In the event that a lienor collected even a single dollar of his lien claim, he was treated as the winner – the prevailing party under Florida Statute 713.29, and was entitled to recover his reasonable attorney’s fees.  This narrow interpretation became a significantly disputed issue and has been reviewed and broadened by the Florida Supreme Court.

Unfortunately for contractors, no longer is the result of the lien claim the only basis for reaching the determination of who won.  In one case, the Florida Supreme Court decided that the main issue before it was not the contractor’s lien claim, but the amount of setoff that the owners had claimed in opposition to the lien.  While the contractor in that case was awarded some money under his lien claim, the owners obtained almost the entire amount of setoff that they had sought and for that reason the Court determined that the owners, not the contractor, were the prevailing party and the ones entitled to recover attorney’s fees.

Courts are now applying what is commonly referred to as the “significant issues” test.  This requires weighing all claims and the ruling made on each to determine which party, if any, truly prevailed in the litigation.

All contractors need to be aware of this development, especially since most lien claims are generally met with a setoff defense.  This means that even if a contractor wins a portion of his lien amount, he may be the ultimate loser, and not only see his claims for attorney’s fees defeated but worse, also be on the hook for the other side’s legal fees and costs.

Most contractors who regularly perform renovation and repair work on pre-1978 structures subject to the RRP are most likely already up to speed on its requirements. However, the post-boom economy has pushed many contractors to bid work they would not have considered in years past, and there are those contractors who only occasionally take on a renovation job.  Either way, contractors need to be sure they have a basic understanding of the RRP.

According to the EPA, lead based paint was used in upwards of 38 million homes up until it was prohibited in 1978.  Activities such as sanding, cutting and demolition, commonly required in renovation or repair work, often create lead dust. When lead dust is absorbed by the human body, specially a child’s body, it can according to the EPA create a myriad of negative health issues.  If that isn’t enough reason to learn about the RRP, also consider that the EPA has the power to punish violators with penalties of up to $37,500 per day, per violation in the most serious of cases.

So, what does the RRP entail? It applies to any activity, performed for compensation, that disturbs paint in pre-1978 housing and child-occupied facilities, including but not limited to remodeling, repair, maintenance, electrical work, plumbing,  certain painting, carpentry, and window replacement whether performed by a general contractor or trade contractor. Note that the applicability of the RRP has exceptions, including but not limited to, minor repair that disturbs only 6 square feet or less of paint per room on an interior or 20 square feet or less on the exterior, work on studio apartments, and housing that has been declared lead-free by a certified inspector, etc.

If a contractor wanst to perform work subject to the RRP (“RRP work”) the contractor must first become certified under the RRP by submitting a completed “Application for Firms” and paying the correct fee to the EPA (current fees appear to  range approximately from $300.00 to $550.00).

All individuals performing RRP work on behalf of a certified firm must either be “certified renovators” or must have been trained by a certified renovator. An individual becomes a certified renovator by successfully completing an eight-hour training course through an accredited training provider.  A certified renovator must be assigned to each renovation job.

Prior to starting RRP work, a certified firm must fulfill the RRP’s pre-renovation education requirements, depending on the type of structure to be renovated, which generally require distributing the EPA’s pamphlet and/or notices, among other potential activities, intended to notify the occupants of the facility of the nature of the work, location of the work and lead based paint hazards related to the work. After notification, the certified contractor must obtain a receipt of the notification from the occupant and maintaining the record(s) for three years.

During the work, the EPA’s “lead-safe” work practices must be followed.  These practices generally include, containment procedures to prevent dust and debris from leaving the work area, prohibition of certain construction techniques, such as, open-flame burning and the use of power tools without HEPA exhaust control, and clean up designed to minimize exposure to lead-based paint.

The conclusion is clear.  A contractor who performs such work should become certified under the RRP and depending on the extent of the company’s jobs, should have at least one certified renovator capable of implementing the RRP’s requirements.  If you need additional information, take a look at the EPA’s website, www.epa.gov/lead.  Better safe than sorry.

