By Attorney Edward Jesson
This week’s article deals with the responsibilities that contractors have with regards to the actual design of the building, which necessarily includes the building’s structural system. Generally, the contractor responsible for building the project, be it new construction or otherwise, is not responsible for the design aspects of the project unless we are talking about a design-build project. The design aspects will usually fall to a “design team,” often comprising of some combination of architects and engineers. Or, more often in the residential setting, the owner will provide plans and specifications to the contractor.
The following problem has come up time and time again: a general contractor finishes work on a project, built perfectly to the plans and specifications, only to find out that the plans and specifications were defective in some way, which has then caused issues with the final project (at the extreme end, these issues could be structural, rendering the completed project unfit for purpose). Invariably, on discovery that the project has some serious issues, the project’s owner will first turn to the general contractor to “fix it.” Of course, if “fixing it” involves starting from scratch, neither the owner nor the contractor wants to come out of pocket to pay for that.
Legally speaking, the courts throughout the United States have created a doctrine whereby the project owner impliedly warrants that the information, plans, and specifications that an owner provides to the general contractor are fit for purpose. In a residential setting, even if the owner used a design team, if the owner provided plans and specifications to the contractor, this doctrine would likely still apply. This doctrine is known as the Spearin Doctrine and arises from the case United States v. Spearin, which was argued in the United States Supreme Court in 1918.
What this essentially means is that, so long as the contractor complies with the plans and specifications supplied to it by the project owner, the contractor cannot be held legally responsible for structural defects if those plans and specifications are not adequate for the specific project. Contrast this, for example, with a design-build project, where the contractor or its consultants are partially responsible for the design aspect of the project, and you can see how Spearin would likely be inapplicable to those circumstances.
There are, of course, exceptions to this general rule. For example, if there is an express term contained in a contract that the contractor is responsible for any design defects, then it is likely that a contractor in that situation could be held legally responsible. Another exception is that of “reasonable reliance,” which means that if a design defect is so glaringly obvious that it could not be missed, a contractor would not then be able to later claim that they relied on the plans in order to avoid liability.
While generally not directly responsible for the design of structural systems (or, indeed, other areas of a project), that does not mean that a contractor cannot be held liable for deficiencies in the design. The best protection against issues such as the ones presented in this article are written contracts in place between all parties to a construction project, including the design team, and not just between the owner and general contractor.
By Attorney Edward Jesson
I am excited for the opportunity to speak to you each month about legal issues in the construction industry. My name is Edward Jesson, and I am a partner with the law firm Jesson & Rains, PLLC based in Charlotte, North Carolina. I grew up in England and moved to the United States in 2005 to attend college in South Carolina before moving to South Florida for law school. Our firm protects businesses and their owners, specifically those in construction and related industries. My wife and I previously practiced in South Florida prior to opening Jesson & Rains in the fall of 2015.
In keeping with the theme of this first issue of Building Savvy, I think it’s important to be aware of a specific contract provision that can save the profitability of many jobs: Differing Site Conditions.
Coming across an unexpected site condition is a fairly common risk in a construction project, especially for those involved in new construction or those involved in the grading industry. Put simply, “differing site conditions” are generally considered to be a condition that is discovered while performing work on a project that was not apparent, visible, or expected at the time the project was bid. The majority of times these differing site conditions would be ones that could not have easily been discovered if the contractor had engaged in a reasonable site inspection during the bidding/quoting process. A good example of a differing site condition that you might encounter throughout the country would be unanticipated ground water. You could also come across differing site conditions during remodels -- a historical renovation would be one such example -- such as something in the walls that wasn’t expected or couldn’t have been uncovered with a reasonable inspection of the property (i.e. without tearing into walls to see what you find—which a lot of homeowners probably wouldn’t be too happy with during the bidding process!).
This presents a problem in construction projects, especially those that are for a fixed price. If you quote a homeowner $500,000 for a new build, and then encounter a differing site condition, the costs of construction can skyrocket. Without the proper contractual provisions in place, the homeowner may not be willing to pay those increased costs, nor may they be legally required to. Issues can also arise as
differing site conditions will often involve a delay in the completion date of the project; something which owners, both residential and commercial alike, are often none too happy about.
One of the main purposes of contracts in the construction industry is to assign various risks to parties to that contract before the work begins. This can clearly be seen with differing site conditions clauses in contracts. The differing site conditions clause in AIA 201-2017 states:
If the Contractor encounters conditions at the site that are (1) subsurface or otherwise concealed physical conditions that differ materially from those indicated in the Contract Documents or (2) unknown physical conditions of an unusual nature that differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the Contract Documents, the Contractor shall promptly provide notice to the Owner and the Architect before conditions are disturbed and in no event later than 21 days after first observance of the conditions. The Architect will promptly investigate such conditions and, if the Architect determines that they differ materially and cause an increase or decrease in the Contractor’s cost of, or time required for, performance of any part of the Work, will recommend an equitable adjustment in the Contract Sum or Contract Time, or both. If the Architect determines that the conditions at the site are not materially different from those indicated in the Contract Documents and that no change in the terms of the Contract is justified, the Architect shall promptly notify the Owner and contractor in writing, stating the reasons. If either party disputes the Architect’s determination or recommendation, that party may proceed as provided in Article 15.
