Disclaiming the Implied Warranty of Habitability

In Kirkman v. Parex, the South Carolina Supreme Court reversed a Court of Appeals decision, which upheld a grant of summary judgment, because there remains a genuine issue of material fact concerning the lender's extent of involvement in the construction of a house. Perhaps more importantly, the Court held that the implied warranty of habitability can be disclaimed.

First Union financed a construction company's building of a house and subsequently foreclosed on the property when the construction company went out of business in mid-construction. In order to complete the house, First Union hired a contractor and then sold the completed property to the homeowners. In the deed conveying the property to the homeowners, First Union disclaimed the implied warranty of habitability and sold the property as-is. The homeowners asserted they were unaware of the disclaimer.

When the homeowners attempted to sell the property years later, they spent $45,000 to repair the artificial stucco (installed by the original construction company) and brought an action against First Union alleging it, as seller of the property, breached the implied warranty of habitability. The circuit court granted summary judgment to First Union, finding First Union was a "mere lender" and therefore had not impliedly warranted the habitability of the house. The Court of Appeals affirmed, relying on the "mere lender" theory in Kennedy v. Columbia Lumber and Mfg. Co. (a "mere lender" is not ordinarily liable under an implied warranty of habitability).

The S. C. Supreme Court reversed the decision and remanded for further findings. The Court found that the Court of Appeals improperly relied on Roundtree Villas, where it was held that a lender could be liable in tort, not contract, for faulty construction on the parts of the house on which the lender worked. However, in Roundtree Villas, the discussion of a lender's warranty liability was brief since none of the defendants in that case actually sold the house.

The S.C. Supreme Court also addressed the novel issue of whether the warranty of habitability can be disclaimed. The Court agreed with the Supreme Court of Alabama that principles of contract law allow a party to disclaim the implied warranty of habitability. However, the disclaimer is only permitted if it is "(1) conspicuous, (2) known to the buyer, and (3) specifically bargained for." The standard is meant to protect buyers and will be applied strictly.

(contributed by Kristina Cooper)