A necessary principle of contract law is that “[p]arties generally are bound by the terms of an agreement freely and openly entered into,” Mills v. Nashua Federal Sav. and Loan Ass’n, 121 N.H. 722, 726 (1981). The word “generally” here is important, for courts “will not enforce a contract or contract term that contravenes public policy,” Harper v. Healthsource New Hampshire, 140 N.H. 770, 775 (1996). “An agreement is against public policy if it is injurious to the interests of the public, contravenes some established interest of society, violates some public statute, is against good morals, tends to interfere with the public welfare or safety, or, as it is sometimes put, if it is at war with the interests of society and is in conflict with the morals of the time.” Id. (quotation omitted).
The implied warranty of habitability attending new construction, affording consumers a minimum level of protection against latent defects that are not readily identifiable from inspection of the premises, is itself a creature of public policy. Nevertheless, a contractor or developer will occasionally try to disclaim it, usually by providing an express limited warranty in connection with new construction that limits a customer’s remedies to the strict terms of the limited warranty to the exclusion of any other warranties express or implied -- including implied warranties of workmanship and habitability. This puts the public policy behind the implied warranty in tension with freedom of contract.
Nowhere is this tension more stark than in the case of building codes, which by their nature are public policy expressions of the minimum level of required protection for occupants of buildings. Any effort by a contractor or developer to disclaim the implied warranty of good workmanship or the implied warranty of habitability will, to the extent that code compliance is embraced by the warranty, be suspect.
While our Supreme Court has not had occasion to rule on the issue, Massachusetts courts have long held that disclaimers of implied warranties, which include but go beyond building code compliance, are invalid. This was recently reaffirmed in Trustees of The Cambridge Point Condominium Trust v. Cambridge Point, LLC, 478 Mass. 697, 705 (2018):
“Massachusetts has a well-established public policy in favor of the safety and habitability of homes, as reflected in our implied warranty of habitability under common law and in the legislative enactment of building codes. . . . We have emphasized that ‘[the implied warranty] cannot be waived or disclaimed, because to permit the disclaimer of a warranty protecting a purchaser from the consequences of latent defects would defeat the very purpose of the warranty.’” (citation omitted).
In this regard it is worth noting the mandatory language of RSA 155-A:2,VII: “The contractor of a building, building component, or structure shall be responsible for meeting the minimum requirements of the state building code and state fire code.” Allowing the contractor and its customer to waive this responsibility as between themselves would, of course, not preclude code enforcement officials from insisting on repairs, but as a practical matter once the building is occupied by the customer, it is the customer who will bear the wrath of code enforcement officials. A disclaimer of an implied warranty embracing code compliance would deprive the customer of recourse against the contractor, and negate the statutory protection.
Declaring the implied warranty unwaivable on public policy grounds would avoid another thorny issue: if the first purchaser agrees to the builder’s disclaimer but a subsequent purchaser does not, will the subsequent purchaser -- to whom the implied warranty extends as well, see Lempke v. Dagenais, 130 N.H. 782 (1988) -- be stuck with his seller’s disclaimer?
Until our Supreme Court speaks to these issues, lawyers can only guess at the outcome; but I advise my contractor clients that while they are free to try, they should not count on their disclaimers and waivers passing muster, at least where code violations are in play.
[Update: Zambrano v. M & RC II LLC, 254 Ariz. 53, 517 P.3d 1168 (2022), provides a robust rationale for rejecting disclaimers of implied warranties of both workmanship and habitability.]
The implied warranty of habitability attending new construction, affording consumers a minimum level of protection against latent defects that are not readily identifiable from inspection of the premises, is itself a creature of public policy. Nevertheless, a contractor or developer will occasionally try to disclaim it, usually by providing an express limited warranty in connection with new construction that limits a customer’s remedies to the strict terms of the limited warranty to the exclusion of any other warranties express or implied -- including implied warranties of workmanship and habitability. This puts the public policy behind the implied warranty in tension with freedom of contract.
Nowhere is this tension more stark than in the case of building codes, which by their nature are public policy expressions of the minimum level of required protection for occupants of buildings. Any effort by a contractor or developer to disclaim the implied warranty of good workmanship or the implied warranty of habitability will, to the extent that code compliance is embraced by the warranty, be suspect.
While our Supreme Court has not had occasion to rule on the issue, Massachusetts courts have long held that disclaimers of implied warranties, which include but go beyond building code compliance, are invalid. This was recently reaffirmed in Trustees of The Cambridge Point Condominium Trust v. Cambridge Point, LLC, 478 Mass. 697, 705 (2018):
“Massachusetts has a well-established public policy in favor of the safety and habitability of homes, as reflected in our implied warranty of habitability under common law and in the legislative enactment of building codes. . . . We have emphasized that ‘[the implied warranty] cannot be waived or disclaimed, because to permit the disclaimer of a warranty protecting a purchaser from the consequences of latent defects would defeat the very purpose of the warranty.’” (citation omitted).
In this regard it is worth noting the mandatory language of RSA 155-A:2,VII: “The contractor of a building, building component, or structure shall be responsible for meeting the minimum requirements of the state building code and state fire code.” Allowing the contractor and its customer to waive this responsibility as between themselves would, of course, not preclude code enforcement officials from insisting on repairs, but as a practical matter once the building is occupied by the customer, it is the customer who will bear the wrath of code enforcement officials. A disclaimer of an implied warranty embracing code compliance would deprive the customer of recourse against the contractor, and negate the statutory protection.
Declaring the implied warranty unwaivable on public policy grounds would avoid another thorny issue: if the first purchaser agrees to the builder’s disclaimer but a subsequent purchaser does not, will the subsequent purchaser -- to whom the implied warranty extends as well, see Lempke v. Dagenais, 130 N.H. 782 (1988) -- be stuck with his seller’s disclaimer?
Until our Supreme Court speaks to these issues, lawyers can only guess at the outcome; but I advise my contractor clients that while they are free to try, they should not count on their disclaimers and waivers passing muster, at least where code violations are in play.
[Update: Zambrano v. M & RC II LLC, 254 Ariz. 53, 517 P.3d 1168 (2022), provides a robust rationale for rejecting disclaimers of implied warranties of both workmanship and habitability.]
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