Contracts and Claims
Timely articles covering the most pressing issues facing construction firms in the Midwest

Limiting Warranties: Not a Simple Matter

Most builders probably would say they have a good idea of how long a “one-year warranty” of their work lasts: 365 days after the date they completed their portion of the work, right? When it comes to warranties, however, things rarely are as simple as they seem. To take advantage of its rights under the warranty provided by the subcontractor, is the construction owner required to make a claim within a year, discover all defects within a year, or merely to prove that any claimed defect arose either during construction or the first year afterwards?
The answer to this question will depend on a number of factors, according to the white paper, “Warranty: Time of Commencement and Time Limit,” published by the American Subcontractors Association (ASA). Such factors include:

· The “triggering event” of the written warranty.
· The specification of a time limit in the written warranty.
· Whether the warranty includes a valid disclaimer of implied warranties.
· The state’s statute of repose.
· The state’s statute of limitations.
· Court interpretations of whether the warranty applies to existing facts or future events.

Writing a warranty provision that takes these factors into consideration takes skill, and almost certainly the aid of a lawyer.
The complexity of writing an effective warranty is amply illustrated by a number of court cases cited in ASA’s white paper. For example, there is the case of the roofing contractor that wrote a warranty covering “workmanship or materials application for a period of two years from the date of completion.” The contractor believed the warranty required claims to be made within two years, but a court found that claims could be made after the two-year period if the problem originated within the two-year period. In another case, a seller’s warranty assured that a roof “did not have any water leakages” at the time of sale, but a court ruled that the warranty “related to a future event” and so covered leaks discovered after the sale was completed.

It’s easy to see why contractors don’t want to deal with the problems of writing an effective time-limited warranty. ASA’s white paper notes that most industry model documents “do not place time limits on the warranty obligations of the seller of construction services,” including the AGC 200 (2000), AIA A201-1997, DBIA 535 (1998), DBIA 570 (2001), EJCDC C-700 (2002), AOD 2002GC, and others. The decision not to use an effective time-limited warranty carries substantial risks for subcontractors, however: “The danger to be avoided is that the owner will rely on a perpetual warranty by the builder as an excuse to ignore its own responsibilities as the operator of the finished facility.”
For example, if a contractor guarantees that a leak “will not” occur, but does not use effective language limiting this warranty, will the contractor’s liability ever end? Controlling the exposure to warranty claims by using contract language to limit the time and type of remedies available will usually be the better option. Contractors who offer multiple warranty options, including an “extended” warranty coupled with an inspection and maintenance program, may have the most success negotiating, and enforcing, appropriate warranty limits.
Learn more about time-limited warranties. Visit ASA’s Web site at www.asaonline.com and click on “Stand Up! for Subcontractors” or call ASA at (703) 684-3450.