How can you be responsible for warranty claims if you did not have a warranty in your subcontract? There are two different types of warranties: express and implied. An express warranty is in writing and found in your subcontract. An implied warranty is given by law, whether you want there to be one or not. An implied warranty basically gives your customer a guarantee that your work and/or materials are of good quality and they do what you say they can do. In this article, we’ll take a deep dive into subcontractor warranties to avoid risks for you and your business.
How does a warranty benefit the subcontractor?
It is important to read and understand what terms of the warranty are in your subcontract, but that is only half the battle. You also need to understand implied warranties, because you will have to honor these warranties as well. What it really comes down to is knowing what you could be held responsible for before you start work, so you can make sure everything is done properly and avoid the unexpected expense of responding to warranty claims.
When a subcontractor makes an express warranty, they are typically waiving the implied warranty, so they get control of what their warranty entails and what the limitations are. Remember, you can include limits for those warranties.
For example, you could offer a warranty on the products themselves or the lumber or material you are using. A lot of the time, you piggyback off of a manufacturer warranty and can even exclude labor if you want. Naturally, the most beneficial thing for your customer is a labor or product warranty, or some combination of the two.
Again, the benefit of offering an express warranty is that you get control over exactly what your warranty entails and what its limitations are. Also, many times when you have an express warranty, you can control potential exposure to damages. If you are sued for a breach of warranty, oftentimes people are entitled to consequential damages and/or delay damages.
An example of this would be if your material and labor damaged something that caused damage to a third product, i.e., your roofing material failed and now there is a leak which has caused mold. Without an express warranty with specific limitations, you might be liable for damages to come, i.e., sheetrock, furniture, etc., whereas if you have an express warranty, you can specifically limit those consequential damages.
Now that you know how a warranty benefits the subcontractor, let’s examine express warranty vs. implied warranty in detail.
What is an express warranty?
An express warranty is directly written in your contract and is created in one of three ways:
- You promise your customer that what you are selling is going to do the job you are saying you can do.
- You describe what you are selling as being able to do what you say you can do. For example, if you describe your roofing materials as made of premium quality to withstand hail the size of softballs, then it must be able to withstand hail the size of softballs.
- You give a sample or show a model of what you are selling as an example of what the entire purchase will be like.
It is not necessary to use words like “warranty” or “guarantee” to create an express warranty in a contract in Texas. However, it is important to note that statements of opinion rather than fact, which are called “puffery,” do not create express warranties under Texas Law.
What is an implied warranty?
An implied warranty is one imposed on a transaction automatically by Texas Law. Texas Law imposes certain implied warranties regardless of whether the warranties are mentioned in the contract or not.
In particular, Texas law creates the warranty of “merchantability” and the warranty that the goods are “fit for a particular purpose.”
Types of implied warranties
The implied warranty of merchantability requires goods to be merchantable. Merchantable means the goods fit their ordinary purpose and are of fair quality.
The implied warranty of fitness for a particular purpose applies to a sale of goods if the seller knows (or has reason to know) the buyer will use the goods for a particular purpose. A seller with such knowledge (or reason to know), warrants that the goods are suitable for that particular purpose.
Simply put, products used in a construction project are going to be fit for their ordinary purpose. This is the bare minimum warranty that the Texas law provides. The product is what they say it is. Texas law implies this automatically when you have goods and services and when you’re mixing those goods and services for a construction project. If you have a leak at your construction site, you could be sued for implied warranty of fitness. Maybe you didn’t install a pipe correctly, and that’s why they have a leak. This violates good workmanship, meaning it is not fit for its purpose. This would be a violation of implied fitness. Or maybe you did install it correctly, but the pipe doesn’t hold water; this would still be an implied breach.
More implied warranties
There are two additional implied warranties inherent in residential construction contracts:
- The implied warranty of good workmanship and
- The implied warranty of habitability.
Warranty of good workmanship
The implied warranty of good workmanship provides a warranty to the owner that the construction, repair or modification of existing property will be performed in a “good and workmanlike manner.” “Good and workmanlike” means the quality of work must be equal to the work performed by someone “who has the knowledge, training, or experience necessary for the successful practice of a trade or occupation” as judged by someone “capable of judging such work.” The implied warranty on workmanship governs the actual performance of the subcontractor. Therefore, even if the subcontractor’s work does not impair habitability, if he fails to perform good work, the owner may have a cause of action against the contractor.
In this example, we will use the profession of a plumber to highlight the implied warranty for workmanship. The implied warranty of good workmanship means the plumbing will work, the toilet will flush, the water will drain, etc. This is not a clause; it won’t be written. It’s just a protection that Texas law puts in place for consumers, so that way someone doesn’t hire someone who states they are a plumber and then comes out and does poor work. If they don’t offer a workmanship warranty, Texas says if they are an expert in their industry or they’re doing construction work, that it is implied that there will be good workmanship. The test of that is based on the standards of a reasonable worker doing the same work in the area. Because of this, you always want an express warranty.
*Note that it is good to have an implied warranty as well because it offers automatic protection.
Implied warranty of habitability
The implied warranty of habitability requires good and workmanlike performance by the contractor resulting in the habitability of the residence. Specifically, the contractor warrants that the building that is constructed for residential use is safe, sanitary, and fit for human habitation at the time of the sale of the new house. This warranty is also extended to future purchasers of the residence should they discover any latent defects. A latent defect is a fault in the property that could not have been discovered by a reasonable, thorough inspection. These latent defects must be the type of defect that would render the house “so defective that it is unsuitable for its intended use as a home.”
Implied warranty of habitability—the implied warranty of habitability usually cannot be waived because this is often viewed as being inconsistent with the public policy.
This is the same for the implied warranty of good workmanship; however, Texas Courts have ruled that the implied warranty of good workmanship may be superseded if the parties’ agreement sufficiently describes the manner, performance, or quality of the services to be provided. This means that an express warranty can supersede the implied warranty under certain circumstances.
When starting any new construction project, there are so many important ideas to understand when drafting warranty provisions in your contracts. Our knowledgeable team, at The Cromeens Law Firm, is here to help you navigate and breakdown the language in your construction contracts, so you can best protect yourself on the front-end to avoid liabilities down the road. Contact us today to set up a time to discuss warranties in your contracts.
Contact us to review the language in your contract to ensure the express warranty is written accurately—it is so incredibly important to make sure the language is correct. We are able to review contracts that have been previously drafted or properly draft new ones for you.
Do not lose a cent of your hard-earned profit! We want to help you avoid expensive legal fees or litigation costs and save you time and money. Karalynn Cromeens, Owner & Managing Partner, will discuss all of this and more at our Construction Warranty Webinar on September 16, 2020. Come with any and all questions. We look forward to seeing you!