilerplate contract:
“Any claim or cause of action arising under this Agreement, including under this warranty, must be filed in a court of competent jurisdiction within one year (or any longer period stated in any written warranty provided by the Contractor) from the date of Owner’s first occupancy of the Project or the date of completion as defined above, whichever comes first.”
Both the trial court and the Court of Appeals ruled in favor of Noble Ridge, finding that the Tadychs were bound by the one-year limitation in the contract. The Supreme Court reversed and held that the one-year warranty period was unenforceable under the “substantively unconscionable” test. The legal test for substantive unconscionability is that the contractual term is “one-sided or overly harsh,” “[s]hocking to the conscience,” “monstrously harsh,” or “exceedingly calloused.” The Supreme Court found that the one-year warranty was substantively unconscionable because it “deprived the Tadychs of the six-year statute of limitations established under chapter 4.16 RCW to seek damages for faulty construction.” In reaching the conclusion that the one-year warranty provision was substantively unconscionable, the court also relied on the fact that the provision was not prominently set forth in the contract, was not negotiated or bargained for, and provided no benefit to the Tadychs.
While this decision did not expressly hold that all one-year contractual limitations for construction defects are unconscionable and unenforceable, it does inject uncertainty into whether any particular builder’s warranty of less than 6 years is enforceable. A builder’s warranty of less than six years should address the other issues raised by the court: namely, does it only benefit the builder, is the warranty limitation prominently set forth in the contract, is it negotiated and bargained for between the parties, and does it provide any benefit to the home buyer. Since the Supreme Court’s decision did not draw a bright line of when a builder’s warranty of less than six years is enforceable, you should consult with an attorney if you are impacted by a builder’s warranty.
[1] RCW 4.16.310
Actions or claims arising from construction, alteration, repair, design, planning, survey, engineering, etc., of improvements upon real property—Accrual and limitations of actions or claims.
All claims or causes of action as set forth in RCW 4.16.300 shall accrue, and the applicable statute of limitation shall begin to run only during the period within six years after substantial completion of construction, or during the period within six years after the termination of the services enumerated in RCW 4.16.300, whichever is later. The phrase “substantial completion of construction” shall mean the state of completion reached when an improvement upon real property may be used or occupied for its intended use. Any cause of action which has not accrued within six years after such substantial completion of construction, or within six years after such termination of services, whichever is later, shall be barred. …”
