June 12, 2019
As lawyers experienced in Ohio real estate law, we get calls from existing and new clients nearly daily with the problem du jour. We have seen mortgage fraud, we have seen fraudulent deeds, we have seen predatory lenders, and we have seen home builders go bust.
The calls we are getting lately (other than complaints about basements leaking from all the rain), seem to be centered on shoddy home renovation projects.
We are never certain why one set of calls prevails over another, and sometimes with a small firm such as ours, it is just the “luck of the draw.”
But we surmise that with the red-hot real estate market, plenty of rehabbers have newly entered the marketplace, and plenty of them don’t have an experienced corral of professional subcontractors — carpenters, electricians, plumbers, HVAC contractors, roofers, etc. –to do the work. Or contractors and subcontractors are simply over-committing. As a result, deadlines are not being met, and quality is dropping as contractors farm out work to entirely inexperienced subs.
This leads to the problems that deadlines are being missed, the quality of work is shoddy, and followup on warranty and punch list items is slow or non-existent.
As with everyone else performing services, the contractor wants to be paid. But if the work is late and sub-standard, how is a homeowner to respond? If it’s non-payment, the contractor many times quickly resorts to filing a mechanics lien as the “check mate” of a construction dispute.
But a lien is not the end of the story. A lien is merely a claim or an assertion by the contractor of what he is owed, and the property owner can successfully fight it if it not well-grounded. Now a lien can cause title problems, and thus foul up the construction loan disbursements for the remainder of the work. But if the client has some financial flexibility, a lien problem can be worked around.
From our experience, the key to a contractor dispute is as much an accounting problem as it is a legal problem: What was the original price of the work, what were the agreed change orders, and what other adjustments are appropriate?
A poor foundation
As is discussed here and here, a construction contract can be either a fixed-price contract, a cost-plus contract, or a hybrid thereof. If a contract is straight cost-plus with no controls built in, a home buyer or renovator could be in for a rude awakening at the time of financial reconciliation. A fixed price contract, however, may many times only adjust with a written change order.
But even worse than cost escalators is a contract that has no clear “beginning point,” in other words it states that in exchange for “X” amount of money, the home owner will pay “Y” cost. But if “X” is not clearly defined — the product to the built for that fixed consideration — enforcement of the contract becomes a mish-mash of he-said, she-said allegation. Simply imagine if you were the Judge or a Juror deciding how much money is owing when (a) the parties have failed to state at the outset what the builder was giving in exchange for the payment from t he buyer? (b) change orders were not properly agreed upon and documented, but in some instances asked for and performed? These tasks are incredibly difficult for a fact-finder and thus require tremendous factual development to properly present.
The summation of this problem is: First, don’t assume someone has industry knowledge and experience just because they hold themselves our as experienced and knowledgeable on the internet or otherwise. Check references and inspect their prior projects. Talk to their former customers about cleanliness of the worksite, quality of work, and timely perrformance.
Second, carefully document the contractual agreement with the Contractor from the first day of the project to the last. Third, continuously monitor the contractor’s performance and don’t accept half-solutions and shoddy work.
If you want our help writing the contact, that is fine, but certainly if you run into contract disputes, consult our experiences attorneys. I suggest Eli Kraft-Jacobs (513.797.2853) to help with your construction disputes.