The answer, as with many legal  questions, is, “it depends.”  Historically, the condominium purchaser would look to the common law  warranty of fitness and merchantability for relief, specifically alleging as  grounds that the unit does not meet building and zoning codes or that the construction was not completed in a workmanlike fashion, that the plans and specifications  were not fit for their intended use or simply that the premises are unfit and  uninhabitable.  However, the statutory implied  warranty of fitness and merchantability, which runs from the developer,  contractor and subcontractors to the purchaser of the unit, remains one of the  most powerful legal tools.

Implied Warranties

For example, in Florida, the  warranty of fitness as to the work performed and supplied by the contractor, subcontractors and suppliers runs for a period of three years from the completion of construction.  The warranty  of fitness and merchantability for the unit’s intended purposes running from the developer on the other hand extends for three years after completion of each condominium building or for one year after control of the condominium association has been transferred to unit  owners other than the developer, whichever occurs last.  This period cannot exceed five years in any event.

The choice between common law and  statutory warranties is not mutually exclusive.  The benefits and burdens do stand in contrast though, in that the statutory warranty runs for a finite period from an objective date in time while the common law warranty does not.  The statutory warranty cannot be waived or disclaimed by contract while the common law warranty may be.   The statutory warranty runs from the developer, the contractor and all subcontractors and suppliers while the common law warranty extends only from the developer.  Furthermore, unlike the common law warranty, the statutory warranty is not restricted to first purchasers but inures to the benefit of each owner and his or her successors.

Express Warranties

It should be noted that, in a “cold” real estate market, developers may attempt to obtain an advantage by providing specific warranties, thus creating a selling point and greater incentive for their prospects.  Under such circumstances, the developer may extend or broaden the scope of its common law and statutory warranties.  These express warranties are binding on the developer and create a clear route for unit purchasers seeking to capitalize on the developer’s greater exposure to liability when construction elements go awry.

Negligence

In addition to the common law and statutory warranties, there are other alternative causes of action available to condominium unit purchasers who find themselves struggling with property defects.  One is negligence.  Under this theory, even remote purchasers have standing to sue the original contractor for any failure to meet the standard of reasonable care to safeguard those who may foreseeably be placed in peril.  Although a greater degree of  proof is required to prevail in a negligence action in contrast to a breach of warranty claim, negligence claims have distinct advantages for the unitpurchaser.  In such actions, the statute of limitations is usually longer and more flexible, allowing more time for discovery of any defect.  Additionally, an action in negligence may attach to design professionals such as architects and engineers, against whom a warranty action would not customarily stand, given their lack of privity of contract with the purchaser.  The design professional will be held to a duty of reasonable care as to design.

Interestingly, while an action in negligence usually cannot be maintained against a contractor after the contractor has completed its work, turned the unit over to the owner, and the unit has been accepted by the owner, courts have recognized an exception where the defect is latent and cannot be discovered by a reasonably careful inspection.  The statute of limitations for such latent defects does not begin to run until the defect is discovered.  This has the practical effect of extending the life of a defect clause (where the warranty claim may have lapsed) by allowing a negligence action to pick up where warranty is no longer available.  However, actions for latent defects generally must be commenced within ten years after the date of actual possession by the owner, or the potential claim expires.  A word of caution, however – the statute of limitations for such negligence involving latent defects begins to run when the defect is discovered or should have been discovered with reasonable diligence.  This can shorten the life of a negligence claim considerably.

Fraudulent or Negligent Misrepresentation

Additionally, the developer can be held liable for construction defects based on breach of contract or misrepresentation.  When the contractor fails to deliver something promised within the contract, it is in breach.  When it misrepresents what it can actually deliver, it is guilty of falsification.  Misrepresentation is broader than breach of contract in that it can be either intentional or negligent in character and can take the form of negligent misrepresentation, active concealment or an intentional omission of material facts.

Conversion

Developers may also be liable for construction defects found in converted units.  Certain condominium statutes contemplate that developers converting rental units into condominiums shall warranty the fitness and merchantability of such residential units, as to roof,  structural, fireproofing, mechanical, electrical and plumbing, for some period of time.  The developer may hedge this obligation by establishing reserve accounts for enumerated capital expenditures, and deferred maintenance covering the items otherwise contained within the aforementioned warranty of fitness.  Similar to the new-construction warranties, the conversion warranty inures to the benefit of
each owner and successor owner.

