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MAR Legal Hotline Notes - October 2018

Wednesday, October 3, 2018   (0 Comments)
Posted by: Karen DeDonato
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October Notes from the MAR Legal Hotline

Does a “new home warranty” cover anything that goes wrong with new construction?

It is not uncommon for new construction to come with a warranty from the builder. A common misconception with these warranties is that anything that goes wrong with the house will be covered by such a warranty. Unfortunately, that is not typically the case. Most warranties offered on new construction will cover only specific items, such as: foundations, flooring, siding/shingles/clapboard, insulation, roofing, doors and windows, plumbing, electrical, heating and cooling, and septic. These warranties may lead to a false sense of security for potential buyers. Not only are these warranties limited in duration, they often do not cover defects relating to appliances, shrinkage or expansion of the house and related cracking, insect damage, and damage caused by inadequate ventilation.

Case law in Massachusetts (see Albrecht v. Clifford) establishes an implied warranty of habitability in every Purchase and Sale agreement between a builder/seller and a buyer. This is a warranty that cannot be waived. The Supreme Judicial Court stated: “To establish a breach of the implied warranty of habitability a plaintiff will have to demonstrate that (1) he purchased a new house from the defendant-builder-vendor [seller]; (2) the house contained a latent or non-obvious defect; (3) the defect became apparent only after the purchase; (4) the defect was caused by the builder’s improper design, material, or workmanship; and (5) the defect created a substantial question of safety or made the house unfit for human habitation. In addition, the claim must be brought within the three-year statute of limitations and the six-year statute of repose [i.e., within six years after completion of an improvement to property].”

While the law in Massachusetts provides additional recourse to buyers for potential defects in new construction, a buyer of new construction should always carefully review warranty paperwork with their real estate attorney prior to agreeing to any terms. This can be a significant negotiation, as the builder will seek to limit his or her liability and the buyer would be seeking to expand the builder’s liability.

Additionally, the Albrecht decision reinforces the view that a buyer’s primary complaint should be against the builder. However, to reduce risk to you as a Realtor®, you should always encourage your buyers to obtain inspections from appropriate professionals, including home inspectors, structural engineers, architects, etc., irrespective of the age of the house.


What do I need to know about the new non-compete law?

At the end of the last legislative session, Governor Baker signed into law what has commonly been referred to as the “Grand Bargain.” Included within the Grand Bargain were significant reforms to Massachusetts’ law regarding non-compete agreements. The law applies to all non-compete agreements entered into with Massachusetts residents and Massachusetts employers on or after October 1, 2018. The law only applies to non-compete agreements; it does not apply to other restrictive covenants, such as non-disclosure and non-solicitation agreements, or existing non-compete agreements. Further, the new law does not apply to non-compete agreements entered into as part of an employee’s separation, so long as the employee is provided a seven (7) day window to rescind acceptance.

The minimum requirements for a non-compete agreement to be valid and enforceable are:
• Must be in writing;
• Must be signed by both the employer and employee;
• Must provide the employee the right to counsel prior to signing;
• Employee must be given the agreement at least ten (10) days prior to the date of hire, or prior to the effective date if after the date of hire;
• Cannot exceed twelve (12) months;
• Must include a “garden leave” provision, which would require the employer to pay the employee at least 50% of their base salary, or other mutually agreed upon consideration; and
• If entered into after commencement of employment, the employer must provide fair and reasonable consideration, which must be more than an offer of continued employment.

In addition to the above requirements under the new law, the common law principles remain. Any non-compete agreement must be reasonable in scope – both geographic and prohibited activities – and must be no broader than necessary to protect the employer’s legitimate business interest.

Of important note, despite the consistent use of the term “employee” throughout the law, the law applies to both employees and independent contractors. Further, the new law specifically prohibits the use of non-compete agreements with hourly employees, interns, students and teenagers under the age of 18, or anyone laid off without cause.

As with any contract, it is strongly recommended that an attorney is consulted prior to drafting or signing a non-compete agreement.

Source: Massachusetts Association of REALTORS® Legal Staff
Justin Davidson, MAR Legislative & Regulatory Counsel
Catherine Taylor, Staff Attorney

 

The information and services provided through the Massachusetts Association of REALTORS® is intended for informational purposes and does not constitute legal advice, nor does it establish an attorney-client relationship. The Massachusetts Association of REALTORS®, by providing this service, assumes no actual or implied responsibility for any improper use of responses to questions through this service.  The Massachusetts Association of REALTORS® will not be legally responsible for any potential misrepresentations or errors made by providing this service. For more information regarding these topics authorized callers should contact the MAR legal hotline at 800-370-5342 or e-mail at legalhotline@marealtor.com.