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Developer Not Liable For Acts And Ommissions of Exclusive Builder

For buyers of lots within subdivisions where the buyers are required to use a specified builder, a recent Tennessee case reinforces the old adage— “let the buyer beware.” In Davidson County, Williamson County and other counties surrounding Nashville, some developers of subdivisions require a buyer of a lot to agree to use only a certain builder or builders to construct the buyer’s home.

The plaintiffs in a recent Tennessee Court of Appeals case were buyers of a lot that required them to use a designated builder. The buyers were burned by the builder when the builder overdrew the construction loan obtained by the buyers, failed to pay subcontractors, and didn’t complete the home.

The buyers brought a lawsuit against the developer of the subdivision project claiming that the developer was responsible for their losses. The buyers claimed that the developer knew, or should have known, that the homebuilder designated by the developer was not capable of completing the project, and that the developer had a fiduciary duty to provide a homebuilder which could build a home in a good, workmanlike manner.

The buyers also claimed that the developer had violated the Tennessee Consumer Protection Act by engaging in an unfair and deceptive act by designating the contractor in question as an “exclusive builder” for the development. The contractor, as it turned out, was not a licensed general contractor. The buyers asserted that this fact helped proved fault on the part of the developer. (In Tennessee, there are contractor licensing requirements for general contractors and subcontractors).

The Tennessee Court of Appeals made short work of the buyers’ arguments, and held that the developer had no liability whatsoever to the buyers. This case is instructive to those entering into contracts of any kind or considering a breach of contract case. Why? The court in the case pointed out some practical points of contract law that bear remembering.

First, no one forced the buyers to buy the lot and, thereby, agree to use the builder. The buyers could have refused to agree to the exclusive builder provision in the real estate contract and walked away if the developer didn’t agree to omit it. Second, this case dispels the notion that many would be litigants believe will carry the day all the way to a check for their losses: Guilt (or, in this case, civil liability) by association. Sometimes, a party just has to accept its losses instead of attempting to shift responsibility to some other party who was also involved in the transaction in some way. From reading the facts of this case in the court of appeals opinion, it appears that this case was an uphill battle from the beginning.