What Is This Clause?
A clause that limits or eliminates the builder's financial liability for damages caused by construction defects. This may cap the builder's total liability at the purchase price, exclude consequential damages (such as temporary housing costs), or eliminate liability for certain categories of harm entirely.
How It Works
When a builder delivers a defective home, the buyer may suffer multiple categories of financial harm: the cost to repair the defects, the cost of temporary housing while repairs are made, lost rental income, diminished property value, and potentially even medical expenses if defects like mold affect the family's health.
A limitation of liability clause attempts to cap or eliminate the builder's responsibility for some or all of these damages. The most aggressive versions state that the builder's maximum liability cannot exceed the original purchase price — or even less. Others specifically exclude 'consequential' or 'indirect' damages, which is where most of the buyer's real costs lie.
Courts have found some liability limitation clauses unconscionable, particularly when they effectively eliminate all meaningful remedies. The South Carolina Supreme Court struck down such a provision in a case involving D.R. Horton, finding that it created an extreme imbalance that shocked the conscience.
Why It Matters
If your home has a major defect, the builder may argue they are not responsible for your repair costs, temporary housing, or other expenses.
Excluding consequential damages eliminates recovery for some of the most significant costs buyers face — temporary housing, medical bills from mold exposure, lost rental income.
Even if the builder's negligence is proven, a liability cap may limit your recovery to a fraction of your actual losses.
Real-World Cases
Smith v. D.R. Horton, Inc. (South Carolina, 2016)
The South Carolina Supreme Court found D.R. Horton's liability limitation provisions unconscionable, holding that the combination of warranty limitations, liability caps, and remedy restrictions created an extreme imbalance that was shocking to the conscience.
Which Builders Use This Clause
The following builders have been documented using this clause type in their purchase agreements.
State-by-State Enforceability
Enforceability depends heavily on state law and the specific language used. Some states have found broad liability limitations unconscionable, particularly when they effectively eliminate all meaningful remedies for construction defects. Other states may enforce reasonable liability caps while striking down provisions that are overly one-sided.
What Buyers Can Do
- 1Review your contract to identify any caps on the builder's liability or exclusions of specific damage types.
- 2Pay particular attention to whether the contract excludes 'consequential damages' — this is where most of a buyer's real costs lie.
- 3Understand your state's law on unconscionability, which may provide grounds to challenge extreme liability limitations.
- 4Ask the builder to remove or modify liability caps before signing. Even if the builder refuses, the request creates a record.
- 5Have your contract reviewed by an attorney who can evaluate whether the liability limitations are enforceable in your state.