The Greater New York Chapter of IFMA, International Facility Management Association
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IFMAGNY LEGAL TOOL BOX LUNCHEON
New York City expects to spend $83 billion over the next three years to construct office skyscrapers, arts centers, sports complexes, and apartment properties. This sustained building boom will continue to be helped by long-term projects, such as the redevelopment of the World Trade Center site in Lower Manhattan. With so many projects underway, litigation is bound to be a part of the construction landscape.
At an IFMA Toolbox Luncheon Seminar on October 18, 2007, attending members had the privilege of hearing from C. Jaye Berger, a Manhattan attorney, who specializes in building construction, renovation, and real estate litigation, lecture about issues of concern to property managers. Her firm represents many owners, developers, property managers, contractors, architects, and interior designers. Ms. Berger spoke about the litigation that can arise from construction projects and the importance of having construction contracts, drafted by an attorney who knows this area of the law, to suit the particular project. She discussed the types of liability issues that can arise on commercial real estate projects and how property managers can avoid them.
In an article in Real Estate Weekly, Ms. Berger stated that property managers are the ones who usually negotiate, review and often sign contracts with contractors on behalf of the owners they represent. These contracts can vary tremendously in scope and dollar amount. Often they are signed without the advice of counsel. They can be in the form of a one-page proposal or can be many pages long. She went on to say that she has found, the shorter the contract, the more likely it is to lead to problems. It is not that the number of pages matters per se, it is that shorter proposal-type contracts are usually signed or entered into more casually and without as much negotiation of the terms. People tend to look at the scope and the price, then sign on the dotted line. As an attorney who handles the lawsuit that develops from these contracts, Ms. Berger can offer some advice on how problems can arise and how to avoid them.
In her recent seminar, Ms. Berger told the audience that when putting together a commercial construction contract, they must consider all of the variables, including insurance, partial and final waivers of lien and bonds. It is also essential to know who the subcontractors are on the project, since they need to have the proper insurance and may also file mechanic’s lien. Mechanic’s liens can prevent a closing on a property. While mechanic’s liens can usually be bonded, sometimes they are so large that that is not possible. Building owners and property managers in the State of New York must also pay attention to Labor Law §240 (the Scaffolding Law) which can make building owners and general contractors strictly liable for injuries to workmen. Contractual indemnification provisions in favor of the owner and property management company become very important when such cases arise.
Ms. Berger cautioned against the use of boiler plate contracts, handshake agreements and “gentlemen’s’ agreements”. She discussed the use of AIA contracts and riders, as well as the need for having architects observe construction. As property managers go through the design process, they should consult with counsel knowledgeable in this area. A common area of contention is when bids from contractors come in higher than the proposed budget. Many companies hire Ms. Berger as outside counsel to work with them on these projects. A lawyer who knows this area of the law, can put things in perspective, so that the project can stay on track from the negotiation process through to completion. In general, architects are not contractually held to a budget and do not do cost estimating. If bids come in high, they can “design down” to fall within the budget. The property manager may also be able to negotiate the price down, since these projects are in the private sector and do not require hiring the lowest bidder.
It is best to have a complete set of design drawings before obtaining bids. If this is not done and a contract is signed, there will immediately be problems and change orders. In addition, after the contract is signed, the parties will be in a very different negotiating posture. Before the contract has been signed, the contractor is more likely to be negotiable. After the contract is signed, the contractor is going to be less negotiable and time is ticking away for completing the project.
Ms. Berger counseled that property managers make certain that they have proof of insurance listing the building owner and property manager as additional insureds before any work begins. Of course, the property owner needs to have its own insurance, since sometimes claims under the contractor’s policy are denied. Some people are in such a hurry to get work started that they gloss over these details and just hope for the best. She advised that property managers resist those urges, put the brakes on, and spend a little more time planning and getting legal counsel. The project will turn out better in the end.
When a dispute develops, many parties, especially in the commercial area, try to utilize mediation before other methods of dispute resolution. Ms. Berger advises that it is a less formal way of having all the parties and their attorneys sit down together and try to work things out. While there are no strict rules as to how it is conducted, it has become more formal, like going to Court. Everyone would do well to listen to some of Ms. Berger’s advice to our members.
By Stuart Bragg of Blondies Treehouse & Gabriela de Oliveira of Global Arch, LLC- IFMAGNY PR Committee