Implied Warranty of Fitness and Merchantability: Maronda Homes v. Lakeview Reserve

The Florida Supreme Court recently issued an opinion in the Maronda Homes case[1] and broadened the common law implied warranty of fitness and merchantability, also known as an implied warranty of habitability. Maronda Homes dealt with whether a developer's common law implied warranty of fitness and merchantability extends to initial purchasers of residential property for defects in offsite improvements. The Supreme Court answered the question in the affirmative.

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The Florida Supreme Court's Decision in Maronda Homes

To fully understand Maronda Homes and its import, one must understand its underpinnings. The developer's common law implied warranty of habitability has its origins in the doctrine of caveat emptor, i.e., buyer beware.

Caveat emptor, with few exceptions, stood for the proposition that a buyer must identify latent defects prior to purchasing real estate or live with the consequences after the purchase without any legal redress against the seller. In other words, under this ancient doctrine, a purchaser of residential real property bought at his or her own risk.

Florida's Departure from the Caveat Emptor Doctrine

In 1972, in Gable v. Silver, 264 So.2d 418 (Fla. 1972), Florida's Supreme Court for the first time departed from caveat emptor in a residential real estate transaction and extended the implied warranty of habitability to initial purchasers of new homes and condominiums. The warranty there covered a malfunctioning air conditioning system.

The rationale was that the time when the seller and buyer were on equal footing had passed – the seller was now typically far more sophisticated than the buyer and in a superior position to know of, or discover, latent defects. Accordingly, it was no longer sound policy to protect the seller. As a result, the common law implied warranty of habitability was created so as to overcome caveat emptor with respect to new residential property.

In 1983, in Conklin v. Hurley, 428 So.2d 654 (Fla. 1983), a case involving investors who purchased vacant lots, not dwellings, Florida’s Supreme Court held that this warranty extended only to construction of a new home and other improvements "immediately supporting the residence thereon, such as water wells and septic tanks." However, the Court intimated that, unlike purchasers of new residential property who buy a home to live in, investors are not entitled to the same protections created in Gable.

In Port Seawall Harbor & Tennis Club Owners Assoc., Inc. v. First Fed. Savings & Loan Assoc. of Martin County, 463 So.2d 530 (Fla. 4th DCA 1985), the appellate court held that the warranty did not extend to a lender which had foreclosed on the property at issue, unless the defects pertained to defects in the property completed by the lender. The defects there included "certain roads and drainage areas." Id. at 531.

Fifth DCA Opinion in Maronda Homes

More recently, the Fifth District Court of Appeals, in Maronda Homes held that the warranty applied to offsite improvements, e.g., roadways, retention ponds, underground pipes, and drainage systems because they are “essential” to the habitability of the homes. While on appeal to the Florida Supreme Court, however, the Florida legislature passed section 553.835 of the Florida Statutes which took effect in July 2012. The Florida Supreme Court then issued its opinion after the law took effect.

Florida Legislature Responds to Fifth DCA's Maronda Homes

Section 553.835 was passed to directly address the Fifth District’s holding in Maronda Homes. The statute thus expressly states that, "as a matter of public policy" Maronda Homes "goes beyond the fundamental protections that are necessary for a purchaser of a new home and that form the basis for imposing" the warranty and "creates uncertainty in the state's fragile real estate and construction industry." (emphasis added). The statute, per its express terms, purports to apply retroactively.

The statute further provides that the warranty does not apply to "offsite improvements". The statute defines "offsite improvements" as streets, utilities, roads, drainage, driveways, and other improvements or structures not on or under the lot, excluding improvements shared by and part of the overall structure of two or more separately owned but adjoined homes when the improvements affect the fitness and merchantability or habitability of one of the adjoining structures, e.g., cable, broadband, internet, phone.

During the legislative process, there was a strong lobby against the passing of section 553.835. The arguments against it included:

• The law will result in greater loss for Florida homeowners, e.g., repairing shoddy construction and lead to more foreclosures;
• The populace does not support it, e.g., the governor received thousands of emails against it and the opposition outnumbered supporters 4-1; and
• Unconstitutional retroactive application impaired vested substantive rights.

Florida Supreme Court's Opinion in Maronda Homes

The Supreme Court has now affirmed the Fifth District’s decision and held that section 553.835 of the Florida Statutes does not apply in Maronda Homes, as its retroactive provision amounts to an unconstitutional abrogation of Maronda Homes' vested substantive rights. It is unclear, however, whether section 553.835 will be upheld prospectively.

Accordingly, the Maronda Homes' holding is that the warranty applies to "services 'essential to the habitability of the residence;'" specifically identifying "roads for ingress and egress, drainage systems to divert flooding, retention ponds to correct water flow damage, and underground pipe (whether they be storm water or sanitary sewer pipers) which are necessary for living accommodations." "Items to be excluded from the definition of essential services are those that provide mere convenience or aesthetic beauty, such as landscaping, sprinkler systems, recreational facilities, or a security system."

[1]: Maronda Homes, Inc. of Fla. v. Lakeview Reserve Homeowners Ass'n, Inc., 2013 WL 3466814 (Fla. 2013) (note: the final opinion has not been released for publication in the permanent law reports and until release, it is subject to revision or withdrawal).

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