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BLOG / 12.01.23 /Margaret D. Baisley

Residential Alterations: Don’t Sign That Contract!

Recently, we have seen numerous residential alterations projects go awry because co-op and condo owners are signing bare-bones agreements without any attorney’s review. It is a grave mistake for property owners to focus only on the planning of their renovation, while ignoring the importance of retaining a competent construction law attorney to review their contractor’s or architect’s agreements.

You never need a lawyer until you realize that you needed one.

This mistake is only discovered when the project is months delayed with no end in sight, its costs have doubled without clear explanation, the owner is threatened with mechanic’s liens, or the workmen do not show up to complete the job. By the time these calamities occur, an owner’s options are limited to expensive and time-consuming litigation or the difficulty of finding other professionals to replace the defaulting contractor and take over the job.

Retain counsel before writing that first renovation check.

Cooperative and condominium counsel and managing agents are wise to advise their shareholders and unit owners to retain competent counsel prior to writing the first renovation check. In a recent case, our client, a condominium unit owner, signed three different agreements without consulting an attorney: one for architectural services, one with a contractor for a $1.3 million renovation and a third with an owner’s representative to protect his interests. Unfortunately, the principal of each company he signed with was the same individual – purportedly acting in three different capacities which contradicted one another and contained conflicting duties and obligations. The project is now substantially over budget and delayed by over a year.

The architect, owner’s representative and contractor must all cooperate to ensure that the project moves smoothly to completion. However, each also serves as a check and balance to guard against potential problems that may arise. It is critical that the contracts spell out the respective role, duties and obligations of each party clearly before the project begins. A skilled attorney is the often forgotten professional who will assure that the contract terms are consistent and agree, and that the property owner’s interests are properly protected.

The Architect’s Agreement

A well-drafted architect’s agreement is critical to provide substantial protections for the co-op or condominium owner. Architects commonly present clients with their own, abbreviated form of agreement which omits many of the protections set forth in the Standard Form Agreement Between Owner and Architect (AIA Document B101-2017). An attorney would ensure that the architect’s form agreement contains a clear description of services, not only with respect to drafting the plans and specifications for the project, but also overseeing bidding by contractors and the administration of the job. Is the architect acting only as a designer, or is he/she familiar with local Code requirements? Will the architect ensure that the plans are properly filed and approved by the NYC Department of Buildings, The NYC Landmarks Preservation Commission and all other relevant agencies? If not, does the fee include the costs of an expeditor to undertake this work?

During construction, what duties does the architect have to inspect the work and oversee the construction? Most agreements do not require the architect to perform daily oversight, but should state that the professional will visit the site at appropriate intervals and certify the progress of construction. Most importantly, the architect should review applications by the contractor for progress payments and review the work to certify to the owner that the payment requests are accurate and the work conforms to the requirements of the contract documents. The architect should require that the contractor and any subcontractors provide partial lien waivers certifying receipt of funds and waiving their claims to sue the owner, up to the amount of  payments made.

The architect is obligated to alert the owner to evidence of shoddy workmanship or substantial deviation from the plans. The architect is also typically the initial decision-maker in the event of a dispute between owner and contractor regarding interpretation of the contract documents.

The Construction Contract

All too often, clients sign a document for very expensive alterations that is nothing more than a contractor’s proposal. This proposal typically gives an abbreviated list of items to be completed, with a price and payment terms, and very little else. There is no provision for insurance, the time of completion of the job, warranties, sign-offs or any other protections contained in the Standard Form of Agreement Between Owner and Contractor (AIA Document 104-2017) or similar agreement. Under a General Contractor’s form, the contractor company hires outside subcontractors for the various trades. More extensive projects require a Construction Management agreement.

An good attorney’s review ensures that the construction contract sets forth the essential elements necessary to protect a property owner:

1. A detailed description of the scope of the work, with references to all architect’s drawings and contract documents;
2. a fixed price or method of determining the price of the project;
3. the time of completion (with penalties for contractor’s delays);
4. representations that the contractor will perform in a good and workmanlike manner, in compliance with all governmental law;
5. contractor’s warranties;
6. liability for paying subcontractors and obtaining lien waivers from all subs;
7. the submission of periodic requests for payment, with a retainage of at least ten percent (10%) on all partial contract payments;
8. adequate insurance to protect the owner and indemnification language that is necessary to trigger such insurance coverages;
9. submission of all necessary documents to obtain governmental inspections and property sign-offs of all work;
10. a termination clause, in the event the contractor delays or defaults in his obligations; and
11. a method of resolving disputes, either by arbitration or litigation, with a legal fee recovery provision.

Last fall, a client of ours signed a simple agreement for a complete home renovation with a contractor who was simultaneously working on two other large projects. The client never asked us to review the agreement and the contract had no insurance provisions. As the workmen were called away to the other jobs, completion of the client’s project was delayed into the cold weather. Plumbing was installed and water connected before the heating plant was finished. During a cold snap in January, the pipes all burst, flooding the entire home, damaging the newly installed sheetrock and buckling the wooden floors.

The contractor blamed his subcontractors for not installing temporary heating, but neither had adequate insurance coverage. The owner’s insurance carrier disclaimed coverage and the homeowner was faced with a substantial loss. Our client was left to complete the work with a new contractor at substantial expense. He had little recourse against the defaulting contractor, because the company declared bankruptcy to avoid liability. The contract our client negotiated without our assistance left him with few protections and limited options.

Construction projects in New York are complex and expensive, even in residential cooperative and condominium apartments. It is critical that property owners seek the advice of counsel before they sign the agreements that may spell the difference between a beautiful, newly renovated unit – or substantial cost overruns that wind up in court.