Question:     

“Matt, we have one of your old leases that contains a waiver of implied warranty of habitability.  Is that still good law or can we delete that section?”

Matt’s Answer:       

 Leave that provision in your lease.

The law concerning the implied warranty of habitability has changed over the years and the state of the law is a bit confusing.  In a technical sense, there is no implied warranty of habitability in Indiana rental property law.  An implied warranty is a contractual concept.  The theory is that the courts through common law or a legislative body such as the Indiana General Assembly can impose upon the parties certain contractual terms.  A warranty of habitability implies that the landlord guarantees that a house is habitable.  If a rental unit is not habitable, the tenant is incapable of living in the property.  Under those conditions, the tenant can terminate the lease under what is referred to as a “constructive eviction.”  Again, in theory, the landlord has breached a basic contract provision to provide a safe and habitable home.  In reality, very few rental properties are uninhabitable. 

Over the years, the Indiana General Assembly and even the courts have added duties to a landlord.  While those duties have never been classified as a warranty of habitability, the effect is essentially the same. 

Back in 1992, the Indiana Court of Appeals issued a well-reasoned opinion called Zimmerman v. Moore.  In Zimmerman, the court rejected the existence of an implied warranty of habitability except in those cases where a local housing code established such a warranty.  The court did a great job of explaining the law of warranties for new houses versus older homes, and compared homes to other forms of property governed by other rules.  In the end, the court held that tenants are adequately protected by traditional tort law, which does pose certain duties on a landlord.  Then, in 1999, the Indiana Supreme Court held, in a case called Johnson v. Scandia Associates, that the implied warranty of habitability can arise under certain circumstances.  The Supreme Court stated: “Plainly, a warranty of habitability, whether in the sale or lease of residential dwellings, has developed in the common law of Indiana, and its roots are in the law of contract.”  The Court then established a vague rule of law suggesting that the warranty might arise by the lease agreement, by the conduct of the landlord and tenant or by local law.

So, now we have to look both at contract law, legislation and traditional tort law as it applies to landlords in order to determine liability risks.  In the end, most liability risks will be defined by statute and tort law concepts.

Under traditional tort law, a landlord can be held liable for known defects that the landlord has a duty to repair and fails to repair.  The theory is that a landlord can and should repair defects to a property that are brought to the landlord’s attention.  Accordingly, if a tenant is aware of a dangerous condition in the property and the landlord is unaware, the landlord would have no duty to make the repair.  If the tenant notifies the landlord and the landlord fails to make the repair in a reasonable amount of time, then the landlord could be held liable. 

Similarly, where there is a hidden defect or concealed danger known by the landlord and kept hidden from the tenant, the landlord could be held liable.  However, what about defects unknown to the landlord and the tenant?  Obviously, a landlord cannot make a repair unless the landlord knows the repair is required.  Unknown by both the landlord and the tenant, the tenant bears the risk, because the tenant is in possession and control of the property and is in a better position to know about defects.  This becomes even more so under the new laws restricting a landlord’s ability to make random inspections without notice.  The tenant has more rights to possess and control the rental property today than ever before, which should transfer more responsibility from landlords to tenants. 

It is important to understand local law as well as state law.  While not technically an implied warranty of habitability, be aware of these state law requirements:

A landlord shall do the following:

(1) Deliver the rental premises to a tenant in compliance with the rental agreement, and in a safe, clean, and habitable condition.
(2) Comply with all health and housing codes applicable to the rental premises.
(3) Make all reasonable efforts to keep common areas of a rental premises in a clean and proper condition.
(4) Provide and maintain the following items in a rental premises in good and safe working condition, if provided on the premises at the time the rental agreement is entered into:

(A) Electrical systems.

(B) Plumbing systems sufficient to accommodate a reasonable supply of hot and cold running water at all times.

(C) Sanitary systems.

(D) Heating, ventilating, and air conditioning systems. A heating system must be sufficient to adequately supply heat at all times.

(E) Elevators, if provided.

(F) Appliances supplied as an inducement to the rental agreement.

In a sense, the law is even more complicated today than prior to the 1992, and 1999 court cases.  The waiver you have in my old lease form provides a certain buffer, in the event the courts start creating the implied warranty of habitability.  The impact of that warranty could well exceed current tort law concepts.  The warranty is contract law, while current landlord duties are rooted mostly in tort law.  So, the waiver I wrote might prevent certain claims rooted in contract law.  Said more plainly, the waiver could only help you, not harm you.  Leave the waiver in place.  However, supplement the waiver with other important waivers concerning tort law concepts.

 If you have questions or concerns about the topics covered in this article, your business structure, business planning or your real estate investments in general, please feel to contact this author for a consultation.