AIA agreements are often standard in the commercial construction industry, though much less used on the residential side of things. While that AIA clause is certainly more than you would need for most residential construction projects, it is illustrative of what a differing site conditions clause tries to do. If the contractor notifies the proper people promptly (in this case the owner and architect, but on the majority of projects it would likely just be the owner), the owner must adjust the contract price accordingly to reflect the extra work that will be done and, if necessary, adjust the time required for performing the contract.
Contractors would be wise to consider using a differing side condition clause in their contract. A simple differing site condition clause, in addition to a well written contract in general, can help protect against the unexpected and, more importantly, help a contractor protect its profit when such conditions are discovered.
By Attorney Edward A. Jesson
The North Carolina Constitution, and North Carolina statutes, give contractors the right to file mechanic’s liens if they are owed money for completing “improvements” on real property. Improvements are defined in a statute, but generally speaking, anyone who performs work on real property, be it renovations, grading, architectural work, or otherwise, can file a mechanic’s lien in North Carolina.
The purpose of filing a mechanic’s lien is to have the debt owed to the contractor paid by the responsible party (often, the owner of the real property). A contractor has 120 days from the “date of last furnishing” to file the lien. The “date of last furnishing” is simply the last date that the contractor (or architect, etc.) performed work on the real property. It is best to be conservative with this date as courts have ruled in the past that punch list items performed after the date of last furnishing do not push that date out further. The mechanic’s lien has to be filed with the clerk of court in the county where the real property is located and formally served (like a lawsuit) on the property owner and any other contractors that may be affected by the lien. It is important that the lien be properly drafted when it is filed—if there is a mistake and the 120-day deadline passes, you cannot simply amend a lien. Instead, the lien must be released and a new lien filed in its place.
The contractor then has 180 days (again, from the date of last furnishing) to “enforce” the lien. To enforce a lien, you file a lawsuit and ask the court declare that your lien is valid and confirm the debt amount. Oftentimes, a lien enforcement lawsuit will also include other claims, such as a claim for breach of contract. If the contractor is successful, he/she can then request that the court order what is essentially a foreclosure sale on the property to satisfy the debt. If there are other liens attached to the property, like a mortgage, the contractor will have to get in line. The existence of other liens is something to take into account when evaluating the benefits of moving forwards with a lien enforcement action.
In reality, most lien situations are resolved prior to a foreclosure sale, because (1) property owners don’t want their property sold and (2) attorney’s fees may be awarded in the lien enforcement lawsuit. North Carolina’s mechanic’s lien statute contains an attorney’s fee provision that awards attorney’s fees to the prevailing party. That is very rarely the case in the United States (normally, parties are responsible for their respective fees, regardless of whether they win or lose), so it can be a powerful negotiating tool.
If a contractor loses, they may have to pay the other side’s attorney’s fees, which can often total more than the debt owed itself, so it is important to seek the advice of a construction lawyer when evaluating whether you should file a mechanic’s lien.
There are many other factors to consider when getting ready to file a lien, and there are other types of liens that can be filed by subcontractors and others involved in the construction process. Should you have an issue with collecting money from a client or have had a lien filed against your property, please give us a call to help with your issue.
By Attorney Edward Jesson
It happens more often than we would like to see, but sometimes work is complete, a dispute arises, and suddenly it is discovered that the contract that everyone assumed to be in place was not signed. This happens frequently in construction cases (most often seen with contracts between General Contractors and Subcontractors) but the issue can also rear its ugly head in any other contractual setting, especially where independent contractors are involved.
In legal terms, in order for an agreement between two parties to be binding and valid, there needs to be a “meeting of the minds”. Put simply, it needs to be clear that the parties to the contract intended that contract to govern the relationship between them. Most frequently, a signature on a contract signifies each party’s intent to be governed by that contract.
So what happens when, sticking with the construction industry example, a subcontractor performs all work under its subcontract agreement with the general contractor and then a dispute arises and it turns out the contract wasn’t signed?
Generally, when courts are confronted with an unsigned agreement, their default opinion will be that the parties never reached that “meeting of the minds” and therefore they did not intend to be bound by the terms of that contract.
However, this doesn’t mean that no contract between the parties existed and that the party seeking to enforce its rights under the agreement has no recourse. The court will next look to all other evidence which indicates what the agreement was between the parties. For example, if there were multiple drafts of a contract with different terms included, the court may decide that the earlier draft contracts that had parts removed from them at a later date is evidence that those removed contractual terms were not a part of the parties’ agreement.
Courts may also look to whether there was a “contract implied in fact” between the parties. In the general contractor subcontractor example, evidence that the general contractor asked the subcontractor to perform work and the subcontractor did perform that work would certainly be evidence of a “contract implied in fact”. It would be unreasonable for a court to decide that the subcontractor did that work and did not expect to receive any payment for that work. Oral agreements are oftentimes valid. There is no requirement that many types of contracts be in writing. Therefore, if you’re on the other side (someone completed work for you but you didn’t sign the contract), you don’t get a free pass! If you do not pay, you may find yourself on the receiving end of a lawsuit.
