When is Time of the Essence?

Question: “My client wants a completion deadline written into our construction contract. What should I do?”

My advice: Avoid committing to a firm completion date. Instead, lay out a proposed schedule – beginning date, milestones, completion estimate. Explain the contingencies you can’t control: weather, permits, inspections, changes, labor and material shortages, conflicts between trades, etc. Be blunt: Anything can be done either good or cheap or fast – but not all three. Don’t concede to unreasonable expectations.

Many states require beginning and completion dates in home improvement contracts. Courts usually consider these to be estimates, not firm deadlines. Writing “time is of the essence” into your contract is entirely different. If those words are in your agreement, missing a deadline gives an owner the right to bail out of the deal – or maybe worse. A Connecticut case decided last month illustrates the point.

Janet Lazzaro wanted her home on Casement Street in Darien, CT demolished and rebuilt. She had WBG Holdings prepare the plans and accepted their bid of $471,000.00 to do the work. That was in December 2016. Page one of their agreement made “time of the essence.” Work was to be completed within seven months after the start of demolition.

WGB had the good sense to write contingencies into the schedule. Delay due to a host of conditions (weather, acts of god, fire, flood etc.) would extend the completion date. Janet paid WGB $7,000.00 in December 2016 and another $52,000.00 in January 2017.

Demolition began March 10, 2017 and continued for the rest of the month. Work was delayed by winter storms, late winter and spring rain which required pumping out the site, muddy ground, extra engineering and drainage requirements, equipment breakdown, delays in permitting, inspection and site requirements imposed by town officials. (Does any of this sound familiar?) Nearly eight months after the contract was signed, WGB still didn’t have a permit to begin construction. On October 18, 2017, seven months after demolition started, the Town of Darien granted a permit for foundation work. Janet terminated the contract the same day and hired another contractor.

But WGB still wasn’t done with the Lazzaro job. Janet filed suit, claiming:

• A partial refund on the $85,000 paid to the date of termination.
• The extra $116,400 she had to pay another contractor to finish what WGB started.
• Lost rental income, real estate taxes, bank charges, mortgage interest and living expense caused by missing the completion date.
• Recovery of attorney fees for violation of Connecticut’s New Home Construction Contractors Act.
• Compensation for breach of the common-law covenant of good faith and fair dealing.

The Court’s Judgment

WGB did some things right. For example, WGB kept a job log that documented reasons for delay. Still, making time of the essence was plainly a mistake. Judge Sommer ruled those words gave plaintiff a right to terminate the agreement and hire another contractor. That contractor offered testimony at the trial: In his opinion, both Janel Lazzaro and WGB “significantly underestimated both the cost of the project and the time required to complete it.” The actual cost of construction was $587,400. Duration from breaking ground to certificate of occupancy was 13 months.

Judge Sommer awarded Lazzaro only $33,840 plus costs and attorney fees. Of that, WGB admitted $32,000 was due as a refund. Lazzaro v. Deverin, December 6, 2019

If you have a client who insist on a hard deadline for completion, have a look at Construction Contract Writer. Discover how easy it is to protect against unreasonable expectations.

Construction Management Contracting in Montana

Dr. Gary Jystad practiced family medicine and surgery for over 50 years in Montana. In 1991, he built a log home on Flathead Lake in Rollins, MT, the “dream home” of his wife Mary Ellen. A tragic fire in 2016 devastated the main building, leaving the garage and guest house damaged but not destroyed.

In February 2017, Dr. Jystad signed a contract with Flathead Management Partners (FMP) to oversee reconstruction. FMP agreed to “coordinate and facilitate” remediation and “work at the exclusive direction of Dr. Jystad”. FMP didn’t plan to do any work with FMP crews.

Under the contract, FMP would:

• Assist Dr. Jystad in selecting an appropriate design,
• Select and contract with a general contractor to execute that work,
• Supervise & coordinate the work and logistics of designers, contractors, vendors, permits and . . . all else necessary to complete the agreed upon scope of work in a timely manner and within an agreed upon budget.

If you’ve been in construction for a while, you probably recognize this as a fixed-price construction management (CM) contract.

Work got off to a good start. FMP and Dr. Jystad worked well together. FMP pulled the permits and helped Dr. Jystad select a general contractor. Work started on the main house. But on June 10, 2017 there was a falling out. Dr. Jystad, his son Robert and his daughter Sharon met with FMP. The meeting didn’t go well. At the end of the conference, FMP was told that their contract was "null and void and terminated." That didn’t set well with FMP. They stopped work and filed a construction lien. Later FMP filed suit against Dr. Jystad, asking foreclosure of their lien and claiming damages for breach of contract.

