Constructing a new building can be an exciting prospect for a business owner, but the process can be fraught with unforeseen perils. Before the building contracts are signed, owners need to know their rights in the event of costly construction defects that make themselves known after the project is complete.
“If you want to avoid problems, start before you put a shovel in the ground,” says Michael J. Kelly, partner in the Litigation Practice Group and head of the Construction Law Service Group at Levenfeld Pearlstein, LLC. “The old cliche that an ounce of prevention is worth a pound of cure really applies here.”
Smart Business spoke with Kelly about what action business owners can take in the event that a new building is not up to standards.
What should business owners know before beginning construction on a new building?
In any construction project, your first consideration should be hiring an attorney to prepare the construction contracts. The provisions within these contracts govern your relationships with contractors and assist in establishing your rights in the event of a problem with the building.
Two key provisions, among others, need to be addressed. First, you want a strong warranty provision that requires contractors and subcontractors to correct defective work for at least a one-year period after the substantial completion of the project. The standard protective provision ensures that, during the warranty period, the contractor will come in and fix any problems at its own cost.
You also want to be careful that you do not agree to language that makes the warranty provision your sole and exclusive remedy. If you do so, the contractor can effectively argue that your remedy is limited to that period. After that period is up, they are off the hook.
Illinois law provides broader rights for owners. The Illinois statute of limitation and statute of repose allows for recovery of construction and design defects for up to four years after the defects are discovered. For this law to apply, the defects must be discovered and lawsuits filed within 10 years of the completion of the work.
How do you use those provisions of the law?
You are required to bring the lawsuit within four years of the time you knew or should have reasonably known of the defect. Failure to do so will bar your recovery of the damages you suffered.
It’s important to have individuals with expertise assess this in an expedited fashion. If you don’t have that expertise in-house, retain outside counsel. Make sure you are preserving your rights as opposed to sitting on them and potentially waiving them.
How can you protect yourself once you’ve occupied your new building?
First, mark the expiration of your warranty period on your calendar. If the work on your building was substantially complete on Sept. 1, 2009, and you have a one-year warranty, you should make sure that by August 2010, your internal maintenance and engineering departments are reviewing the building to see if there are any problems.
Second, make sure you understand the technical requirements of the warranty provision. Most businesses require the warranty claim to be in writing. Often, there will be requirements about how to notify the contractor usually by certified mail so there aren’t disputes over whether you sent something or not.
Last, it is the owners’ responsibility to maintain their building and keep accurate records of how the building has been maintained. An obvious defense that contractors will raise is that any construction problem occurred not because of any defect in the construction work but because the owner failed to properly maintain the building. It makes sense to keep accurate records in case there is a dispute.
What can you do if you discover a problem and the statute of limitations is about to run out?
Look to a tolling agreement, which is an agreement between the parties to toll or delay the application of the statute of limitations. If you discover a problem and need to file a lawsuit quickly or risk waiving your rights, it allows the parties to put aside the process of expensive litigation for now to deal with the problem in a commercial manner. Otherwise, you’re in a race to the courthouse. And filing a lawsuit is not something you want to rush into.
Often, owners have longstanding relationships with contractors and designers. They can get lulled into a false sense of security and end up waiving their rights. They may enter into initial discussion about the problem, get good initial feedback from the designer or contractor, and then have the process drag on longer than they’d expected. There is really no reason not to enter into a tolling agreement if that’s the case. If they can’t come to an agreement, they would then have the rest of the statute of limitation period to file their lawsuit.
When in doubt, file the lawsuit. Too many owners have hemmed and hawed and ended up losing their claim because they didn’t file the lawsuit in a timely fashion or get a tolling agreement in place.
Michael J. Kelly is a partner in the Litigation Practice Group and leads the Construction Law Service Group at Levenfeld Pearlstein, LLC. Reach him at (312) 476-7595 or firstname.lastname@example.org.