Smart Board & Property Manager Legal Guide: Building & Site Defect Negotiations - Pitfalls to Avoid
Alan Tannenbaum, Esq.:
Welcome, everybody. We're going to get started in about two minutes. Just want to say hello to make sure that you know you weren't missing anything. We usually give a few minutes for people to get on. So in about two minutes we're going to get started. (silence). Okay. One more minute, we're going to get started. (silence). One more minute.
We're going to welcome everybody in and a few more people are joining us, and we'll get started. Any questions you have, submit them through the chat feature. And I'm being told to get started. So it's 11:04. Welcome, everybody. I'm Alan Tannenbaum. Our firm is Tannenbaum, Lemole & Kleinberg. And we have presenting today, myself, my partner Jon Lemole, and Brian Tannenbaum who's an associate in our firm. Our firm stays within the construction field as it relates to community association work. So we take condominium and homeowner association through turnover, handle construction and accounting claims that arise both for HOAs and condos up to 10 years old, which is the statute of repose which we're going to talk about today.
We also have been very busy lately with repair consulting for groups of any age that are undertaking major repair projects. We help them negotiate their contracts with their engineers and their contractors. We enforce those contracts either through negotiation or court action. We also do some complex covenant enforcement cases that general counsel don't want to take on, so that's basically our sphere. What we're going to talk about today are negotiations with developers and contractors. Much of it is going to relate to turnover claims, but we're also going to be talking about repair contract negotiations. So it should be applicable, at least portions of it should be applicable to everybody who's attending today.
When lawyers approach either new construction issues, or repair contract enforcement we have a lot of concerns. So today's presentations really are going to address those concerns. Things that you have to watch out for whether you're retaining a lawyer to help you negotiate, or whether you're trying to do it yourself. There are things that as lawyers that will concern us every day. Time limitations are certainly going to be a big issue. Making sure evidence is preserved, making sure you approach negotiations with power by having proper information and so forth. We're going to cover all those issues. But we're going to start something that's specific to condos upon turnover that we're always concerned about. And that's the issue of preservation of warranties. And as we go through this, any questions you have, send them through chat. But I'm going to bring on Brian Tannenbaum to talk about the whole subject of preserving warranties. Brian, you're on.
Brian Tannenbaum, Esq.:
Good morning. So I'm going to talk about condos first, and then I'm going to go a little bit into HOA purchase contract warranties and then repair contract warranties. But first and foremost is for a condo under section 718.203 the developer grants to every purchaser an implied warranty of fitness and merchantability. For the unit it's a three year warranty, for the roof and structural components of the building, the mechanical components, the electrical and plumbing elements, it's a warranty of three years from either completion of the building if it's just one building or from the completion of each building if it's a multifamily or multi-building condominium.
Additionally, the statute allows one year from turnover as an extension of the warranty period. For other improvements that are not within the unit and are not roofing or structural, the warranty is three years from the date of completion of that improvement. For contractors, subcontractors, and suppliers there's also a three year warranty from the completion of construction for the roof and structural elements, the building mechanical components, and the electrical and plumbing elements. The warranties granted by the contractors do not have that extension for turnover. So if you're at turnover, and it's been more than three years, your warranty with the contractor has likely passed. But if you get an engineering investigation done within that first year from turnover, you may still have a claim and you may still have warranties from the developer that need to be addressed.
Another thing to consider with these warranties is that they're conditioned on routine maintenance. Unless that maintenance is the obligation of the developer controlled association or the developer, so it's important to get an engineering study done within a year of turnover because it helps delineate any maintenance issues that were on the developer before turnover or on the owner controlled association after turnover. So that delineation is important because lack of maintenance is going to be a defense or an attempt at waiving the warranty because of the association's improper maintenance. So that engineering investigation can help you determine, one, where that line ends from the developers may to the owner's maintenance. And two, how to properly maintain your buildings despite what the developer was doing.
