In September 2013, I blogged about the decision of the North Carolina Court of Appeals (“COA”) in Christie v. Hartley Construction, Inc., which held that owners of an improvement to real property could not recover money damages under a supplier’s express 20-year warranty because the lawsuit was filed outside of North Carolina’s applicable six-year “statute of repose.” That statute, codified at N.C. Gen. Stat. § 1-50(a)(5), bars damages actions arising from improvements to real property asserted more than six years after substantial completion. The COA’s Christie decision effectively meant that the statute of repose trumped an express warranty of a longer duration.
As I mentioned in my prior blog post, however, one of three COA judges on the Christie panel dissented from the majority’s opinion, giving plaintiffs the right to appeal to the state’s Supreme Court. They did. And that Court reached the opposite conclusion of the COA majority, ruling that the protection provided by the six-year statute of repose could be waived without violating North Carolina public policy.
Let’s break down the North Carolina Supreme Court’s decision in Christie:
It’s typical for subcontracts to include a clause binding the subcontractor to the decisions of the project architect. Such terms help general contractors and construction managers at-risk avoid obligations to subs below that can’t be passed through to owners above. That’s a sensible and enforceable risk allocation most of the time.
But not all of the time.
Sometimes, the architect doesn’t play fairly. Sometimes, the prime contractor fights hard for itself, but not hard enough for its subs. And sometimes, a statute might provide a remedy when the subcontract does not.
On such occasions, as discussed below, subcontractors might avail themselves of an escape hatch:
It’s springtime in the construction industry, my friends. Banks are lending again, optimism has returned and the private, non-residential sector is heating up. Good news all.
But before you mobilize the yellow steel to your next jobsite, the deal’s gotta get done. And so ’tis the season of contract negotiation — which, if you’re not careful, could lead to the season of your discontent. That’s because some crazy stuff might be lurking in the document the party above you in the contractual chain wants you to sign.
Just ask Birmingham, Alabama construction attorney Burns Logan, the inspiration behind this post and its cheeky title:
There’s only one way to suss out the crazy in your construction contracts, and that’s by carefully reviewing them, as Sage Construction reminded us this week:
One of the three reasons cited in the linked blog post is “owners are pushing risk to GC’s.”
Tell me about it!
The Monday Memo in recent weeks has focused on North Carolina laws and policies bearing on the Tar Heel State’s construction industry. Today I turn my gaze to our nation’s capitol, where public hearings are underway on OSHA’s proposed rule to lower the permissible exposure limit (“PEL”) for airborne crystalline silica, a by-product of such common construction operations as concrete and stone cutting.
The hearings began on Tuesday, March 18 and continue through Friday, April 4, with a variety of construction industry and safety voices scheduled to be heard.
Here are five key points to bear in mind as the process moves forward:
If I were to tell you that unforeseen subsurface conditions — for example, wetter-than-expected soils requiring a change to a building’s foundation — resulted in a substantial cost-overrun on a publicly bid project, you’d probably say, “that’s lousy news.” In the context of that one project, I’d have to agree with you; unexpected cost increases can create uncomfortable financial, PR and political pressures for a public project’s participants, not to mention unwelcome additional costs for John Q. & Jane Q. Taxpayer.
But what if I told you that the contractor’s entitlement to increased compensation on that one project would ultimately save the government much more money on future projects? “Sounds great,” you might respond, “but I don’t believe in fairy tales.”
You don’t have to. You just have to believe in the differing site conditions (“DSC”) clause.
Representative Sarah Stevens
I had the pleasure yesterday of attending the first of four meetings of the “House Committee on Mechanics’ Liens and Leasehold Improvements,” a non-standing legislative research committee of the North Carolina House of Representatives co-chaired by Representatives Sarah Stevens (R-Mt. Airy) and Dean Arp (R-Monroe). The Committee’s work is focused primarily on whether the state’s mechanics’ lien statutes should be tweaked to strengthen the lien rights of contractors performing work for project owners who lease, rather than own, the property being improved.
