There seem to be many misconceptions about whether residential builders are required to provide a homeowner with a warranty. During depositions, we have heard some builders testify that they believe the law used to require a residential builder to provide a 12 month warranty but that the law has recently been changed to require an 18 month warranty. Still other builders acknowledge they do not know what the law requires with regard to warranties. Generally, a homeowner who contracts with the residential builder has even less of an idea as to whether any warranties apply to the work being performed.
The first thing a residential builder or homeowner should do when faced with a warranty issue is to read the contract. Except for the situations described below, there are no warranties unless they are written in the contract.
Almost 30 years ago, the Michigan courts held that an implied warranty of fitness arises when a person purchases a previously unoccupied residential dwelling from a builder. In other words, where a residential builder builds a "spec" home and sells it to an individual, there is implied in that transaction a warranty of fitness. Under this limited circumstance, once the purchaser becomes aware of a defect in the home he must provide the builder with notice of the defect and give the builder an opportunity to make repairs before the warranty is breached. This warranty applies only to a "builder/vendor" and does not apply to situations where an owner contracts with a residential builder for the construction of a residential structure.
Every contract, including contracts to construct residential structures, include an implied duty to perform the contract in a skillful, careful, diligent and workmanlike manner. Thus, a residential builder whose work is deficient may be liable to an owner for his failure to perform the contract in a workmanlike manner, even though there are no other warranties. Claims for defective workmanship are enforced in a lawsuit for breach of contract.
Another remedy available to an owner where a licensed builder has done a substandard job is to file a complaint with the Michigan Department of Labor and Economic Growth. This complaint must be filed within 18 months of the completion of the contract. However, before a complaint may be filed, the owner must provide the builder with notice of reasonable times in which repairs can be made. The contractor has 60 days from the date of that notice to make those repairs.
At the time an owner and builder enter into a contract, they may agree to a method of dispute resolution involving a neutral third party. In the event the parties agree to such a procedure, the Department of Labor and Economic Growth will generally not initiate a proceeding against a licensed builder until the alternative dispute resolution has been completed.
Builders and owners can best protect themselves with regard to claims of defects in materials or workmanship by agreeing on which, if any, warranties will apply and considering whether the construction contract should contain a dispute resolution procedure.