So that pretty much covers condos. For HOAs there are no statutory warranties. So if you want to rely on a warranty for an HOA as an association, you have to look at the purchase contracts of the owners. So it's really important to get your eyes on a purchase contract, and to have somebody look at them, if there are different developers, different sellers, the warranties can be different depending on each purchase contract. So it's really, really important to look at what the warranty says, look at the scope, look at any time limitations, look at any notice requirements, look at any repair opportunities that are required, and to make sure that you understand what those warranties cover and what they don't cover.
Lastly, for repair contracts if you're having roofing work done, if you're having stucco work done, any kind of repair contract, any kind of remodel or new construction, you're going to have warranties from the contractor, warranties from the manufacturer. And what's important is that you look at the manufacturers warranties because the contractor is not the one who's in charge of the manufacturer's warranty, you're in charge of the manufacturer's warranty. So make sure that you ask the contractor whoever is performing at work, that you have any manuals or product information because those are going to contain important warranty information that relate to the scope, any maintenance obligations, and anything like that.
And the last thing I'm going to cover under warranties is the warranty period which requires that the warranty or the defect be discovered during the warranty period. So it's not a statute of limitations, it just requires that the defect be discovered during the warranty period. So it's another reason why it's important to have an engineer go out to the buildings, do an investigation, and make sure that any defects are discovered during the one year from turnover that's allowed in a condo or during the warranty periods under an HOA or a repair contract. So it's very important because you need to have those defects appear during the warranty period, and it's not a statute of limitations. And Jon is going to discuss, not allowing claims to be time barred.
Alan Tannenbaum, Esq.:
Right. Before we move to that, Brian, and this is something we offer up to all the managers and boards out there. If you've just turned over or you have a contract that you feel you need to enforce, and you're concerned about time limitations, as a free service you send us your information, tell us when your buildings were certified for our occupancy, show us the contract, if it's a repair contract. And we will tell you if there are time concerns that you need to deal with. Because it is somewhat of a cumbersome task to review all of the conditions of warranties, and make a great decision as far as what it needs to be preserved. And this is something we deal with day in and day out. We can get to the time issue very quickly, and we're happy to do that gratis for anybody who contacts us about a situation like that. So with that said, Jon, what about claims becoming time barred?
Jon Lemole, Esq.:
Okay. So we gave the hard one on warranties to the young guy in the firm. This is a little bit easier so I'm going to run through this fairly quickly. But we've had many instances where a community with serious defects has waited until it's too late to bring claims against the responsible developer and/or contractors involved in whatever the project is. The development of the community or a repair project. What you need to know here is that Florida has some very, very strict time limits in which to file claims so that you can recover money in damages for serious defects that are discovered within your community. Defects that may have been discovered after a repair project and defective work by that contractor. Folks, if the clock runs out, you're out of luck. It's like the shot clock in basketball, it runs you're done.
We're going to talk about two different time periods that are at play here. The repose period, the statute of repose in Florida. Now, I've got up here the general statute of limitations section in our Florida statutes, which is Florida statute 95.11. And I'm going to talk about the part in red down below at the end of this section, and then we'll go to the part in yellow. But the repose period in Florida is 10 years. And that is a hard stop. 10 years from the completion of whatever the completion of the improvement to real property is. So the completion of the construction of the community, the completion of your reroofing project, a completion of your balcony restoration project. If you don't bring a claim against that contractor or developer within 10 years, you're done.
And I will tell you that the construction industry, and the developer industry is consistently trying to reduce this time period. There are bills and I'm not going to get into it, but there are bills floating around in the Florida legislature right now to reduce this to seven years or approximately seven years. So this is really important. You have to watch the clock here. Now consider a situation for example where you've got a developer that's held on to community before turning it over to owner control for a long period of time, the owner has finally come into control of the association, and you may have a very small amount of time within which to deal with issues relating to defects in your community. That's why we always advocate that after turn over, you should get an engineer in there do a really thorough inspection right after turnover, hopefully preserve your claims.
Okay. Statute of limitations, a little bit different. If you discover a defect, you have to bring a claim within four years. If the defect is latent, that date, that period of four years runs from when you should have discovered it or reasonably discovered it. So you can argue that there may have been a defect in original construction. Now you're bringing a claim in the ninth year within the 10 year statute to repose, but it's a latent defect. You don't really know what the cause of it was, what the exact parameters of the defect, and that's where engineering studies can really help you pull back in claims that may have had some patent obvious signs earlier on or beyond those four years.