In any event, it is important to have a written contract signed by the parties. It sets the expectations of both parties – what they’re supposed to do in exchange for compensation. When it is reduced to writing, there are less evidentiary issues in court. When it is reduced to writing, it is less likely that there will ever be a lawsuit about the terms because a signed contract shows that all parties agreed to the terms.
The attorneys at Jesson & Rains are ready to assist with drafting and review of contracts, and, importantly, assist clients who find themselves in disputes arising from unsigned contracts. Just because you do not have a signed contract, it does not mean you have no rights.
By Attorney Edward Jesson
In 2012, North Carolina’s mechanic’s lien statutes were overhauled. One of the biggest changes was the requirement for a lien agent to be appointed on certain jobs. We still frequently receive questions about lien agent requirements and what the consequences of a contractor’s failure to file a “Notice to Lien Agent” actually are.
Lien agents are only required on projects involving improvements to real property valued at over $30,000.00, except that a lien agent does not have to be designated for projects where improvements are being done to an existing single-family residential building, occupied by the owner, even if those improvements are valued over $30,000.00. That exception also applies if the contract is for the construction of accessory buildings where “the use of which is incidental to that residence.” Generally speaking, the appointment of lien agents is more prevalent in commercial construction projects but it is also sometimes necessary to designate a lien agent for residential projects. While designating a lien agent is generally the owner’s responsibility, there is a limited ability for “custom contractors” (as defined by the statute) to designate the lien agent on residential new construction projects as, presumably, custom contractors should be more familiar with these laws than the average home owner.
In order to fully protect its rights as a contractor to pursue a claim of lien on real property, a contractor must file a Notice to Lien Agent within 15 days after it first “furnishes labor or materials to the project.” While failing to file a notice to lien agent within 15 days is not necessarily fatal to any future lien claims, it may limit the contractor’s lien rights should it be necessary to file a lien at a later date. If a contractor fails to file a notice to lien agent and, prior to filing the notice or to filing a claim of lien on real property, the property is sold or otherwise encumbered, the contractor seeking to enforce its lien rights at a later date may have issues doing so. On the other hand, if a contractor fails to file a notice to lien agent and it then becomes necessary to file a lien, the contractor will likely be able to do so if the property has not been sold or otherwise encumbered.
It is important to note that the lien agent does not take place of the owner or upper tier contractor for purposes of service. Any claims of lien on real property or claims of lien on funds should be filed (where necessary) and served on the owner and any necessary contractors and/or suppliers.
It is best practice, in projects where lien agents are appointed, to file the notice of lien agent as soon as possible—even prior to beginning work. There is a portal to provide Notices to Lien Agents on LiensNC.com, but if you have any further questions, the attorneys at Jesson & Rains would be happy to help.
By Attorney Edward Jesson
People and businesses get sued every day, and while no one enjoys being on the receiving end of a lawsuit, there are certain things that should be done to try and make the experience as painless as possible. In North Carolina, a lawsuit is generally started when an individual or a business (also called the “plaintiff”) files a complaint. The clerk of court issues a summons, which must be served on the defendant (the party being sued). This can generally be done by mailing it certified mail, return receipt requested, sending via FedEx or UPS, or having the county sheriff personally deliver a copy of the summons and complaint.
Once the summons and complaint have been served, the defendant has 30 days to respond to the complaint in district and superior courts. In small claims court, when a defendant is served (in some instances this can be achieved by the sheriff leaving a copy of the complaint taped to the front door), they will usually receive a notice of hearing along with the complaint.
Here is the first point that I would like to make clear: if you are served with a lawsuit, please do not wait until day 29 to contact an attorney. Evaluating your position as a defendant in a lawsuit and preparing the correct response takes time. While you can usually get a 30-day extension of time to respond, doing so at the last minute is not always possible, and the extension likely won’t be granted if it is after day 30. If you fail to respond to the complaint in time, the plaintiff may be entitled to a default judgment. It is exactly what it sounds like— they will automatically win “by default”! A default judgment can be hard to overcome once it is entered, and the excuse that you simply “forgot” to respond is usually not enough.
Point number two: Do not answer the complaint without first consulting with an attorney. In an answer, you will generally just admit or deny the allegations to the complaint, but that is not the only response that is available. There are several ways that you may be able to get the lawsuit dismissed (meaning the case is thrown out), but that option is not available if you admit or deny allegations in the answer first. By doing that yourself, you may be preventing an attorney from later dismissing the lawsuit.
For most people who are sued, it is for the first time in their lives (and hopefully the only time). Once the shock, confusion, and anger has worn off, it is important not to bury your head in the snow. Contact a litigation attorney who can help you navigate through the civil system and, hopefully, get your case resolved in the most efficient way possible. If done correctly, you may save a lot of money; however, trying to handle it yourself oftentimes results in the expenditure of more money. If you or anyone you know has been sued, please give the attorneys at Jesson & Rains a call.
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