The Implied Warranty of Workmanship and Habitability is Assignable by a Homeowner

In Arizona, every residential construction contract contains an implied warranty of workmanship and habitability (“Implied Warranty”). Even if the residential construction contract does not have an express warranty, Arizona courts will “read” such a term into the contract. “We impute the Implied Warranty into all contracts between builder vendors and homebuyers as a matter at common law,” Zembrano v. MRC II LLC 254 Ariz 53. 59 (2022). The purpose of the Implied Warranty is to protect innocent purchasers and hold builders accountable for their work, Sirrah v. Wunderlich 242 Ariz 542, 544 (2017). Claims by a homeowner against a residential builder for breach of the Implied Warranty are contract-based claims. Generally, rights and duties under a contract are fully assignable (Highland Village Partners, 219 Ariz @ 150).

In Point 16 v. GTIS-HOV __ Ariz __ 2025 Pointe 16 townhomes (Pointe 16) was a residential community comprised of 67 residences built and sold by K-Hovnanian (K-Hov) to individual buyers. Each buyer’s Purchase Agreement contained an anti-assignment provision prohibiting the buyer from assigning their rights under the Purchase Agreement without the seller’s consent.

Construction defects arose at the project including construction defects in the common areas managed by the Pointe 16 Community Association (HOA) The HOA filed a lawsuit against the seller and K-Hov for construction defects alleging among other claims, breach of the Implied Warranty.

 K-Hov argued the HOA could not bring the claims because the HOA was not a homeowner. A majority of the homeowners then assigned their construction defect claims to the HOA. K-Hov next argued the assignment was void because of the anti-assignment clause in the Purchase Agreements.

The Trial Court agreed with K-Hov. The Court of Appeals disagreed, reasoning that because the Implied Warranty is a part of every contract, the Implied Warranty could be assigned.

The Arizona Supreme Court granted review to determine whether an anti-assignment clause in the purchase agreement precludes a homeowner from assigning a breach of Implied Warranty claim to a homeowner’s association.             

The Supreme Court summarized Arizona law

1. The Implied Warranty is a part of every contract between a homeowner and a builder.
2. A claim of breach of the Implied Warranty is contract based;
3. Breach of contract claims are generally assignable.

It necessarily follows that homeowners claims for breach of the Implied Warranty are generally assignable.

The court next considered the impact of the anti-assignment provision in the Purchase Agreements. The court noted the agreements’ anti-assignment clause did not reference “claims” which is what the homeowners assigned to the HOA. The court found significant the fact that the Purchase Agreements prohibit the assignment of the agreement and the homebuyers’ “rights” under the agreement but not the homebuyers’ claims accruing from a breach of the agreement. The court determined that rights and claims were not the same thing. The prohibition against assigning rights did not prohibit the assignment of claims.

The court ruled the Purchase Agreements’ anti-assignment clauses do not prohibit the assignment of accrued claims for damage to the homebuyers for breach of the Implied Warranty in the agreement.

What is unresolved is if builders add language to their anti-assignment provision in their purchase agreements to prohibit the assignment of both rights and claims is this language sufficient to prevent individual homebuyers from assigning their Implied Warranty claims to the respective HOA?

If you have any questions about the case or Implied Warranties in general, please contact a member of the Sacks Tierney Construction Practice Group Attorneys.