Again, you need to consult with a construction attorney if you suspect you have defects in your community, defects in your repair project, because you have to be able to manage these time limits very, very carefully. So for newly completed communities, a thorough engineering inspection after turnover is great idea. But generally at the first sign of a defective condition, consult with a construction lawyer, take the right steps to preserve your claim in case a lawsuit is needed. And now we're going to go to Alan and Alan's going to talk about, how do we identify responsible parties?
Alan Tannenbaum, Esq.:
Before we go there, Jon?
Jon Lemole, Esq.:
Okay. Questions.
Alan Tannenbaum, Esq.:
Well, if you're a condo, there's also another statute that needs to be considered, which is 718.124. And 718.124 says that for condo associations, not for an HOA, but for condo association, the statute limitations does not begin to run until turnover. So if you have a condo that was held onto for a while by the developer, even for defects that were discovered that's a savings clause that allows additional time specifically for a condo association upon turn over. But all of these statues interrelate, but again you can see there's some complexity to it, same offer is there. We deal with these issues day in and day out. Call us saying, "This is what we got. Our buildings are this amount of years old, we just turned over. And where do we fit in as far as all these time considerations?" And we'll give you the answer. There is a question from somebody about five residential buildings built between 1994 and '97. They have type of piping which is a concern. Can they go back against the developer? The answer is no. You can't go back against the developer because that's outside the statute of repose.
Now, does that mean you have no claim? You may have a first party insurance claim. And so that should be checked out by a first party insurance lawyer to see if you potentially have a claim against your policy. But if those pipes need to be changed out, we would definitely be involved in helping you find the right engineering firm to analyze it, assist with all that contracting work. But you would not have a claim against the original developer, unfortunately, due to the statute of repose issue. Okay. Responsible parties. Let's talk about new construction. In many cases, you'll have a single purpose developer corporation who will be the developer of your condominium development. The problem many cases are not insured, and by the time it comes time to hold them accountable there may be a very limited amount of money left of the corporation, if any. So under those circumstances, we look to the other parties who are responsible, could be the design professionals, certainly the general contractor, the subcontractors, sometimes even material suppliers.
In the cases that we resolved, construction defect cases, oftentimes the developer entity pays less than 30% of the ultimate settlement. Most of the dollars come from subcontractors and their insurance companies. Sometimes if there's liability on the part of the design professional from their insurance company. So one of the things that we do in a new construction situation is we pull all the permit records, get the records from the developer, figure out who are the key subcontractors who worked on each building. We notified them of the issue, and ultimately they participate in the case, and their insurance companies pay much of the freight. On a repair contract situation, you can get into a situation, let's say, with a root replacement where there's damage afterwards. And you're looking to figure out how did this water get into the building for on this roof replacement?
And we have found instances where the roof actually was okay, but when the air conditioning contractor who was brought in to remove the condensing units so that the roof can be installed and replace the condensing units, they didn't, let's say, flash, the pitch pans appropriately, or didn't handle the drainage, or the internal drains properly. That's where the water came into the building that damaged units. So in a case like that, you may decide to include and give notice to both the roofing contractor, but also to any air conditioning contractor or plumbing contractor that they utilized in order to complete the work. And what you have the advantage of then are actually two insurance policies, one for the roofing contractor, and one for the air conditioning contractor to respond to that particular claim.
So you want to locate all parties, who [inaudible 00:21:26] them and their insurance companies be responsible financially for the issue. So one of the things that we do is make sure that everybody who should be invited to the party gets invited. We don't like to leave anybody out. So that's part of our role as your attorney. I'm going to now turn it back over Brian Tannenbaum. He's going to talk about chapter 558 Florida statutes, which was pushed by the construction industry probably 10 years ago. Come Florida law, it's something that we deal with on a day in a day out basis. And Brian tell about chapter 558.
