Home Builder Alert: Washington Supreme Court Strikes Down One-Year Warranty Limitation in Home Construction Contract

The Washington Supreme Court recently published an opinion that appears to invalidate any homebuyer warranty that requires the buyer to file suit in less than six years. In Tadych v. Noble Ridge Construction, Inc., the owners of a custom home sued their builder for breach of warranty three years after occupying the home. Their construction contract required them to sue within one year. The trial court dismissed the suit for failure to file suit within the one-year period. The Court of Appeals affirmed. A five-judge majority of the Supreme Court, however, reversed, ruling that the one-year limit was void and unenforceable because it was “substantively unconscionable.”

The Tadychs moved into their home in April 2014. Ten months later, they met the contractor at their home to discuss various defects. The contractor told the owners their home was fine and promised to fix a flooring issue. During the next two years, the owners notified the contractor of additional problems with the house. The contractor repeatedly promised to fix the issues but never did any repair work. In 2017, the fed-up owners filed a lawsuit for breach of contract.

Like most states, Washington has a long line of cases holding that the parties to a contract are free to shorten the statute of limitations for a breach of contract suit, unless the period is unreasonable. We even have a 1986 case upholding a one-year warranty suit period in a contract between a homebuyer and a builder. The Supreme Court ignored that case law. Rather, it focused on “unconscionability.” Under Washington case law, a contract term that is “shocking to the conscience,” “monstrously harsh,” or “exceedingly calloused,” can be invalidated as being “substantively unconscionable.” The Supreme Court didn’t find anything shocking, harsh, or calloused in the contract. But it invalidated the contract simply because it reduced the six-year statute of limitations that would otherwise apply, benefiting the contractor at the expense of the homeowner. The court also noted that the homeowners were “laypersons” (who presumably could not understand the sentence saying they had one year to file suit), and that the provision was “not negotiated or bargained for” (i.e., the parties didn’t go back and forth over that provision).

The court stated the new rule as follows: “A contract provision becomes substantively unconscionable when it eliminates otherwise established statutory rights and is one sided, benefiting the contract drafter, is also not prominently set out in the contract, is not negotiated or bargained for, and provides no benefit to the affected party.” Under this rule, it appears that no contract can shorten a period for bringing suit unless the parties actually negotiate it and it is then put in big fat letters. All the prior cases upholding shortened time periods are now – presumably – overruled.

In light of this holding, homebuilders should review their contracts to ensure that any contractual limitation period is set apart in the contract, made prominent, and recites that it has been agreed to in consideration of the purchase price. A builder should also point out the provision and make sure the buyer understands it is there and can “negotiate” the provision.

For an analysis of the Tadych case from a construction perspective here is a Stoel Rives article recently published in the Seattle Daily Journal of Commerce.