To his point, it was a simple contract dispute. When an owner breaches an agreement, the contractor is entitled to damages, usually loss of profit. In this case, FMP claimed those profits would have been $191,876. And that was the award of the trial court.

In the Montana Supreme Court

Dr. Jystad’s appeal made a simple point. The contract with FMP was not enforceable under Montana Code § 28-2-2201. Since April of 2009, Montana contracts for construction of a new residence “between a general contractor and an owner” have to disclose in writing:

• The contractor’s liability and workers’ comp coverage,
• The billing cycle and payment schedule,
• How change orders will be handled,
• A schedule of inspections and tests,
• That the owner can pay for other tests and inspections;
• The general contractor’s one-year warranty.

FMP’s contract covered none of this. And the Montana Supreme Court has already ruled that an oral contract for construction of a new home that lacked these disclosures was void under § 28-2-2201.

You Decide

Was FMP a general contractor under Montana law? If so, FMP’s award of $191,876 gets wiped out.

Before you decide, consider this. Several states have wrestled with this issue: Is a construction management contractor like FMP a “construction contractor” under state law? Or was FMP just a consultant?

This isn’t a trivial issue. There’s plenty at stake here. Construction management contracting (consulting) is now big business, and for good reason. Most states require that general contractors be either registered or licensed. Consultants need only a business license.

Two states have weighed in on this issue:

Since January 2014, California Business & Professions Code § 7026.1 has made it clear. Anyone who bids construction work or manages construction projects is a “contractor” and has to be licensed.

Just last week, a Louisiana appellate court decided that a “job coordinator” on a residential project was required to meet warranty standards imposed on general contractors in Louisiana. (Palermo v. Homes & More, Inc.)

Expect other states to resolve this issue in the next few years. My guess is that nearly all states will decide that CM consultants are “general contractors” and carry all the burdens and benefits that go with the title.

So, what did the Montana Supreme Court decide? Under Montana law, a construction management contractor is not a “general contractor” and doesn’t have to comply with § 28-2-2201. FMP gets to keep their $191,876. (Flathead Management Partners v. Jystad, decided December 17, 2019).

My advice: Don’t expect the FMP v. Jystad decision to stand for very long. It opens a gaping loophole in Montana construction contracting law. The Montana legislature is likely to consider a change to § 28-2-2201 at the next session. To be safe, give the notices required of construction contractors, even if all you do is consulting. Staying legal is quick and easy with Montana Construction Contract Writer. The trial version is free.

If you’re new to construction management contracting, Paper Contracting by Mitchell & Moselle is the best hands-on guide available.

Construction Law Changes in New York and Texas

If you work in either New York or Texas, keep reading. Changes in the law are going to affect how you do business.

First, New York

As I write these words (November 23, 2019), New York Governor Andrew Cuomo is about to sign S.B. 1405, the “storm chaser” bill. There’s no organized opposition to the bill. So, you can assume the bill will go into effect by June 2020.

What’s in the new law? Roofing, siding and waterproofing contracts have to be in writing and must show the name of the roofer’s liability and worker’s comp carriers. Policy limits are $100,000/$300,000 for liability and either workers’ comp coverage or a Certificate of Exemption from the Workers' Comp Board.

No payment on the contract is allowed until materials are on site.

For insured losses:

• Roofing contractors can’t offer to cover any portion of the deductible.
• The owner has three business days to cancel the contract after being informed that any part of the loss is not covered by insurance.
• Emergency work is exempted if the owner furnishes a dated and signed hand-written statement of the emergency and waives the right to cancel.
• Roofers aren’t allowed to negotiate settlement of claims or receive a fee for referral to a claims negotiator.

Failure to comply with this new law bars suit on the contract.

Now to Texas

The new law is similar in some respects to the New York law but covers all insured losses, not just residential roofing. Business and Commerce Code § 2702 became effective September 1, 2019.

Any repair job for $1,000 or more that’s covered at least in part by insurance has to a include a detailed notice in 12-point type:

Texas law requires a person insured under a property insurance policy to pay any deductible applicable to a claim made under the policy. It is a violation of Texas law for a seller of goods or services who reasonably expects to be paid wholly or partly from the proceeds of a property insurance claim to knowingly allow the insured person to fail to pay, or assist the insured person’s failure to pay, the applicable insurance deductible.