Brian Tannenbaum, Esq.:
Right. So chapter 558, which is the Florida construction defect statute. It was meant to make the process easier on owners and contractors to resolve disputes. But what's ended up happening is it just makes the process very, very confusing for an owner. It really requires a gentle touch in the beginning, and it requires you to make sure you're keeping track of everything that's happening. And it requires you to do a good, detailed analysis of any potential defects that you may have. So what 558 says in part is that there's a requirement to notify any contractor or subcontractor supplier, notify them before filing any claim for an alleged construction defect. If you are an association with less than 20 parcels, it's 60 days notice before filing any claim. If you have more than 20 parcels, it's 120 days notice.
So what Alan was just talking about in regards to identifying the responsible parties, if you don't have the parties identified ahead of time, you're looking at a 60-day or 120-day delay because you're required to notify those parties before you bring any claim against them. The notice requires the owner to describe in reasonable detail the nature of each defect. Because it requires that reasonable detail, it's really important to have somebody qualified an expert, an attorney to go in there and be able to pinpoint where the defect is, so that when you are giving notice to those subcontractors or those contractors, they know exactly where to go to look for it, and they can't bring any defense of, "They didn't properly notify me of the defect."
The contractors then have 45 or 75 days depending on the amount of parcels to respond. They have a requirement to either respond with a repair proposal or a settlement proposal, or they can respond and say, "This is not a defect." And reject that notice. If you receive a repair proposal or a settlement proposal, you can reject that, and proceed with the claim under the notice requirements. What's important under 558 as well is there's a document demand procedure in 558, which allows you to put those parties on notice, and it requires them to preserve any documents, communications, anything related to the construction of the building. So it's important, again, to get that notice out to everybody you possibly can so that you're not losing any of that evidence. And I believe that unless there's some questions that Jon is going to discuss preserving that evidence next.
Jon Lemole, Esq.:
Okay. Folks. Thanks, Brian. Anytime you're negotiating. Hey Brian, could you go to the next slide, if you would? Anytime you're negotiating with a contractor or a developer, it's going to really help you have some leverage against them if you've preserved evidence. And failure to preserve evidence can actually be a problematic thing for a couple reasons. Let's talk about real quickly spoliation. There's something called a theme in the law called spoliation of evidence. If a piece of stucco, a big chunk of stucco has fallen off your building, and you think it's as a result of the defective application of that stucco, it makes a lot of sense to save that, log it, and certainly if you're at that point consulting with an attorney about the problem, you should be providing it to your attorney.
If you suspect that you have defects and you need to make repairs to mitigate further damage, then you should always very carefully document that repair project, so that if you do have to make claims in the future you can provide that evidence to the contractor or the developer. And this is going to be really important. If you suspect that you have claims against the developer or contractor, it might make sense, and this is something you should consult with a construction lawyer about. It might make sense that if there are repairs that need to be made, that you consider providing notice, even if you haven't sued or made claims yet. Sometimes it's appropriate to provide notice to the responsible parties so that they can see the damage, and see the work that you're doing. Because if you don't preserve that, you're likely to hear from them if you do have to file claims that you somehow not preserve their ability to investigate the damage that you're alleging, the effects and consequences of that damage. And that can be a difficult thing to deal with in litigation.
There's another real big reason why this should be done, and that has to do with insurance. If you're dealing with a single purpose entity that was the developer or you're talking about defects in a repair project done by, let's say, a reroofing contractor. Their insurance coverage doesn't cover the defective work itself, what it covers is damages resulting from that defective work. And so that's why preserving the evidence, and Brian will go back to the previous slide, documenting everything that's going on in the community is going to be really important. We have a whole course on documenting things relating to defective conditions in your community, and I'm not going to get to... I could speak for an hour on it.
But let's talk about two things that an association should always do, and that's they should have a robust record retention and record keeping policy. So home owner complaints, inspection reports. The manager walks around every once a month and looks at the community, and makes observations about the conditions of the common elements or the common areas. All of that stuff should be done with some sort of regularity, some sort of protocol, and retained. If there's an incident, if a piece is stucco falls off, if you've got a massive leak happening after your reroofing project was done, it should be documented. All of that stuff is, A, admissible, which is why I have the hearsay exception up here. I don't want to get into it, but it will be admissible in court.