When no one is prepared to accept fault for a given construction defect, the unit owner inevitably turns to litigation.  The unit owner or the owners collectively may not limit their action to the developer, choosing rather to include all involved contractors,  subcontractors and suppliers.  The rationale in suing all potentially at fault parties is to circumvent the risk that the statute of limitations may prevent future suits against any one of these parties during the pendency of the suit against the developer.  These usual suspects are often joined by various other co-defendants as the circumstances may dictate.  Successor developers, the corporate parent of a developer corporation, officers of a developer corporation, design professionals, lenders, and the individual sellers of pre-owned units may unhappily find themselves in these construction defect lawsuits.

Lenders

Generally, lenders also have been found liable where they have controlled the construction or become an active participant in a project. Lenders may have to account to unit owners for construction defects when they foreclose on and then complete a construction project, in effect, becoming the developer mid-stream.  When the lender morphs into the developer, it opens itself to claims from unit purchasers for express representations and for patent construction defects and breaches of warranties resulting from flaws in the portion of the project they  complete.

Defenses

Once claims are made, they are predictably countered by allegations that the condominium association or unit owner failed to perform routine maintenance or that the contractor adhered to applicable building codes and standards in effect at the time of construction. Contractors and developers will argue that the building is in substantial compliance with all contractual requirements and that any deviation from plans and specifications  are de minimis and do not affect the value of the unit.  Claimants can expect to be accused of failing to mitigate their damages, or, in a negligence action, that they are comparatively negligent in failing to inspect and/or maintain the premises.

Understanding that determining fault is neither clear cut nor easy, all parties involved in the development, construction, sale or purchase of a condominium unit would do well to anticipate the worst.  The inevitability of claims should encourage more careful drafting and contract analysis at the front end in hopes of minimizing the extent of misunderstandings which seem bound to occur.  Better safe than sorry is an axiom worth heeding.

The owner’s primary defense was that the contractor’s lien was barred by his lack of substantial performance – after all, the contractor hadn’t finished his work.  This the contractor openly acknowledged but he argued that he was prevented from doing so by the owners and his failure to complete his work should be excused.   He was eventually proven right. The applicable law states that even when a contractor has failed to substantially complete a contract, he may enforce his lien rights if his performance has been excused or waived by the owner.  Otherwise, an owner could always prevent a contractor from enforcing his lien rights by simply terminating him before he had finished his work.  This contractor may have initially made a mistake but the owner’s actions were based on an incorrect interpretation of Florida’s lien law.

Another risk from an owner’s perspective, inherent in the hiring of an unlicensed contractor, is the manner in which most professional or  legal standards are overlooked.  Because they aren’t regulated, such unlicensed contractors frequently use inferior materials and often provide shoddy workmanship.  These workers are generally unfamiliar with building codes, disregard needed inspections, and provide a  finished work product with a higher likelihood of violations.  Moreover, in the event the unlicensed contractor fails to perform up to specifications, the chances are greater that it will not have the money or man power to repair any improperly constructed improvements.  As the previously discussed case illustrated, many insurance policies will not cover liability exposure for injuries to others (as well as property damage) if such injuries or damages are related to work performed by an unlicensed contractor.  All in all, the risks of hiring an unlicensed contractor from the perspective of an owner considerably outweigh the lower quotes and perceived savings presented by such an individual.

Significant risks also exist for any contractor on a project who hires an unlicensed subcontractor.  Many states have statutes in place that make contracts entered into by unlicensed contractors unenforceable.  A general contractor who hires an unlicensed sub could find himself with a big problem.  Because the subcontract is unenforceable, the general contractor is unable to avail himself of customary remedies, such as proceeding against any available performance bond.

If all this isn’t enough to dissuade you from hiring unlicensed workers, imagine this scenario.  A general contractor hires a number of  unlicensed subcontractors believing they are independent contractors.  But much to his dismay, he eventually discovers that the law considers such unlicensed subcontractors as statutory employees of the general contractor.  And since they were employees, the general contractor was held liable for contributions required to be made to unemployment insurance, disability insurance and employment training funds on their behalf as well as for withholding of their personal income taxes.  The general contractor quickly went from saving a bundle to spending a bundle.

