Construction law is the body of laws that includes all aspects of building, from the initial bidding process to the negotiation and drafting of contracts. Construction laws are also relied on when there is a dispute between parties.
What are Construction Contracts?
A construction contract is a contract, or agreement, between parties to complete a construction project. Upon entering into a contract, both parties are obligated to perform according to the terms of the contract.
If a party breaches the contract, the non-breaching party can sue for damages. Damages are a sum of money used to compensate a party for the loss suffered as a result of the breach of contract.
When the owner of a property and a contractor enter into a construction contract, disputes may arise from that contract. This is especially true if a contractor engages in construction fraud.
The options for resolving disputes arising from a construction contract are usually defined by the terms of the contract. It outlines the duties and obligations of the contractor and the property owner. In many cases, the construction contract will provide for remedies if one of the parties does not perform as promised.
What are Construction Delays?
Construction delays are setbacks in the original timetable set out for the completion of a project. It is very common for construction projects to experience delays. There are many situations that arise that are out of the control of the owner and the contractor.
One of the most common construction delays is weather. Although a project can be planned around the usual weather for an area, there are always variations.
The issue that arises is whether or not an owner can recover from the contractor for the construction delay. Some delays may be considered excusable and others may not.
What are Excusable Delays?
In most cases, a construction contract will provide provisions that outline specific instances where a contractor is excused for a delay in the project. Delay is generally excused in instances where the delay is caused by:
- An act of God, such as a tornado or unexpected weather;
- Issues with the individuals working on the project, or labor problems;
- A changed the project or design that is requested by the owner; or
- Other causes that the contractor could not foresee or control.
Typically, the construction contract provides the contractor with a time extension for an excusable delay. The contractor is usually required to provide the owner with notice of the delay and the cause of the delay.
What is Acceleration of a Construction Contract?
An acceleration of a construction contract occurs when the owner of a property compels a contractor to complete a construction project ahead of its scheduled time frame. An acceleration may cause an increase in the contract price due to the contractor’s new cost or labor requirements.
What is Constructive Acceleration?
Constructive acceleration occurs in situations where an owner refuses to provide a contractor an extension of time for an excusable delay or a reasonable time extension request. The contractor may recover for any additional expenses incurred due to the owner’s refusal through constructive acceleration. However, the contractor must actually accelerate the performance and incur extra costs in order to recover under the constructive acceleration doctrine.
What are Mechanic’s Liens?
A mechanic’s lien is a method used by a contractor or other individuals employed for the purpose of improving real property to ensure that the property owner will pay for the services performed and the materials used.
The individual employed to improve the property will attach a financial claim to the property they are hired to improve. The lien serves as a hold on the property. Typically, the property owner will be served with notice of the lien. The lien will be recorded at the county or city recorder’s office and becomes attached to the title of the property.
If the property owner fails to pay for the services or materials, the contractor can initiate a court proceeding to enforce the lien. This often results in a court proceeding forcing the sale of the property to pay for the services or materials.
How are Damages Computed in a Construction Contract?
There are two different ways to compute damages in a construction contract, cost-to-complete and diminution-in-value. A court will determine which method should be used based on the facts of each specific case.
The cost-to-complete method of calculating damages requires the losing party to pay damages or replace or complete the project as agreed upon by the parties. Courts typically use this method when the breach party’s performance has been defective or incomplete.
The diminution-in-value method of calculating damages requires the losing party to pay for the difference in the value between the project as it stands and the project as specified in the contract.
For example, suppose a home is built in breach of the contract terms. Using the diminution-in-value method, the market value of the finished house would be calculated as well as the market value of the house specified in the contract. The builder would be required to pay the difference between the two. This method is generally only used when substantial performance of the contract has occurred.
Are There Limitations to the Recovery of Damages?
Yes, there are several limitations that may apply to the recovery of damages in a breach of construction contract case. These may include:
- Foreseeable damages;
- Certainty; and
- The duty to mitigate.
The party that breaches the construction contract must be able to reasonably foresee that the damages will likely occur. For instance, if a contractor refuses to complete a home, it would be a reasonably foreseeable fact that the purchase would be required to live somewhere else until the home is completed. The contractor may then be liable for the purchaser’s expenses incurred by having to live elsewhere.
The damages must be proven with certainty. For example, if an individual claims they suffered emotional distress because their dream home was not completed is not measurable. As a result, it is unlikely damages will be awarded.
The non-breaching party has a duty not to amplify the loss. For example, suppose a builder is constructing a home and the purchaser cancels the contract prior to the home being finished. The builder is not permitted to finish the home and then attempt to recover damages for finishing the entire house. Although the cancelling party is in breach of contract, the builder is required to minimize the damages as much as is reasonably possible.
Should I Consult an Attorney about My Construction Dispute?
Yes, if you have any construction disputes, it is essential to have the help of an experienced real estate attorney. Construction projects are typically subject to strict deadlines. In addition, every state has different laws regarding the procedures and deadlines for filing a breach of construction contract claim.
An attorney can review your construction contract, assist you in collecting the necessary evidence to prove a breach and represent you in court, if necessary. An attorney can also help you if a mechanic’s lien has been filed to prevent the property from being sold.
If you are a contractor or subcontractor, an attorney can help you adhere to the strict deadlines for filing a mechanic’s lien. An attorney can also review any construction contracts you use to ensure they comply with local laws and protect your rights.