And secondly, it may provide some of the information that you need in order to perhaps tie an insurance carrier into paying for a claim where you may not have a solvent, single purpose entity as a developer, or a solvent contractor. Or maybe you have a contractor that's just got really good creditor protection strategies in place for their business. So keeping evidence, having robust record keeping policies, recording incidents right away as they happen. These are all things which can help you successfully negotiate a claim. And we're going to, unless there's any questions, or unless anybody has any comments.
Alan Tannenbaum, Esq.:
Jon, I have some comments.
So just some issues that we've run into that are specific. We've had cases where a big piece of stucco falls off a building. Association reports it to us, and we find out about it. And where is it? Where is this piece of stucco? "Oh, we threw it in the dumpster and got taken away yesterday." That's not good. That piece of stucco would make a great piece of demonstrative evidence at trial. So think about the logic of it. You take that piece of stucco, if it became three pieces when it hit the ground, you could bag them together, label what building it came from. The person who labels it and bags it should place it in a storage area where it's going to remain in that place so that there's a demarcation of that that is a piece of evidence that came from that building. Great demonstrative evidence to save.
But also, obviously, there should be a photograph taken of the hole in the stucco and the building so it could be related to that piece of stucco that hit the ground. Great demonstrative evidence for a jury to see. I've been in cases where a group tells us, "We have a thousand great pictures of all the defects." And they provide us now digitally with a thousand photographs. And we look at it and we say, "Great. But you have 35 buildings at your project, what are these photos of?" And they don't know, they can't tell us. So one thing that I've seen the engineers do is the first photograph they take, before where they take a photograph of anything on the building is the street address for the building. And then they know that every digital photograph that appears in sequence after that is from that building. And then when they go onto the next building, first photograph they take is of the building address, and then they know digitally every photograph after that was from that building.
So a lot of it is just good logic in preserving that evidence. And if you go back to chapter 558 which Brian brought forth, you have to give the other side the opportunity to inspect before there's any changes made to the building, but there is an exception 558 for emergency repairs. So if there's active linkage in a unit, we may want to give the other side notice to tell them that there's an emergency situation. And if they can get over right away, they can see it, but certainly don't delay repairs in deference to providing all the notices and so forth because there is an emergency repair exception.
I want to respond before I go onto the next section. There's a question about HOA property where the developer never completed the clubhouse, or didn't complete it according to the original design, is that a 558 issue? Again, there's no warranty that's going to apply to an HOA unless we could make an argument from the original purchase contracts. But there may still be a cause of action that's available to enforce your rights to force a developer to complete the project. There may have been a development order from the county or the city which required the completion of those amenities. You may be able to leverage that development order in order to require it. There could be an action for misrepresentation. That's a little problematic because of class action rules in Florida against class actions when the basis is misrepresentation or fraud. But we can work through that.
So on that particular one, that's one if that individual wants to contact us, and give us the specific facts of that case. I think that we can fashion an argument to hold the developer accountable under those circumstances, not necessarily a 558 issue, but still potentially an issue that should be reviewed. I'm going to talk next about determining the settlement value of the claims. For a construction defect case in Florida, or even for a repair contract that goes bad, question is, what are the damages that would be recoverable? And for the most part in Florida, the damages recoverable when there's a construction defect or a default by a contractor on a repair job, it's going to be the cost of repair replacement plus the design, or engineering fees that are necessary in order to carry out the repair.
That's going to be your damages. So we spend a lot of time in our cases with damage experts who do estimates of what the repair cost is going to be. They usually include a quotient for design and contract administration of that repair job. And that's the basis of the damages. But does that mean that's what your claim is worth? Well, you may have some consequential damages which are things that the defect cause damages into the common element into the individual units. You want to make sure that you get your expert fees and attorney's fees accounted for in any settlement discussion. But then you get to the determining the settlement value, and you're going to look at several factors.
