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In recent years, a booming real estate market has led to a corresponding increase in demand for new construction projects. Commercial and residential property owners, contractors, condominium and homeowners’ associations, property management companies, brokers, developers, and others operating in the real estate and construction sector are likely to face more disputes. While some of these disputes can be resolved without resorting to litigation, the time-sensitive nature of real estate development, construction, and sales means litigation may end up being the only means of getting projects or transactions moving again.
There are a variety of causes for construction and real estate disputes. Problems with purchase and sale agreements, commission disputes, non-disclosure and fraud claims, insurance or contractor licensing, construction defects and warranty disputes, delay claims, mechanic’s lien, and premises liability claims can all lead to potential real estate and construction litigation. The details of some common causes of real estate and construction litigation are included below.
Construction & Real Estate Litigation: Construction Defects and Warranty Disputes
Construction projects often involve setbacks and changes in plans. Construction defect claims can arise when property owners claim they have not received the full value of the project due to errors made in the construction, design, or specifications of construction projects or when a contractor or subcontractor fails to build to the plans and specifications, leading to back charges or change order disputes. There may be a breach of an express warranty, in which the property owner received a warranty from the builder that explicitly guaranteed the quality of the property. This kind of warranty is usually written and provides terms for what must be performed and what level of quality must be achieved. In some areas (including California), there also may be a breach of an implied warranty. In California, there is a requirement that new construction is performed according to some basic standards in line with current regulations. In those cases, a proof of a defect stemming from improper construction, design, or preparation is enough to establish the builder or developer’s liability and breach of implied warranty.
Construction & Real Estate Litigation: Delay Claims
Delays in construction lead to disputes. A delay claim may be made when a construction project extends for a longer period than was allowed for in the original contract. It also may be made when some portion of construction work has not been performed because of unforeseen circumstances. These delays might include differing site conditions, design changes, weather problems, labor shortages, materials shortage, defective plans, and interference by one of the parties. These kinds of delays make it necessary for the contractor to extend the schedule to complete the work. They also may cause the contractor to run up more costs to perform the work (e.g., office overhead, the costs of maintaining workers who are not working, etc.).
Contractors sometimes can receive an extension of time to complete a project under the original contract. However, their delay must meet certain requirements to be considered critical, excusable, and compensable. The construction agreement usually contains language describing when the delay claims apply and what kind of notification must occur in the event of a delay. A delay is considered critical if it will affect the project completion date (or another important milestone on a project). There’s no way to make up the time for critical delays—they tend to cause extra time to be added to a project. A delay is considered excusable if it is outside of the contractor’s control, which usually means the delay comes as the result of something outside the control of the contractor (e.g., design errors and omissions, change orders made by the owner, unanticipated weather, and forces majeures). A delay is compensable if the party affected by the delay should be given an extension of time or compensation for the delay of his or her work. All excusable delays are also compensable.
Construction & Real Estate Litigation: Mechanic’s Liens and Payment Disputes
When contractors, subcontractors, workers, suppliers, or anyone else who provides materials or services to improve a property are not paid, they can file a mechanic’s lien to receive payment. If a mechanic’s lien goes unpaid, these individuals can pursue a foreclosure action seeking to force the sale of the property to pay the lien. Construction projects often feature one main contractor who then employs subcontractors and suppliers and is responsible for paying those subcontractors and suppliers. The problem is that any unpaid entity can file a mechanic’s lien, even if the reason a contractor is unpaid is because the lead contractor has chosen not to pay a subcontractor. These situations present sticky situations for property owners, because when a mechanic’s lien is filed against a property by a subcontractor, the property owner may face foreclosure if he or she cannot afford to pay the lien, or double payments in cases where the property owner pays the subcontractor for work he or she has already paid the contractor for completing. Finally, the mechanic’s lien can lead to a problem with the title of the property, can place an owner in breach of its loan agreements, and impede the property owner’s ability to borrow against or sell the property.
Construction & Real Estate Litigation: Premises Liability
Construction sites are by their nature full of risks for injuries. Property owners are expected to maintain as safe of an environment as possible for anyone who visits the site and warn individuals of possible hazards. Still, accidents occur on construction sites even when everyone involved has taken proper precautions. When individuals visit a construction site and suffer an injury, they may file premises liability claims for damages they incurred because of accidents on the property (e.g., medical expenses, lost wages, etc.). Property owners can be held liable for these premises liability damages if they knew or reasonably should have known about the hazards on the property. However, in cases where it can be shown that the injured party contributed to the likelihood of the injuries, property owners may use this negligence as a defense against the premises liability claim. Thorough investigation of the accident scene can help to evaluate the liability and minimize exposure.
Construction & Real Estate Litigation: How We Can Help
Construction projects are complex ventures rife with legal hazards. Similarly, construction and real estate disputes are complicated matters requiring the experience of attorneys familiar with several different areas of law. Our construction and real estate litigators draw upon knowledge of real estate law, finance, and contract law. Additionally, a facility with local regulations and legislation is key to successfully navigating construction and real estate dispute resolution.
At Payne & Fears LLP, we take a proactive approach to clients’ needs, advising them on practices designed to minimize risk exposure and to strengthen their positions in the event they need to pursue or defend a claim. Our attorneys handle an assortment of disputes arising from the construction process.
Payne & Fears construction law attorneys shepherd clients through the entirety of their projects, from beginning to end. In the case of a real estate dispute, we are prepared to protect clients’ interests through real estate litigation, arbitration, and alternative dispute resolution. We provide litigation services for commercial and individual clients, including owners, developers, builders, contractors, and subcontractors.
In circumstances where real estate concerns intersect with other areas of law, we leverage the experience of our Employment and Insurance Litigation Groups to further clients’ interests. Our strengths in these areas offer clients more comprehensive coverage in their real estate matters. Some of our notable victories in these kinds of intersecting cases include:
- Secured the dismissal of a coverage action filed by a subcontractor and insurer for a national homebuilder, in a hostile forum.
- Represented a publicly traded homebuilder in a complex, high-stakes insurance coverage dispute that was resolved in the builder’s favor. The terms of the settlement were confidential, but the homebuilder was “thrilled” with the settlement.
- Recovered more than $1.65 million from several insurers on behalf of a homebuilder, reimbursing the homebuilder for all defense costs it had incurred or would incur in the future after the insurers denied coverage and refused to defend the homebuilder in a single-home construction defect action.
- Obtained a nearly $10 million jury verdict on behalf of a financial institution over a major homebuilder for breach of a real estate option agreement (San Diego County).
- Won defense judgment in bench trial in a real estate fraud case arising from a purchase and sale agreement.
- Won defense verdict in jury trial on fraud claims in a multi-million-dollar real estate transaction. Attorney’s fees were awarded to our client and Payne & Fears later won a bench trial on a fraudulent conveyance claim against the plaintiff in the original case who tried to evade payment of those fees.
- Obtained arbitration award in a dispute over ground lease and option to purchase.