In a ruling affecting tens of thousands of homeowners around the state, a Pennsylvania appellate court recently ruled that home warranty arbitration provisions may not be binding on subsequent purchasers. In a decision handed down last month, the Pennsylvania Superior Court reaffirmed an earlier August, 2019 ruling that arbitration provisions in Homeowners Limited Warranties do not apply to subsequent purchasers unless the subsequent purchasers specifically agree to be bound. This is good news for subsequent purchasers who wish to bring claims against the builder in court, but bad news for builders who hoped to have these claims decided in arbitration.

Both the Superior Court’s recent decision and its earlier decision involved claims against a national home builder. The recent decision involved homes constructed and sold by the home builder between October of 2002 and January of 2005. Separate from the sale agreement for each home, the home builder offered the original “homeowners” a written, 10-year warranty for repairs. Notably, the warranty defined “homeowner” as “the first person to whom the home is sold.” It also included successor homeowners in its “homeowner” definition but only if the successors signed a Subsequent Home Buyer Acknowledgment Form. The written warranty contained a mandatory arbitration clause, which prevented any homeowner from bringing construction claims against the home builder in court, requiring that the claims instead be decided by arbitration.

Between 2005 and 2016, all 30 original homeowners in the case decided last month sold their homes to subsequent homeowners. None of the subsequent homeowners signed the Subsequent Home Buyer Acknowledgment Form. In 2018, the 30 subsequent homeowners sued the home builder and a window manufacturer in court for purported construction defects. The home builder claimed that the homeowners were bound by the arbitration provision in the warranties.

The subsequent home owners disagreed. While they claimed they “received a transferable warranty” for their homes at the time of purchase, they claimed they were not bound by the mandatory arbitration provision because none of the subsequent purchasers had signed the Subsequent Home Buyer Acknowledgment Form.

The Superior Court agreed with the homeowners and ruled that that the subsequent homeowners’ statements in their complaints, read in context, did not bind them to the terms of the mandatory arbitration provision. Instead, the Court held that under long-standing Pennsylvania law, the warranties did not transfer to subsequent purchasers who did not sign the Subsequent Home Buyer Acknowledgment Form. Because none of the 30 subsequent homeowners signed the form, the Court ruled that the obligation to arbitrate the claims (rather than have them decided in court) did not transfer to them.

These recent rulings make clear that subsequent homeowners who do not agree to be bound by mandatory arbitration provisions in warranties the builder provides likely will not be bound by these provisions. That means these subsequent homeowners can go to court (rather than be required to go to arbitration) to have their construction defect complaints heard.

The national home builder is asking the Pennsylvania Supreme Court to weigh in on these rulings and, thus, this could change the outcome.  Pennsylvania home builders and home owners should continue to follow future developments in these cases.

If you have questions about your home, Lamb McErlane PC can help. Contact us at 610-430-8000.

Max is a partner at Lamb McErlane PC, he handles a wide variety of municipal, land use, property tax, administrative and environmental law matters. Max advises townships, boroughs, school districts and municipal authorities, as well as corporations and individuals. mokeefe@lambmcerlane.com.

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