Real estate contracts - Fitness and suitability

Learning Outcomes

This article covers the implied warranties of fitness and suitability in contracts for the sale of real property, particularly new construction. It contrasts modern approaches with the traditional doctrine of caveat emptor and outlines the scope of these warranties, potential damages for breach, and applicable defenses. After reading this article, you will understand the implied promises concerning the quality of construction in real estate sales, enabling you to analyze MBE questions involving latent defects and builder liability.

MBE Syllabus

For the MBE, you are required to understand the contractual duties concerning the condition of real property upon sale, particularly implied warranties. You should be prepared to:

  • Distinguish between the sale of new construction and existing homes regarding implied warranties.
  • Identify the scope and requirements of the implied warranty of fitness or quality (also known as good workmanship or habitability).
  • Analyze whether a defect is latent or patent and its impact on warranty claims.
  • Determine who can sue for breach of the implied warranty (original vs. subsequent purchasers).
  • Assess the measure of damages for breach of implied warranties.
  • Recognize the effect of disclaimers and the merger doctrine on warranty liability.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. The traditional common law rule regarding the physical condition of existing property sold under a real estate contract is:
    1. Implied warranty of fitness
    2. Implied warranty of habitability
    3. Strict liability for defects
    4. Caveat emptor (buyer beware)
  2. The implied warranty of fitness or quality generally applies to:
    1. All real estate sales contracts.
    2. Only sales of commercial property.
    3. Sales of new or newly remodeled homes by builders or developers.
    4. Only latent defects discovered within 90 days of closing.
  3. A subsequent purchaser discovers a significant, hidden structural defect in a house five years after it was built and sold by the original builder-vendor. In a majority of jurisdictions, can the subsequent purchaser likely sue the original builder-vendor for breach of the implied warranty of fitness or quality?
    1. No, because the warranty only protects the original purchaser.
    2. No, because the defect was discovered more than one year after construction.
    3. Yes, if the defect significantly impacts habitability and the claim is brought within the statute of limitations/repose.
    4. Yes, but only if the original purchaser expressly assigned the warranty rights.

Introduction

Traditionally, contracts for the sale of real property were governed by the doctrine of caveat emptor—"let the buyer beware." Under this rule, the seller generally had no implied duty regarding the physical condition of the property. The buyer was expected to inspect the property thoroughly before closing, and unless the seller actively concealed defects or made fraudulent misrepresentations, the buyer took the property "as is." This meant the risk of loss for any defects discovered after closing fell entirely on the buyer. While caveat emptor still applies to some extent, especially for sales of existing homes by non-builder sellers, modern law has carved out significant exceptions, most notably the implied warranty of fitness or quality, particularly for new construction.

Key Term: Caveat Emptor A common law doctrine placing the burden on the buyer to reasonably examine property before purchase and take responsibility for its condition. Sellers are not liable for defects under this doctrine unless they actively conceal them or make fraudulent misrepresentations.

Implied Warranty of Fitness or Quality (Workmanlike Construction / Habitability)

The most significant departure from caveat emptor is the implied warranty of fitness or quality, often referred to as the implied warranty of workmanlike construction or habitability. This warranty is implied by law in contracts for the sale of newly constructed residential property by builders, developers, or other commercial vendors.

Key Term: Implied Warranty of Fitness or Quality A warranty implied by law in the sale of new residential construction by a builder-vendor, ensuring the property is designed and constructed in a reasonably skillful (workmanlike) manner and is fit for human habitation.

Scope of the Warranty

  • Applies to New Construction: The warranty generally applies only to the sale of new homes. It typically does not apply to the sale of existing homes or commercial property, where caveat emptor or express contract terms often govern, unless a builder undertakes significant remodeling.
  • Builder-Vendor: The defendant must typically be the builder or developer who constructed the home and is selling it. It usually doesn't apply to casual sales by non-builder homeowners.
  • Reasonably Workmanlike Manner: The builder implicitly warrants that construction was performed skillfully and non-negligently, according to customary standards of the trade.
  • Fit for Habitation: The builder also warrants that the property is safe and suitable for human residence. This usually covers significant latent defects affecting essential functions (e.g., foundational structural support, structure, plumbing, electrical, roofing).

