Home renovation

Minimizing Risk in Home Renovation and New Construction | Legal issues

A lot can go wrong with home renovation or new construction. When construction-related issues arise, they can be costly. Many of these problems can be avoided with proper attention.

Before even signing a contract, the owner must ensure that the contractor is duly authorized. This can be done by checking the Florida Department of Business and Professional Regulation’s online records. While on this website, check if there are any complaints against the entrepreneur. Don’t stop there, check the same website for the qualified agent and company executives to see if there are any issues with them or their licenses.

Check the court clerk’s records to see if there are any lawsuits involving the builder or its principals. Some lawsuits are unfounded, but if there are multiple lawsuits involving the same builder, there is a troubling pattern that needs to be carefully investigated.

The owner must ensure that a permit is obtained when a permit is required. Unscrupulous contractors will skip this requirement to save permit costs.

The contract itself can be the source of problems. There are many things an owner should require or ask for, and listing them all would exceed the length of this column. But I will list a few important things the contract needs to address from the landlord’s perspective.

How will the cost of the contract be calculated? Many construction contracts now contain clauses that allow the builder to charge more money if material or labor costs increase. These clauses should be read carefully. In times of supply chain disruptions, they can be costly.

Confirm how extras and change orders will be billed. Most construction contracts provide that additional and change orders will be invoiced at cost plus a certain percentage. There is no incentive for a subcontractor to bid low for such a change and most contractors are happy to add a percentage to the higher cost. The owner should make minimal changes by working with the builder to make the original contract specification as “perfect” as possible.

Cost-plus contracts can be particularly dangerous. When a builder works under a fixed-price contract, he has an incentive to get subcontractors to submit lower bids and buy materials at the lowest possible cost. If the builder makes a profit and overhead, regardless of the cost, that incentive is lost. A cost-plus contract may seem like a good deal to an owner, but it’s often an invitation for an unscrupulous builder and subcontractors to inflate costs.

The completion date is rarely firm in local construction contracts. Most have “weasel” verbiage that indicates the completion date each time the work is completed, as opposed to a deadline. This means that projects can take much longer than a homeowner expects. The property may not be available for use or rental and the owner may pay loan interest for an incomplete building. Even if the contractor doesn’t agree to a firm completion date, a homeowner should at least get a clause requiring there to be continued work on the project with photos provided by the builder. With some builders, the only time work is done is when the homeowner comes to town.

Payments to the contractor are a frequent problem. Most construction contracts call for payments before work begins and drawdowns as work progresses. Contracts are drafted by and generally favor the builder. All of the builder’s profits could flow into the first draws. In some cases, the builder will actually have to pay more to complete a job than the builder will get in the last draw(s). This not only reduces the incentive to work, but can also cause the builder to give up jobs. This is especially true if the builder undersold to begin with or if costs have increased.

Contractors pay subcontractors after the owner has paid the contractor. The owner cannot rely on the contractor to pay subcontractors and material suppliers, but must ensure (at a minimum) that subcontractors are paid from previous drawdowns.

Florida law requires subcontractors and material suppliers to notify the owner that they are at work within 45 days of commencing work or lose their lien rights. Once the owner receives notice to the owner, the owner must ensure that the subcontractor or supplier is paid or the owner risks the subcontractor or supplier filing a lien. Subcontractors and suppliers obtain information about the owner from a Notice of Commencement signed by the owner and which the contractor is required to post on the job site. The owner must ensure that this is done.

As each drawdown payment comes due, the Owner shall also require the Contractor to provide a release of lien from all subcontractors and suppliers who have provided notice to the Owner. Since sub-contractors and suppliers usually lag behind, releases will only be through the previous draw, but this will minimize liens on the current draw amount. Releases should be carefully considered as some in common use are conditional upon receipt of payment and are not actual releases. The owner should also check building department records to ensure that all inspections have passed.

Upon completion of the work, the owner shall require an affidavit from the final contractor in which the contractor confirms that all subcontractors and suppliers have been paid in full or lists those who have not been paid. As long as the Owner has final releases from all subcontractors and suppliers who have provided notice to the Owner and the final contractor’s affidavit indicates that all subcontractors and suppliers have been paid, the Owner may perform final payment and any sub-contractor or supplier who has not served notice to the Owner forfeits their lien rights. At the time of final payment, the owner must also obtain a final release of the contractor’s lien and ensure that all permits are properly closed with the local government.

Dealing with contractors and contracts can be costly if not done correctly. Unfortunately, many homeowners view building and remodeling a home as if it were as easy as buying groceries.

William G. Morris is the Principal of William G. Morris, PA William G. Morris and his firm have been representing clients in Collier County for over 30 years. Her practice includes litigation and divorce, business law, estate planning, associations and real estate. The information in this column is general in nature and does not constitute legal advice.

William G. Morris is the Principal of William G. Morris, PA William G. Morris and his firm have been representing clients in Collier County for over 30 years. Her practice includes litigation and divorce, business law, estate planning, associations and real estate. The information in this column is general in nature and does not constitute legal advice.