Florida Supreme Court to Hear Developer and HOA Battle Over Common Area Warranties
In Maronda Homes, Inc. of Florida, et al, v. Lakeview Reserve Homeowners Association, Inc., the Supreme Court of Florida will soon determine whether common law implied warranties extend to the construction of common areas and facilities of a residential subdivision.
After the turnover of control by the developer, Maronda Homes, the Lakeview Reserve community experienced drainage problems. Upon hiring an engineer to conduct an inspection, the Lakeview Reserve Association determined defects exist as to the paved streets, retention ponds, underground drainage pipes and grading of the site and lots. As a result of such defects, multiple lot owners allegedly experienced stagnant water, sinkholes, loss of grass, and erosion on their lots.
The Association filed a complaint against Maronda Homes for breach of implied warranties of fitness for a particular purpose, merchantability, and habitability arising out of the alleged defective construction of the common area improvements. The Association claimed that the developer failed to construct the common areas properly to support a residential subdivision and the homes within it. The trial awarded a summary judgment to the developer.
The Association appealed to the Fifth District Court of Appeal. The Fifth District overturned the trial court by holding that implied warranties of fitness for a particular purpose, habitability, and merchantability apply to structures in common areas of a subdivision that immediately support the residence "in the form of essential services."
The Fifth District's Analysis
In its opinion, the Fifth District analyzed the two major cases relied on by the developer, Conklin v. Hurley and Port Sewall Harbor & Tennis Club Owners Association, Inc. v. First Federal Savings and Loan Association of Martin County.
In Conklin, the Florida Supreme Court held that implied warranties of fitness and merchantability do not extend to first purchasers of residential real estate for improvements to land, other than the construction of a home and other improvements "immediately supporting the residence thereon, such as water wells and septic tanks."
The Fifth District distinguished Conklin from Lakeview Reserve by pointing out that the buyers in the Conklin case were investors, but the Lakeview Reserve buyers represented by the Association were generally individuals who purchased the homes mainly for their own residential purposes. The Fifth District concluded that as permitting, construction and development have become more complex over time, the developer now is in a much more capable position to detect flaws and correct them during construction than the average homebuyer. The Court concluded that homebuyers are entitled to benefit from consumer protection public policy.
The Fifth District then applied the Conklin language to the facts of Lakeview Reserve and came to a different holding than the Fourth District. In the Port Sewall case, the Fourth District held that common area roads and drainage in the subdivision failed to meet the Conklin test because the improvements did not pertain to the construction of homes and did not immediately support the residences. The Fourth District declined to extend the implied warranties to defects of roads and drainage areas.
The Fifth District announced a new test to determine what improvements immediately support the residence and thus are protected by an implied warranty: if an improvement is providing a "service essential to the habitability of the home," then implied warranties apply. The Fifth District held that roads, drainage systems, retention ponds and underground pipes are essential to the habitability of the home and thus implied warranties apply. The Fifth District gave a list of examples of non-essential services, such as landscaping, sprinkler systems, recreational facilities, and security systems. The court said that these non-essential items "may be ugly, inconvenient, or uncomfortable" but they do not render a home uninhabitable. The Fifth District certified its conflict with the decision of the Fourth District in Port Sewall, thereby asking the Florida Supreme Court to resolve the conflict.
The Arguments Before the Supreme Court
Maronda Homes petitioned the Florida Supreme Court to answer the certified question: "Does the implied warranty of habitability apply to roadways and drainage structures in a residential subdivision?" The Supreme Court has accepted jurisdiction and initial briefs from both parties have been filed.
Maronda Homes argues that the Fifth District's holding created policy decisions that should be made only by the Florida Legislature. Maronda Homes asserts that while HOAs are already extensively regulated, the legislature purposefully chose not to extend implied warranties to the common areas of HOAs, as it has done for condominiums. The developer argues that there is no need to improperly extend the implied warranty of habitability to common facilities when HOAs and owners have adequate remedies such as express warranties, negligence, or statutory warranties, when applicable. The developer also argues that the Association has no right to claim the benefit of implied warranties designed to protect the homeowners from damage to their homes.
The Association argues that the case should be dismissed because the Fifth District's decision does not directly conflict with the Fourth District's decision in Port Sewall. The Association also argues that the Fifth District properly concluded that HOAs have authority to sue for defects in common areas because of public policy to promote judicial economy. HOAs are obligated to accept ownership of common areas, but do not have any opportunity to bargain with the developer with regard to the property transfer and therefore need a remedy for defects caused by the developer. The Association also argues that the Fifth District got it right in furthering consumer protection by expanding implied warranties and asserts that it is appropriate for the Court to expand the Conklin rule to apply to common area facilities even though the Legislature has not adopted implied warranties for HOAs.
Waiting on a Ruling
Once the final briefs are filed and argued, it will be up to the Florida Supreme Court to determine whether common law implied warranties should be expanded to apply to certain common area facilities. This could potentially impose an increased risk to developers, while providing Associations and homeowners additional remedies for defective subdivision improvements. This decision is significant as it may apply to the many relatively new developments in Florida as well as to those incomplete or as-yet-to be developed residential subdivisions.
Notwithstanding the Court's decision, proactive and open communication and due diligence is always suggested for both developers and HOAs prior to and during the turnover process in an effort to avoid or limit construction defect claims down the road.
Photo: Tim Ross, Wikimedia Commons