Latent Defects

The warranty primarily covers latent defects, meaning defects that could not have been discovered by the buyer through a reasonably thorough inspection before closing. Patent defects (obvious ones) are generally presumed to be accepted by the buyer at closing.

Who Can Sue?

  • Original Purchaser: The original buyer clearly has standing to sue the builder-vendor for breach of the warranty.
  • Subsequent Purchasers: The modern trend, followed by a majority of jurisdictions, allows subsequent purchasers to sue the original builder-vendor for breach of the implied warranty, provided the defect was latent and manifested within a reasonable time after construction, and the suit is brought within the applicable statute of limitations or statute of repose. Privity of contract is generally not required for this claim.

Worked Example 1.1

Builder constructs a new house and sells it to Alice. The contract contains no express warranties about the quality of construction. Two years later, Alice sells the house to Ben. One year after Ben moves in (three years after construction), the structural support develops severe cracks due to improper soil preparation by Builder, a defect not discoverable by reasonable inspection at the time of either sale. In a majority jurisdiction, can Ben likely sue Builder?

Answer: Yes. This involves the sale of new construction by a builder. The defect (faulty structural support due to soil issues) is latent and significantly impacts habitability. The defect manifested within a reasonable time (three years). In a majority jurisdiction, the implied warranty of fitness/quality extends to subsequent purchasers like Ben, allowing him to sue the original Builder despite the lack of privity.

Damages for Breach

The standard measure of damages for breach of the implied warranty is the cost of repair to bring the property into compliance with the warranty. If repair is not practicable or would involve unreasonable economic waste, the measure may be the diminution in the property's value caused by the defect.

Disclaimers and Merger

  • Disclaimers: Courts generally disfavor general disclaimers (e.g., "as is" clauses) attempting to waive the implied warranty of fitness/quality, especially if they are boilerplate and not clearly negotiated. A specific, unambiguous disclaimer identifying the types of defects excluded might be upheld, but this is strictly construed against the builder-vendor.
  • Merger Doctrine: Traditionally, contract covenants merged into the deed at closing, extinguishing contract claims. However, most courts hold that the implied warranty of fitness/quality survives closing and does not merge into the deed, allowing claims based on latent defects discovered post-closing.

Exam Warning

Remember the distinctions: the implied warranty of fitness/quality applies primarily to new residential construction by builder-vendors and covers significant latent defects. It does not typically apply to sales of used homes by non-builders or to patent (obvious) defects.

Duty to Disclose Defects (Existing Homes)

While caveat emptor largely governs the sale of existing homes, modern law imposes a duty on sellers (even non-builders) to disclose known, material, latent defects.

Requirements for Duty to Disclose

  1. Knowledge: The seller must know or have reason to know of the defect.
  2. Materiality: The defect must substantially affect the value or desirability of the property.
  3. Latent: The defect must not be readily discoverable by the buyer through reasonable inspection.
  4. Non-Disclosure: The seller fails to disclose the defect to the buyer.

Failure to disclose under these circumstances can constitute fraudulent concealment or misrepresentation, allowing the buyer remedies such as rescission or damages.

Worked Example 1.2

Seller Sam knows his 20-year-old house has significant termite damage hidden behind the basement walls, which he discovered during a prior renovation but never repaired. He lists the house for sale. Buyer Betty conducts a standard home inspection, but the inspector does not discover the termite damage due to its concealed location. Sam does not mention the termites. After closing, Betty discovers the extensive damage. Can Betty sue Sam?

Answer: Yes, likely. Sam knew of a material (significant termite damage) latent defect (hidden behind walls, not discoverable by reasonable inspection) and failed to disclose it. This constitutes a breach of the duty to disclose known, material, latent defects, potentially allowing Betty to sue for damages or rescission based on fraudulent concealment or misrepresentation.