Number one, how strong is your claim? How strong is your proof? That's going to be a factor in how much you demand in any particular case? A defect case where there are obvious building code violations where there's been water intrusion into the units, or there's a safety violation, or a structural problem where you can go before a judge or a jury and present a very strong argument that the livability and the functionality of the property is at issue. People will understand the need to correct active order intrusion into unit or a balcony slab that's failing, or a fire code violation. And the jury, or the judge is likely to award really top dollar on that type of a defect.
Then we have groups coming to us and saying that some of the way the landscaping and the project was installed is causing some disruption of driveways. It's not affecting individual units, it's not affecting livability, it may be very annoying. But we don't rate that issue as being certainly equivalent to a violation of a fire code or water intrusion. So it's the quality of the defect which is also going to be at issue in determining the settlement value to the clients. What defenses does the developer have? If the association has done very poor maintenance, knowing that, let's say, under the statutory warranty that applied to condos that lack of maintenance is a defense, we would evaluate that client to be of lesser value because of actions the association took. Or if evidence wasn't properly preserved, and we know going into trial that we're going to have a hard time showing some of the defects because evidence wasn't preserved. That's going to be a factor in how we determine the settlement value of the case.
The other thing is collectibility. If a contractor without insurance is offering $50,000, you may think your case is worth $100,000 but the $100,000 may put that company out of business, and therefore you may accept $50,000 to settle that case because if you push any harder there might not be anything there. So all of those factors go into what a case should be settled for. And again, the advantages of using a construction lawyer who has negotiated claims in my case for over four decades is we've seen every type of case. We know how to evaluate them. We know how not to accept too little, but not to ask for too much. That will be the two main reasons why cases don't settle or don't settle for the proper amount. So you can rely on us to make that determination for you, but ultimately it's a board of directors that makes the business decision as to what to accept. Okay. The next area that Jon is going to talk about is the settlement paperwork. And Jon, why is getting the settlement paperwork right important?
Jon Lemole, Esq.:
Well, sometimes some of the hardest work comes after the settlement is reached in principle. I mean, think about a negotiation with a developer or a contractor. Lawyers on either side may be involved in talking mostly about numbers, and what is the responsible party going to pay in order to repair what defects have been claimed against them. And let's suppose that in those negotiations you've reached an agreement as to a monetary amount. Well, that's not the end of the story because, A, that's a contractual obligation, the payment. And so you want to make sure that that is enforceable in case the other side reneges on it.
And B, usually the payment of money and the resolution of claims involves the release of liability. And a release is a legal term in typically a legal document which formalizes the parties officially releasing claims against one another. And those are enforceable just like any other contract as well. And so great care in drafting settlement agreements needs to be taken, particularly in the area of the scope of the release. What are we releasing this contractor or this developer from? So you may have defects that you're settling, you're resolving, and you've got a contractor who's going to pay to settle claims for defects that you discovered when they reroofed your buildings.
And that release, you would typically want only to cover the claims that you were able to make in regards to that dispute up through the time of the release. Now, there may be other defects that you haven't discovered yet, and so you don't know about them. And so you don't necessarily want to release claims relating to additional defects that you had no knowledge of, and that you discover after the date of the settlement agreement. Furthermore, there may be warranties. There may be contractor warranties. There may be statutory warranties, and you want to be careful about preserving them if those haven't somehow been part of the negotiation process that you're settling with that contractor over. So the scope of the release is really important. We've had situations where clients have come to us with defects that they've discovered after they've already released a contractor or a developer from claims, and the release having been drafted way too broadly has presented a lot of problems in the ability to bring those claims for things which the owner didn't know about when they settled, discovered afterwards. So how you draft those documents is critically important.
The other thing is, as I said at the beginning of my comments, a settlement agreement is a contract. And sometimes they don't always get honored. There may be a number of reasons why you've entered into an agreement and somebody is supposed to pay your association money, and for whatever reason they renege on that. It may just be that suddenly they realize they don't have the money, or any number of reasons why that may not happen. You always want to make sure that your settlement agreements have an enforceability clause in there, that this agreement is enforceable in circuit court, and you want to also be sure to include that if you have to go to court to enforce this agreement that you've worked very hard on coming up with and negotiating, you want to be sure that you're going to get your attorney's fees if you have to go to court to enforce this agreement.