It's a Class B misdemeanor (six months in jail) to either (1) omit the contract notice or (2) offer to reimburse the owner’s deductible.

20 States

With the addition of New York and Texas, 20 states now place some form of restriction on contracts for insurance repair work: AL, AZ, GA, IL, IN, KY, LA, MI, MO, MS, NE, NY, OK, SC, SD, TN, TX, UT, WI and WV. The laws are technical and change every year. No matter the type of work or where you build, Construction Contract Writer will draft letter-perfect contracts that comply exactly with the law in your state. The trial version is free.

3-Day Cancellation -- State vs. Federal Notices

“If I give my state’s 3-day cancellation notice, do I also have to give the federal 3-day notice?”

A simple question. And a good one. But the answer gets complex.

Here’s the easy part. The federal 3-day cancellation notice is always required when any improvement to a primary residence will create a lien on that property. Since all states grant mechanics' lien rights for improvements to private property, the federal cancellation notice is always required. But note the word primary. The federal notice is not required on a secondary residence, such as a vacation home.

Now, let’s talk about state cancellation notices. Nearly all states require a 3-day cancellation notice when home improvement services are sold at the project site. That’s a home solicitation sale. But thirty-one states waive their state 3-day home solicitation notice if the contract includes the federal 3-day home improvement notice. So, in those thirty-one states, no state notice is required if you give the federal notice.

Caution: Be careful in these 31 states when work is not on the primary residence of your client. The state notice may be required even if the federal notice is not. Note also that wording of the notice varies from state to state.

Law is different in the remaining 20 states (including the District of Columbia):

Fourteen states (FL, GA, HI, IN, MI, MO, NH, NJ, NY, ND, OK, VT, WV and WY) waive their 3-day home solicitation notice if the deal is signed at the office of the seller or if the sale started with an invitation from the owner. I call this the big box store exception. This is why most Home Depot and Lowes home improvement contracts skip their state cancellation notice but include the federal notice.

Rules vary in the other states:

• Alaska requires a 5-day notice unless the deal was initiated by the owner.
• Connecticut always requires the state notice.
• District of Columbia never requires a home solicitation sales notice.
• Texas waives the state notice if the contract includes the 3-day notice required by the Federal Door-to-Door Sales Act. Since the federal door-to-door notice isn’t required when a federal 3-day home improvement notice is in a contract, Texas home improvement contracts need both the Texas home solicitation notice and the federal home improvement notice.
• Washington requires a state cancellation notice only on roofing and siding jobs.

Now the fine points

Federal law considers Saturdays a business day. So, an owner who signs a home improvement contract on Friday has until midnight the following Tuesday to cancel. Most state laws don’t count either Saturday or Sunday as business days. The same owner would have until midnight the following Wednesday to cancel if the state notice is required. This is an important distinction. Contractors have to write on the cancellation form the last day the contract can be rescinded.

An entirely different set of rules apply if you offer a credit term or recommend a lender. Better to leave the lending to others.

Eighteen states (AL, AZ, GA, IL, IN, KY, LA, MI, MO, MS, NE, OK, SC, SD, TN, UT, WI, WV) have different 3-day cancellation rules if any part of the cost will be covered by insurance.

In an emergency, the owner can waive the right to cancel under federal law. Some states offer the same option. But you still have to deliver the 3-day cancellation notice.

Finally, be aware that the penalty for a faulty 3-day notice is severe. Under federal law, the owner has three years to bring suit for a refund. Many states label it “consumer fraud” when a contractor omits the state cancellation notice.

If all this has your head swimming, don’t worry. Construction Contract Writer sorts out all the details. With CCW, you’ll write letter-perfect contracts that comply with both state and federal law every time. The trial version is free.

Buyer’s Remorse

Every residential contractor can think of a dozen good reasons to have written contracts. Last week, a Wisconsin appellate court piled on still one more reason. I’ll explain.

In the winter of 2014, Pat and David Sandlund were thinking about improvements to their home in Door County, Wisconsin. If you’re not familiar with Wisconsin geography, Door County is north of Green Bay on a peninsula that extends into Lake Michigan. Winters are cold in Door County. And that’s part of our story.

In the spring of 2015, Pat and David talked with Progressive Carpentry about replacing the windows and shingle roof on their home. Rich Birnschein and his son run Progressive Carpentry. Both Birnscheins met with David at the Sandlunds' home on July 22. According to Rich, Dave gave Progressive the go-ahead to order shingles and Andersen replacement windows. While at the Sandlund home, the Birnscheins took measurements for the windows and a sliding glass door. Later Dave and the Birnscheins met at a building supply warehouse to select the exact window style. Progressive placed the window order in August, 2015.