Revision Tip

Distinguish the Implied Warranty (new homes, builder liability for latent construction defects impacting habitability) from the Duty to Disclose (any seller, existing homes, liability for known material latent defects).

Summary

The traditional caveat emptor rule in real estate sales has been significantly eroded, especially for new construction. Builders implicitly warrant that new homes are constructed in a workmanlike manner and are fit for habitation, covering significant latent defects. This warranty often extends to subsequent purchasers. For existing homes, sellers generally have a duty to disclose known, material, latent defects. Failure to comply with these duties can lead to liability for damages or rescission.

Key Point Checklist

This article has covered the following key knowledge points:

  • Caveat emptor is the traditional rule but has exceptions.
  • The implied warranty of fitness or quality applies to new residential construction by builder-vendors.
  • The warranty covers skillful construction and fitness for habitation.
  • It primarily applies to latent defects (not discoverable by reasonable inspection).
  • Most states allow subsequent purchasers to sue the original builder under the warranty.
  • Damages are typically cost of repair or diminution in value.
  • General disclaimers are often ineffective; the warranty usually survives closing (doesn't merge).
  • Sellers of existing homes generally must disclose known, material, latent defects.

Key Terms and Concepts

  • Caveat Emptor
  • Implied Warranty of Fitness or Quality
The answers, solutions, explanations, and written content provided on this page represent PastPaperHero's interpretation of academic material and potential responses to given questions. These are not guaranteed to be the only correct or definitive answers or explanations. Alternative valid responses, interpretations, or approaches may exist. If you believe any content is incorrect, outdated, or could be improved, please get in touch with us and we will review and make necessary amendments if we deem it appropriate. As per our terms and conditions, PastPaperHero shall not be held liable or responsible for any consequences arising. This includes, but is not limited to, incorrect answers in assignments, exams, or any form of testing administered by educational institutions or examination boards, as well as any misunderstandings or misapplications of concepts explained in our written content. Users are responsible for verifying that the methods, procedures, and explanations presented align with those taught in their respective educational settings and with current academic standards. While we strive to provide high-quality, accurate, and up-to-date content, PastPaperHero does not guarantee the completeness or accuracy of our written explanations, nor any specific outcomes in academic understanding or testing, whether formal or informal.
No resources available.

Job & Test Prep on a Budget

Compare PastPaperHero's subscription offering to the wider market

PastPaperHero
Monthly Plan
$10
AdaptiBar
One-time Fee
$395
Assessment Day
One-time Fee
$20-39
BarPrepHero
One-time Fee
$299
Job Test Prep
One-time Fee
$90-350
Quimbee
One-time Fee
$1,199

Note the above prices are approximate and based on prices listed on the respective websites as of May 2025. Prices may vary based on location, currency exchange rates, and other factors.

Get unlimited access to thousands of practice questions, flashcards, and detailed explanations. Save over 90% compared to one-time courses while maintaining the flexibility to learn at your own pace.

All-in-one Learning Platform

Everything you need to master your assessments and job tests in one place

  • Comprehensive Content

    Access thousands of fully explained questions and cases across multiple subjects

  • Visual Learning

    Understand complex concepts with intuitive diagrams and flowcharts

  • Focused Practice

    Prepare for assessments with targeted practice materials and expert guidance

  • Personalized Learning

    Track your progress and focus on areas where you need improvement

  • Affordable Access

    Get quality educational resources at a fraction of traditional costs

Tell Us What You Think

Help us improve our resources by sharing your experience

Pleased to share that I have successfully passed the SQE1 exam on 1st attempt. With SQE2 exempted, I’m now one step closer to getting enrolled as a Solicitor of England and Wales! Would like to thank my seniors, colleagues, mentors and friends for all the support during this grueling journey. This is one of the most difficult bar exams in the world to undertake, especially alongside a full time job! So happy to help out any aspirant who may be reading this message! I had prepared from the University of Law SQE Manuals and the AI powered MCQ bank from PastPaperHero.

Saptarshi Chatterjee

Saptarshi Chatterjee

Senior Associate at Trilegal