Some other typical things that you'll find that may be needing to be addressed in a settlement agreement are things like confidentiality, non-disparagement clauses. A lot of contractors and developers want to stick in very, very broadly worded non-disparagement clauses. You can't say anything bad about our worker, about our company. Those are mine fields for owners, and they have to be carefully scrutinized and minimized or restricted as much as you can. I mean you may not always be able to avoid them, but you want to have them as limited as possible. So there's a lot of work that happens after the settlement in principle is reached to get the terms of this contract right, because this contract is going to be binding on everybody forever. And that's something that you should definitely consult with a construction attorney. If you've negotiated something, maybe without a construction attorney but you want to memorialize this into a contract and obligations that will be binding forever and ever. This is something that should be taken with great care or done with great care.
Alan Tannenbaum, Esq.:
Jon, let's talk about a situation where the settlement agreement is calling for of remedial work. And let me just set it up for you. Because a lot of times groups ask us, or the developer or contractor may say, "Look, I want to come in and fix it rather than pay money." And it's an attractive alternative, but talk a little bit about out why the devil's in the details when it comes to making an agreement with a developer or contractor, for them to come back out to the property to undertake remedial work.
Jon Lemole, Esq.:
Yeah. Those are some of the hardest agreements to draft because you need to be very specific on what the scope of the work is, and you typically don't want to... You want to have that scope not be developed by the party that's responsible. You want to have an engineer in there involved in that, preparing a scope of work and specifications for the remedial work that's going to be done. Number one. So you want to have clear guidelines on what work needs to be done. Number two, you want have really a clear schedule for when the work is going to be done. You want to have clear provisions in that agreement about what constitutes completion, and who gets to determine whether the work is completed. You don't want the contractor coming back and saying, "We're done. We did it."
You want to have your engineers and best of all possible world, you want to have your engineers certifying that the work is completed. Your engineer being able to go in there and inspect the work. Permits. I mean there's a lot of little details that need to be addressed to make that remedial project as tight and as clear as possible as to what everybody's responsibilities are there. They're very hard to draft. I think we don't typically like those types of settlement agreements if there's the ability to get money, give money to the association and let them have control over the process. But sometimes it happens and particularly in site development, site issues cases, especially if it's right after turnover. We've had situations where the developer has offered to come back and do some substantial remedial work. But those have to be very carefully driven, but very carefully drafted with very precise details about how the work is going to be done when the work is going to be done, and how the work is determined to be completed.
Alan Tannenbaum, Esq.:
And of course, you have the issue of, you got to make sure proper insurance is in place during the work. And then the question of warranties, what happens if there's remedial work done? Is there a warranty in case it's defective? That has to be considered. I mean we negotiated a settlement for a homeowner's association where there was a lot of damage to the curbs of the roadways, but the developers still had several homes in the community to complete, and it didn't make sense to settle all of the roadways and curb issues for a monetary value because frankly we didn't know how much more damage would be done in the completion of the rest of the homes. So we entered into an agreement whereby there was a neutral engineer who was going to do an inspection of the roadways, and the paving upon the completion of all the homes in the community, and the developer was then on the hook to do the repairs that that engineer determined were necessary.
So it was a way to handle the fact that there was really no way to accept the monetary settlement because there was the potential further damage to occur. So be careful of the offer of repairs. A lot of times it ends up causing more complications than you had originally. And certainly never allow a contractor or developer onto your property which association certainly controlled after turnover on the general promise of, "We want to come in. We have the rights to come in and do repairs." That's a misnomer. There's no right of a developer or contractor to come in to do repairs of any type. What they should be allowed to do is come in to do repairs that are actually going to solve a problem. And you have no requirement to allow them in to potentially disguise problems or even exacerbate them which we've seen. The last section want to cover this quickly is-
Jon Lemole, Esq.:
Alan hang on. When you're addressing the last section, there's a question in the chat about confidentiality agreements and the public record and disclosure to members of the association, so I just wanted you to maybe hit that when you do your section here.
