Contractors-Developers denied the right to invoke the protections of the implied warranty of workmanlike construction

Ben Bruner Iowa Real Estate & Land Use Iowa Banking Law Dickinson Law Des Moines Iowa

Posted on 02/26/2015 at 12:24 PM by Benjamin Bruner

This blog recently detailed the Iowa Supreme Court's decision in Pro-Build Holdings, Inc. to prohibit foreclosing lenders from invoking the protections of the judicially created implied warranty of workmanlike construction. The Iowa Supreme Court didn't stop there, and further limited the scope of said implied warranty in Rosauer Corporation v. Sapp Development, LLC et al. In Rosauer the Iowa Supreme Court refused to extend the implied warranty of workmanlike construction to the sale of unimproved residential lots. The plaintiff contractor-developer in Rosauer had purchased a lot within a residential subdivision from another developer, with the intent to construct townhomes for sale. Following the purchase of the lot, the purchasing developer discovered a number of substantial soil issues, which were caused by defects in the grading, backfill, and compaction of the soil. These defects required extensive and costly remediation work and thus the purchasing contractor-developer brought an action for monetary damages based on the claim that the implied warranty of workmanlike construction provided protections for such defects and corresponding damages. The Iowa Supreme Court issued their decision denying an extension of the implied warranty of workmanlike construction to the sale of an unimproved residential lot to a developer. Similar to their reasoning in the previously described Pro-Build Holdings, Inc. decision, the Iowa Supreme Court ruled that the contractor-developer is not an innocent homebuyer as contemplated by said warranty, and thus could have protected itself through other means (i.e. soil tests and contractual provisions). I would recommend that contractors-developers in these situations be cognizant of the potential defects in the condition of lots and ensure that the purchase contract allows for appropriate inspection and testing. Additionally, proper inspection and testing should in fact be performed as part of the purchaser's due diligence. 

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