The Supreme Judicial Court recently issued a decision in Sullivan v. Five Acres Realty Trust, holding that the sellers were not liable for defective and deficient renovation work performed by the sellers years before putting their home up for sale. The Court’s decision brings some clarity to 93A and implied warranty of habitability claims in connection to the sale of a private residence.

The Court’s decision has put buyers on notice that it is unlikely that a court will hold a seller liable for latent defects, even those to which the seller may have contributed.

Facts:

The Defendants had a history of purchasing and renovating properties. In 2002, they purchased a home in Dover, Massachusetts (“Dover Property”), with proceeds from refinancing other properties. The Dover Property was built in 1986 and the Defendants were the sixth purchasers of the Dover Property and resided at the Dover Property for 11 years before selling it to the Plaintiffs. During the time that the Defendants resided at the Dover Property, they completed several renovations, including renovating the kitchen, converting a screened-in porch to a “Tuscan-style room,” and installing a brick pizza oven. The Defendants completed some of the renovation work themselves and retained contractors to complete the other work, but they failed to obtain building permits or certificates of occupancy for the renovations.

The Defendants subsequently listed the Dover Property for sale in 2011, and in 2012, the Plaintiffs conducted a pre-closing inspection of the Dover Property, at which time the Defendants showed the Plaintiffs the renovations that they had performed, but did not disclose that the renovations were never inspected or approved for occupancy. After purchasing the Dover Property in 2013, the Plaintiffs discovered structural and other deficiencies related to the Dover Property, and learned that the Defendants never obtained the proper building permits and certificates of occupancy for the home.

In 2014, the Plaintiffs brought suit against the Defendants for breach of implied warranty of habitability, fraud and misrepresentation, defective and deficient renovations, and violations of G.L. c. 93A. At the trial court level, the motion judge granted summary judgment in favor of the Defendants on the fraud and misrepresentation claim and the defective and deficient renovation work claim. A jury later found in favor of the Plaintiffs on the implied warranty of habitability and the 93A claims. The Defendants moved for and the trial judge denied their motions for a directed verdict on both claims and for judgment notwithstanding the verdict on both claims.

93A Claim

On appeal, the Defendants argued and the Court agreed that there was insufficient evidence to establish that the sale of the Dover Property took place in the course of trade or business to satisfy the requirements of 93A. In its analysis as to whether the Defendants were acting in a business context, the Court relied upon the factors set forth in Begelfer v. Najarian, 381 Mass. 177, 190 (1980), including the nature of the transaction, the character of the parties, the activities engaged in by the parties, whether the transaction was motivated by business or personal reasons, whether similar transactions have been undertaken in the past, and whether the participant played an active role in the transaction.

The Plaintiffs argued that the Defendants were acting in a business context because the Defendants had a practice of buying, renovating, and selling properties and the Defendants were involved in the construction business. However, the Court found their arguments unpersuasive under the facts of the case and held that in applying the Begelfer factors, the sale of the Dover Property was strictly a private transaction and, thus, not subject to 93A. The Court further noted that the primary reason that the Plaintiffs’ argument was unpersuasive was because the Dover Property was the Defendants’ primary residence for about a decade, “a stark contrast to ‘flipping’ a house.”

The Court also considered the Defendants’ level of participation in the sale of the Dover Property. The Defendants assisted with the listing information and showed the Plaintiffs the Dover Property. The Court found that their active participation was customary when selling one’s residence. The Court further noted that the Defendants’ motivation to generate wealth in renovating and selling the Dover Property did not remove the transaction from the private realm because it’s simply the process that homeowners undertake.

Implied Warranty of Habitability Claim

On appeal, the Defendants argued that the trial judge should have allowed their motion for directed verdict or judgment notwithstanding the verdict on the Plaintiffs’ implied warranty of habitability claims because the Dover Property was not a new home and the Defendants are not builder-vendors. A builder-vendor builds a new home for the purpose of selling it. By contrast, the Defendants had no involvement in the initial construction of the Dover Property, but rather they resided at the Dover Property for years before beginning the renovations, and then lived at the Dover Property for at least another year before listing it for sale. The Court held that the mere completion of renovations to a private residence does not make the owner a builder-vendor and thus the Defendants were not liable under the theory of implied warranty of habitability.

Takeaway

Sullivan v. Five Acres Realty Trust provides a cautionary tale to home buyers, particularly to those who are active in the current real estate market. Given the current climate, many prospective buyers are contemplating waiving a home inspection when making an offer on a home to make their offer more appealing to the seller. The Court’s decision has put buyers on notice that it is unlikely that a court will hold a seller liable for latent defects, even those to which the seller may have contributed.

Click on this link to view a copy of the Sullivan v. Five Acres Realty Trust case.