Not only are the financial risks significant when hiring unlicensed contractors, but there is always an inherent danger that you will obtain an end product which just doesn’t meet required codes.  The solution is simple – always hire licensed workers and verify that their licenses are current and in effect.

It’s one thing to allege such damages; it’s something else to actually show you suffered such losses.  Lost profits must be proven with a reasonable degree of certainty if they have any chance of being recovered.  They cannot be the result of prediction or conjecture. The amount of surplus fill being hauled to the contractor’s second job was never defined as anything other than what was not needed on the first project.  Since the contractor never completed that first project, the proof to determine what amount of fill would actually be left over was going to be just an estimate.  There could be no proof of actual surplus fill or corresponding profits lost, and unfortunately for the contractor, there could be no recovery for lost profits.

Time for  Acceptance; Effective Date:  If this  Agreement is not executed by both parties and a copy delivered to each party on  or before 7/03, this Agreement shall be null and void.

The parties had proceeded as if a deal was in  place even though no signed agreement was returned by the stated deadline.  Two months later though, when a dispute arose,  one of the parties asserted for the first time that there was no agreement.  He argued that he hadn’t ever received back a  signed copy by the July due date.  He  demanded the return of the deposit he had paid.   When he didn’t get that back, he filed a law suit.

You  might think this would be an open and shut case.  The agreement wasn’t received back in time so  what was there to argue about? However,  the court determined that while the agreement may not have been delivered back  timely, it had been accepted.  Yes, it had been sent after the deadline, but no objection was raised either at the time of  receipt or any time thereafter.  The  facts actually revealed that the parties had gone about incorporating changes to  the agreement, even creating an addendum which was signed sometime later by  each of them, all after the noted deadline.

Simply  having a drop dead date in an agreement, even one stating there would be no  deal if a signed copy is not received or signed by a particular date, isn’t  going to be effective if the parties subsequently waive that requirement by  their actions.  In most instances, the  law looks at what the parties have actually done not just what they wrote.

]]> http://thelienzone.com/never-too-late.htm/feed 0 http://thelienzone.com/making-it-legal.htm http://thelienzone.com/making-it-legal.htm#comments Mon, 15 Aug 2011 17:32:56 +0000 barthet http://thelienzone.com/?p=1023 Two architects entered into a standard form of agreement with a college.  They were to design a performing arts complex and prepare bid documents.  The architects were licensed in the state and had opted to do business as a partnership.  However, they failed to obtain the necessary certificate of authorization required by the state for partnerships.

More than midway into the project, the architects were terminated by the college for unsatisfactory performance.  The unhappy architects sued for monies still owed.  The college counterclaimed alleging that since the architectural partnership had never obtained the requisite certificate of authorization, there was actually no valid contract between the parties.  The contract was void from its inception, the college argued.

The architects cried foul, acknowledging that while they may not have gotten around to filing their partnership papers, they had been told by the college to continue working on the project while they tried to resolve their partnership issues.  The architects even delivered plans and specifications after this point which the college used.  The evidence actually revealed that the college turned the plans over to its new architect and used funds originally allocated for the original architects to pay the new consultants.

Against this background, the trial and appellate courts ruled in favor of the architects.  A failure to obtain the certificate of authorization did not invalidate the contract and the statute relied on by the college simply made the contract voidable but not void.  The contract could have been voided but instead was actually ratified because of the actions of the college.

In order to keep a project on track, the parties need to have a mechanism by which changes to the scope of work may be made without unduly interfering with or delaying the project’s anticipated completion date.  The parties to a construction contract will often leave themselves room to change the terms of their original contract in order to account for such unanticipated factors as incorrect initial estimates, updates in code requirements, extreme weather conditions, or changes in the cost or availability of building materials. A provision in the contract allowing for change orders is one of the most frequently used ways for the parties to give themselves flexibility to adapt to changing circumstances.