Represenative Dean Arp
Current statutory law allows contractors to place a lien on so-called “leasehold estates” (see N.C. Gen. Stat. § 44A-7(7)), but as Raleigh construction attorney Henry Jones, counsel to the Carolinas Electrical Contractors Association and N.C. Association of Plumbing & Mechanical Contractors, explained, such liens, in practice, are “illusory,” for two reasons: (1) when the lease is terminated, so are any lien rights asserted against the tenant’s leasehold interest; and (2) a successful levy against a leasehold generally means accepting not only the lease’s benefits, but also its burdens, including the obligation to make rent payments.
The 2011 Pete Wall Plumbing decision of the N.C. Court of Appeals, which Research Division staff member Shelly DeAdder did a terrific job of summarizing, is a vivid example of how a contractor can be left holding the bag when a leasehold interest is terminated. As Representative Stevens put it, “Poor Pete Wall did the work, but didn’t get paid,” and the expiration of its lien rights when the leases at issue were terminated by the record owner represented an “unfair result.” Judge Steelman’s concurring opinion in Pete Wall Plumbing, while acknowledging the majority opinion “reaches the correct legal conclusion under the present state of our statutory and case law,” called upon our state legislature to “consider revising the provisions of Chapter 44A to prevent this unjust result.”
The big question for the Committee to consider over the coming weeks is this: under what circumstances might it be appropriate to permit a contractor performing a tenant improvement to place a mechanics’ lien on the record owner’s “fee simple” interest?
Did your contract just get axed? Read on. (Picture by Hans Braxmeier / pixabay.com)
Most private owners negotiate for a contract clause permitting them to terminate a construction agreement without regard to the quality of the contractor’s performance. These so-called “termination for convenience” clauses come in handy when, for example, an owner’s financing runs dry and a project must be halted. A termination for convenience clause allows an owner to cancel a project without materially breaching the contract and avoid paying the contractor its anticipated lost profit on unperformed work.
While many construction industry participants favor the finality of binding arbitration, some are put out by the inability to appeal an unfavorable award (see my previous blog post for more on the limited bases for challenging arbitration awards in court).
Photo by Eric Kilby via Flickr *
The American Arbitration Association® (“AAA”) has announced a new set of rules intended to bridge that gap. As of November 1, 2013, the AAA has made available for use its “Optional Appellate Arbitration Rules,” the purpose of which was articulated by AAA in its press release:
The objective of arbitration is a fair, fast and expert result that is achieved economically. Consistent with this goal, an arbitration award traditionally will be set aside by a court only where narrowly defined statutory grounds exist. Sometimes, however, the parties may desire a more comprehensive appeal of an arbitration award within the arbitral process. … In order to provide for an easier, more standardized [appellate] process, the AAA has developed these Optional Appellate Rules.
I greeted news of the Appellate Rules with much curiosity and, truth be told, a fair amount of skepticism: how could AAA marry up a meaningful appellate process with the streamlined nature of arbitration? And so before reviewing the new rules, I jotted down a list of questions I hoped they would address. Those questions, and what I discovered upon reviewing the rules, follow:
1. Scott Wolfe of Zlien.com tweeted about the pros and cons of filing a claim of lien on real property in advance of a construction mediation. The linked blog post notes that while a claim of lien might enhance the claimant’s negotiation leverage, it might simultaneously generate adversarial tension up the chain, which in turn could make a mediated resolution more difficult to achieve.
It’s an interesting strategic question, particularly now that N.C. Gen. Stat. § 44A-23(d) expressly gives subs and suppliers the option to file their lien claims within 120 days of the prime contractor’s date of last furnishing, as opposed to their own date of last furnishing. More than ever, timing is everything. Continue reading
One of the oft-cited advantages of arbitration is that it is simpler, cheaper and faster than litigation. Recent figures from the American Arbitration Association (“AAA”) suggest that while a commercial case may take up to two years to run its course through the judicial system, commercial cases can be resolved via arbitration between six months and a year.
Still not fast enough for you? Then perhaps you might be interested in the following fast-track alternative dispute resolution procedure: