How Responsible Developers Manage Risks
Does the responsible developer need to manage risks by limiting liabilities? Of course, no developer can hope to survive (especially in this real estate market) without being a good risk manager.
So what is that state of the law regarding limitations of liability (“LOL”s)? Well it depends on whether the LOL is used to manage a business-to-business risk or a seller-to-consumer risk. Why? Because the law affords a greater level of protection for consumers. This dynamic is best explained by some recent Washington court cases.
In a Washington appellate decision last month, Mattingly v. Palmer Ridge Homes, (a seller-to-consumer claim) the court examined the developer-general contractor's contract and warranty LOL disclaimers. The test the court based its ruling on was whether or not the developer’s disclaimers were enforceable due to being clearly worded, or unconscionable and unenforceable due to the developer’s greater sophistication, bargaining power and poorly drafted contracts. The court found that due to providing incomplete information, and the use of confusing contract language, that some of developer’s disclaimers were ineffective. However, the disclaimers that were clearly worded “as is” (as in the stereotypical used car context) and were specifically related to certain claims were found to be effective.
Compare this result to a Washington Supreme Court case from last year in the same context, a residential real estate contract, which at first blush appears to be another seller-to-consumer case. The case was Torgerson v. One Lincoln Tower. Here the court examined the same type of LOL disclaimers to determine whether they were enforceable. The court found that the developer’s disclaimers were effective and enforceable for at least two big reasons: the disclaimers were clearly labeled in bold as such; and the court took notice that these purchasers were far more than average consumers, they were licensed real estate agents and thus appeared to be held to a higher (business-to-business) standard.
The take away here is that the responsible real estate developer should endeavor to ensure (especially when dealing with consumers) that his or her contracts, warranties and purchase sale agreements pass the test for enforceability. After all, responsible risk management is good business.