It is therefore commonplace for a construction contract to include a requirement that any change to the scope of contemplated work be in writing.  However, once a project is underway, fluctuating and unpredictable conditions on the job may result in the parties either  overlooking or choosing to ignore such a requirement.

While these provisions to document changes in writing are generally enforceable (assuming that the parties have otherwise complied with the other terms of the applicable contract),   they can also be waived.  As such, notwithstanding a general rule of enforceability, written change order requirements in a contract can be waived based on the parties’ conduct or a verbal understanding (even though the original contract itself is in written form).  Ironically, then, a contractual provision stating that the contract’s terms cannot be waived may itself be susceptible to being waived.  If the parties verbally agree to modify a written contract, such an agreement will be enforceable even though the written contract itself states that such a modification is impermissible.  In layman’s terms, just saying a change order has to be in writing will not necessarily make it so.

Be aware that there is a legal distinction between a change and an extra.  A change is a modification to an item that is already contemplated under the contract.  An extra, on the other hand, is material or work in addition to that which was addressed under the original contract.  Before entering into a construction contract one should determine if the contract addresses changes or extras and if so, whether they treated the same way.

Under AIA documents, there are two types of contract changes.  A change order is effectuated where the contracting parties agree to the nature of the work changed and the cost of such work in advance. In other words, there is a change at an agreed upon price and time.

A change directive, on the other hand, will be issued where the parties do not agree as to either what constitutes a change in the work or the cost of such work.  Under this set of circumstances, the owner must pay the least acknowledged price for the extra work with the final price to be determined later.

Change orders may be addressed in those statutes governing liens.  For instance, under one state’s applicable statute, change orders and extras are “labor, services or materials for improving real property authorized by the owner and added to or deleted from labor, services or materials covered by a previous contract between the same parties”.  Additionally, change orders and extras are encompassed in the definition of “contract” under the lien statute.

“Contract price” is defined as “the amount agreed upon by the contracting parties for performing all labor and services and furnishing all materials covered by their contract and must be increased or diminished by the price of extras or change orders, or by any amounts  attributable to changes in the scope of the work or defects in workmanship or materials or by any other breaches of the contract”.  While they are distinct items, at least in some jurisdictions, extras and change orders are categorized and treated much the same.

It is a prudent idea to identify in writing (either in the contract papers or via separate correspondence) the specific persons who are authorized to make changes and to bind a contracting party. Likewise, it may be a good idea to identify, either by name or job
description, the individuals who though they may have a position of authority, do not in actuality have authority to makes changes.

When drafting a change order, it is sensible to include the date, an adequate description of the work to be performed, the price of the change (or, at a minimum, a method for determining the price), a description of how long the work is estimated to take and any exceptions or objections as to what is being resolved by the change order.

Special consideration should also be paid to changes in work when contracting with a public entity.  Here the doctrine of sovereign immunity will preclude recovery for extra work that was not included in the original contract or a subsequent written change order, i.e.
claims that are not covered by the original written contract.  However, sovereign immunity does not operate as a bar to recovery where a party seeks damages for materials or work that were addressed in the original written contract between the parties.  As such, if disputed work is not part of the original contract or change orders (whether express or implied), sovereign immunity will bar recovery because such work is deemed to be outside the contract.

Despite a general inclination by courts to enforce written change order requirements in construction contracts, there are a variety of twists and turns that may occur during the course of a project which can impact the status of such requested changes.  Anticipating these issues while preparing a contract can minimize the risk of a dispute down the road.  Knowing your rights under a contract is but a first step; making sure that you follow contract terms during the course of the job is even more critical.

The trial court struggled with the language in the contract, finding it ambiguous. Did the parties mean occasional leaks caused by normal wear and tear or multiple leaks as might be caused by hurricane damage? And would temporary or permanent repairs be accomplished within the warranted 72 hours? Of course, each side presented a different interpretation. Because the intent of the parties could not be determined from the contract terms alone, the court decided to hear the testimony of the parties and their experts to sort through their competing claims. While the roofer eventually prevailed, he learned a lesson that some additional clarity up front when negotiating and writing his contract would have been well worth the extra effort, saving unnecessary aggravation and heartburn later when the unexpected occurred.