The first thing to know about replacement windows is that they’re custom-made. All have to fit precisely in an existing wall opening. Even the dual-pane insulating glass is custom made. A second point about replacement windows should be obvious. They’re not cheap. Custom replacement windows and doors for a 4-bedroom home can run $40,000 or more.

Two weeks after ordering the windows, Progressive sent Dave Sandlund an email with some news.  The shingles had arrived. Dave replied with more news. He had a change of heart:

The kids think I am nuts to spend that much on the house at this stage of our lives ... The kids are now looking for someplace for us to move to warm and easier living ... I must admit this whole process has gotten me to thinking about just selling and moving on. I love it up here but maybe it is time for us to move on. Naturally I am not going to let you get stuck with any material costs that you have incurred but no decision has been made yet.

Birnschein tried to salvage the project. But the Sandlunds wouldn’t budge – and wouldn’t pay for the windows. Birnschein filed suit.

At trial, an attorney for the Sandlunds had powerful arguments:

• There was no contract. Wisconsin’s Home Improvement Practices Act, Wis. Admin. Code § ATCP 110 requires a written contract for home improvement work. Oral agreements in violation of the law are said to be unenforceable against the owner.
• The Sandlunds didn’t authorize the order. Again, there was nothing in writing. Progressive was stuck with the windows.
• There was no building permit. Work never got beyond planning and ordering materials.

What the Court Decided

The court sided with Progressive.The Sandlunds authorized Birnschein to buy the windows. The Sandlunds and Progressive had an oral contract. “It is a grave error to assert that all contracts in violation of a statute are unenforceable.”

This case is a prime example of buyer's remorse . . . [The Sandlunds] intended to have [Birnschein] do additional remodeling work on their home and authorized him to order the windows and shingles. When [the Sandlunds] procrastinated long enough into September and [Birnschein] then told them he couldn't get to their project until the spring of 2016. . . [the Sandlunds] got angry and then had someone else do the work.

The court awarded Progressive reimbursement for the windows -- but not their loss of profit. If Progressive had a written agreement, as required by Wisconsin law, the result could have been very different. Progressive would have collected for the windows, loss of profit plus attorney fees.

With a written contract, buyer’s remorse won’t affect your jobs. Construction Contract Writer makes it easy to put it in writing, no matter where you build and no matter the type of project.

Who Pays for Mistakes

You’ve been here before. Every contractor has.

Something doesn’t pass inspection. It’s clearly wrong. Work has to be torn out and re-done. The question is, “Who pays?” Was it the fault of the prime? Or the sub? Or the architect or engineer?

The Easy Case

If the approved plans and specs are clear and work wasn’t done as prescribed, it’s the contractor’s mistake. No question. Case closed.

But what if the plans and specs aren’t clear? Or are clearly in conflict? For example, suppose the plans show studs 16” o.c. and the specs call out 24” o.c. A mistake like that drops us into what lawyers call precedence of the documents. Some construction contracts go on and on about which prevails if there’s a conflict between plans, specs, industry standards, etc. Logic dictates that precedence favor what was truly intended, assuming anyone actually considered the issue. For example, handwritten notes and change orders should get precedence over either plans or specs.

What if the plans and specs are mute on some point? That’s a tougher case. Is it the designer’s fault? True, architects and engineers have been found liable for simple omissions. But don’t expect either to cover the cost of ambiguity in the plans. The cost of fixing what’s broken usually falls on contractors and subs. It’s a risk inherent in the construction process.

Obviously, there’s a good way to stay out of trouble. If the plans and specs aren’t clear, if you aren’t sure what the code requires, if something doesn’t seem right, start asking questions. Don’t assume. Don’t let anyone pick up tools while there’s doubt about the finished product.

Courts usually put it this way: A contractor has an implied duty to give notice when something either isn’t clear or seems defective. A leading case on this is Rubin v. Coles, decided in New York in 1931. The addition to a brick building in Flatbush was subsiding. The building department cited the owner. Eventually the contractor was called to account. His defense was perfect. The foundation complied exactly with the plans. According to Judge Geismar, that wasn’t enough. Most of Flatbush is built on filled soil. The contractor, not the designer, is the man on the spot, put there to use his training and experience to either correct plans or at least give warning of the defect.

