Question: Does the statutory warranty apply when I am constructing a custom home on land owned by another?
Brief Answer – The Third Department has continually stated that it does not, but be aware that there may be a trend toward having Article 36-B govern the application of implied warranties on custom homes.
Answer - GBL §§ 777, 777-a and 777-b deal with implied warranties on newly built homes. GBL § 777 defines a new home as, “. . . any single family house or for-sale unit in a multi-unit residential structure of five stories or less in which title to the individual units is transferred to owners. . . .” McKinneys General Business Law § 777, 2007. Transferring title means that the home and the real estate are being transferred to the buyer. So, Article 36-B applies only to new home construction that is conveyed to the owner along with the real estate upon which it sits.
GBL § 770 in Article 36-A of the General Business Law defines what a custom home is. A custom home is, “. . . a single family residence to be constructed on premises owned of record by the purchaser at the time of contract, provided that such residence is intended for residential occupancy by such purchaser. . . .” McKinneys General Business Law § 770, 2007. Customs homes are not conveyed along with the real estate. They are merely built on land owned by the eventual homeowner. An analysis of the two statutes would clearly show that the implied home warranty on new homes would not apply to a custom home because the real estate is not being conveyed with a custom home.
The Third Department has supported the reasoning that custom homes are not subject to implied home warranties. In Biggs v. O’Neil, 309A.D.2d 1110, 1110, 766 N.Y.S.2d 391, 392 (3rd Dep’t, 2003), the plaintiff was suing to recover damages for a breach of contract and express and implied warranties in regard to the faulty construction of the shell of a home on his property. The court stated that, “[a] housing merchant warranty is implied in the sale of a new home. It has no application to a contract for the construction of a ‘custom home’ on non-builder-owned property, which is afforded protection under General Business Law article 36-A.” Id., 766 N.Y.S.2d 391, 392. The court made it clear that a home built on the homeowner’s property is not considered a new home as defined in GBL § 777. Therefore, the implied warranties outlined in Article 36-B do not apply.
When the Biggs ruling is viewed in conjunction with another ruling, Gorsky v. Triou’s Custom Homes, Inc., 194 Misc.2d 736, 755 N.Y.S.2d 197 (N.Y. Sup. 2002), there is confusion as to whether the implied warranty outlined in Article 36-B apply to custom homes. In Gorsky, the plaintiff had the defendant build a home on the plaintiff’s property. The contract between the parties incorporated General Business Law Article 36-B, which includes § 777. The contractor did not use the type of shingles specified in the contract, and more than a year later the roof had to be replaced. Id. at 737, 755 N.Y.S.2d 197, 199. The defendant raised the affirmative defense that Article 36-B would preclude recovery by the plaintiff because the roof is not a major system and the claim for the roof was not raised within the one year warranty period. Id. at 738, 755 N.Y.S.2d 197, 200. The plaintiff moved to strike the defendant’s defense by saying the 36-B does not apply in this case because the real property was not conveyed along with the new house. Id. at 739, 755 N.Y.S.2d 197, 200. Before Article 36-B was enacted, the common law rule was that there was a six year statute of limitations based on contract law. Contract law also established that “. . . every contract implies good faith and fair dealing between the parties.” Id. at 739-740, 755 N.Y.S.2d 197, 200-201 (citing Caceci v. DiCanio Construction Corp., 72 N.Y.2d 52, 530 N.Y.S.2d 771, 526 N.E.2d 266 (1988). When Article 36-B was enacted, it completely displaced the common law set out in Caceci. Id. at 742, 755 N.Y.S.2d 197, 203. Based on the court’s interpretation of legislative intent when it drafted Article 36-B the court ruled, “[t]he statutory new home implied warranties imposed by article 36-B of the General Business Law apply to custom homes and protect purchasers of such homes regardless of the fact that they own the real property upon which such homes are constructed prior to the home being built.” Id. at 210, 755 N.Y.S.2d 197, 750. This ruling is in direct conflict with the holding of Biggs.
The Third Department strengthened their ruling in Biggs with its decision in Sharpe v. Mann, 34 A.D.3d 959, 823 N.Y.S.2d 623 (3rd Dep’t, 2006). In Sharpe, the defendant built a log cabin on land owned by the plaintiff. The contract between the parties incorporated GBL § 777, but the court stated in a footnote that,
“While the housing merchant implied warranty under General Business Law § 777-a is automatically applicable to the sale of a new home, it does not apply to a contract for the construction of a ‘custom home,’ that is, a single family residence to be constructed on the purchaser’s own property. Thus here, General Business Law § 777-a did not automatically apply to the parties’ contract as it involved the construction of a log cabin on plaintiff’s own property.” Id., 823 N.Y.S.2d 623, 624 (citations omitted).
The Third Department has made it clear that implied warranties on new homes do not include custom homes.
Since both the Biggs and Sharpe cases are Appellate Division cases, they have stronger precedence over the Gorsky since it is only a Supreme Court case. A strict reading of the statutes indicates that Article 36-B of the General Business Law does not include custom homes. The builder should be aware that there may be a growing trend in the courts that Article 36-B will apply to custom homes in the future.