Alan Tannenbaum, Esq.:
All right. Well, yeah, so the owners are entitled to know what was settled. And if you have a requirement of the settlement agreement that it be kept confidential, that does not include reporting to the owners what the settlement was about or the amount. But if have a confidentiality clause, certainly tell the owners at the meeting that there is a confidentiality clause, and that they're not to repeat any of the terms of the settlement outside the community, and that really absolves the association of responsibility then because you can't control all of those conversations, and certainly the developers and contractors understand that. The last thing I want to cover and I'm going to do this quickly, because we have a short amount of time, justifying a settlement to the owners. So this really starts at the beginning of the case, or the beginning of the client, which is setting reasonable expectations to the owners about what's to be achieved in the litigation or if it's a repair dispute to keep them in a reasonable frame of mind about what the purpose of the claim is.
I often tell folks that the purpose of the work that we do in pursuing claims is to get a large chunk of money for our groups in order to take care of their problems. Notice that I didn't say make them whole, sometimes that does occur. But most of the time the purpose of any claim, whether it be an original defect claim, or an accounting claim, or a repair contract dispute resolution is to rest from the opposition parties a large chunk of money to contribute towards a resolution of the problem. And I tell groups this all the time, if you didn't pursue the developer and contractor or the repair contractor, the owners would pay 100% of the cost of putting the building back together or repairing the problem and so forth. If you end up getting the repair contractor or the developer to pay 70% of the cost of repair, that means you only have to go back to the owners for 30%.
And the owners should consider that if, again, they're probably educated a victory. But only if you set them up and have been realistic to them about what's to be achieved. And as you go back to the membership with the resolution of the claim, it's good to have an opinion from a lawyer like our firm that says, that we believe within the parameters of the work that we've done over four decades that this is a reasonable conclusion to your situation based upon the rest of litigation, the cost of litigation, the solvency of the parties that were being pursued, the defenses that the parties have, all the things that we talked about. So that the owners understand that they a good settlement is often better than a great trial result that could be appealed, could have a problem with collectibility. One thing about a settlement is the money is collected or the repair work is done and you have a known conclusion whereas going all the way through the court process there's some doubts.
Michelle says there's an evaluation that she's going to put up. There's a question about engineers, who do we recommend? Contact us offline and we will have some recommendations for you. And so take Michelle's poll, and we're going to thank everybody. And if there's any last minute questions we can take them on. But fill out Michelle's poll, which she's just launched. I see there's two more questions. I need to find out. In a remodeling job what if the contractors do not finish in the timely manner. Says he starts and then pulls away for months before everything is completed.
Well, I'll tell you away that there was something deficient likely in that contract that didn't have the type of time limits that Jon was talking about. If you don't have specific time limits for completion, it does revert to in many cases a reasonable amount of time to complete the job per industry standards. But there may be a clause of the contract that says that for nearly every reason in the world, the contractor doesn't promise that particular timeframe for completion. And if you have a clause like that, it's going to be a lot more difficult to require completion on timely basis. But we'd be happy to look at that for you to give you our opinion. And I'm looking to see if there's another question. The confidentiality, we covered.
As far as the information regarding the claim. I don't know if that's an attorney client question. Generally, a manager is included for attorney client privileges within the control group of the association for attorney client privilege. I don't know if the question is can the Elkem be involved or does the Elkem want to be involved? Because that's a lot of extra work, but usually our best information usually comes from managers or the maintenance person who works at the project. So certainly they should be involved in helping with that information gathering if I understood the question. And I think we covered all the questions.
We've hit noon. I hope you found this valuable. Certainly don't be afraid to contact us with questions. We are the type of law firm, we do not go on the clock until we're retained. So you usually get at least that one that free question, sometimes we get you a free hour. So if you're facing any of the issues that we're talking about, you have a repair project coming up, give us a call. We will give you free advice. We will help you orient yourselves to approaching these things. And so we're available. Just contact Michelle and she'll set up a meeting with me, Jon, or Brian, and we will help you out. And yes, we do review contracts for projects, Connie. We do that every day. I got several right on my desk right now. So we do that. All right. Everybody have a great day. Thank you.