It has been repeatedly held that, even though he be bound to follow fixed plans and specifications, the contractor owes the duty to examine such plans and judge of their sufficiency; that he is bound to discover defects that are reasonably discoverable or patent; and where he knows or had reason to believe that the plans are defective, and follows them without pointing out such defects to the owner or architect, he is not entitled to recover if the building proves insufficient because of such defects.

Now the Hard Part

Notice the words, “that he is bound to discover defects that are reasonably discoverable or patent.” In Rubin v. Coles, the plans were silent on depth of the foundation. “It was, therefore, the duty of the contractors to construct it upon solid ground so as to produce a level structure, even though it might have been necessary to make greater excavation or more substantial fill."

Decide for yourself. Is that a reasonable standard? Should contractors make design decisions when something seems out of place? I’m not convinced. Fortunately, there’s an easy way to put risk of design flaws back where it belongs, on the owner or design professional. Write two points into your contracts: The contractor has no obligation to either (1) detect design errors or (2) amend dimensions and descriptions in the plans.

Construction Contract Writer makes it easy to draft agreements like that. Mistakes don’t have to add to your cost. The trial version is free.

A 30-Year Roof

Tom and Sophie Broadley needed a new roof on their Fairfield, CT home. Lucas Papageorge of LCP General Contractors offered a contract to remove the existing roof and install “30-year architectural roofing, plywood and gutters" at a price of $11,950. Tom signed the contract. That was April 17, 2010.

LCP got a permit from the Town of Fairfield and did the work. When finished, LCP called for final inspection. The Fairfield building inspector signed off on the job. LCP collected in full.

So what’s wrong with that?

Plenty, as it turns out. Eight years later, the Broadleys sued LCP for $11,262 plus attorney fees, claiming their 30-year roof should have kept water out for 30 years. It didn’t.

The first 4 or 5 years were OK. No leaks. But in 2014 or 2015, the Broadleys noticed water dripping from the ceiling in their first floor living room. They called Papageorge at LCP. After several hours working with a water hose, he found what he thought was the problem. The next day, Papageorge applied silicone caulk at the joint between the wall and the roof line. Apparently, windblown rain was getting under the roof overhang. Aluminum flashing at the top of the wall wasn't keeping rain out.

About 8 months later, Papageorge got another call. Broadley said there was another leak. Again, Papageorge went to work with a garden hose and found another problem area. Apron flashing was covered by multiple layers of siding. Papageorge applied tape flashing over the existing aluminum flashing.

After the next rain, Papageorge was called back a third time. A leak had done several thousand dollars in damage to the living room ceiling. Papageorge admitted the tape flashing didn’t help. But he insisted the problem wasn’t the roof. It was the flashing. The April 17, 2010 contract called for re-roofing, not replacement of any flashing. Still, Papageorge made one last 'Hail Mary' effort, spraying foam between the roof and the siding.

In all, Papageorge spent more than fifteen hours trying to stop leaks. Broadley wasn’t satisfied. He hired another contractor to replace the roof – this time with lead counterflashing around the chimney. Then Broadley filed suit against LCP General Contractors, claiming a 30-year roof should keep water out for 30 years. That was May, 2017.

The April 17, 2010 contract didn't say who guaranteed what and for how long. Even a sentence or two would have settled the issue. But that contract was mum on warranty. So the lawyers had to slug it out for two years -- at a cost that must have far exceeded the cost of the roof. 

At Trial

The only evidence supporting a 30-year warranty was in the project description. Plaintiffs considered that description a pledge by Papageorge that the new roof would not leak for 30 years. Counsel for Papageorge argued that “30-year roof” is only the manufacturer's quality rating, a way to distinguish one grade of roofing shingles from another.

Both the trial court and the appellate court found for the defendant. There was no evidence that the roof Papageorge installed was substandard. LCP’s only responsibility for flashing was to make an inspection and inform the owner if flashing had to be replaced. Papageorge checked the flashing and found it “in good shape”. Nothing more was required.

What’s Wrong Here?

It’s easy to avoid problems like this. Every good construction contract includes a section on warranty – what’s covered, for how long, what’s excluded. Most important, the contract should identify warranties offered by the manufacturer as the responsibility of the manufacturer, not the installing contractor. The installer’s only obligation is to pass on the manufacturer’s warranty. The contract in Broadley v. Papageorge could have made that clear.

Every state sets standards for construction warranty. Some warranties are required by state law. Others are optional. Many can be waived (excluded) if you use the right contract language. If your contracts don’t cover warranty, you’re missing an opportunity to avoid problems. Have a look at Construction Contract Writer. The trial version is free.