Florida Construction Law Authority : Florida Construction Lawyer & Attorney: Becker & Poliakoff Law Firm: Construction Law

Mediation is increasingly being used as an alternative dispute resolution method. As the time and expense of litigation increase, parties often turn to mediation as a means to resolve disputes. Additionally, parties are generally required to participate in mediation prior to trial. Prior to proceeding to mediation, however, parties should make sure that they are positioned to make final decisions regarding their case.

For example, if you are a plaintiff in a construction defects case, have you determined the cost to correct the defects? Do you have the opinion of a qualified independent expert who is prepared to testify that the constructed improvement is defective, and that the defendant is liable for the condition?

On the other hand, if you are a defendant, have you investigated the conditions that are subject of the plaintiff's claim? Do you know what the cost to repair would be? Have you decided what you would be willing to do in order to resolve the claim?

Although mediation serves as a cost effective and useful means to resolve claims; and also can serve to avoid the time, expense and uncertainties of a trial, parties need to make sure that they are ready to enter into settlement negotiations. The mediation experience may prove frustrating and unsuccessful if the parties are not fully prepared to resolve their dispute. Thus, parties are encouraged to keep these points in mind as they consider when to request or participate in mediation.

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No one likes admitting that they have a problem. That holds true even with regard to construction-related problems. However, as Mr. and Mrs. Hochberg found out the hard way, if an owner is able to see the symptoms of a construction defect but does not promptly investigate the cause, determine the entities responsible and file a lawsuit to hold the responsible entities accountable, the owner risks losing his or her claim. Hochberg v. Thomas Carter Painting, Inc., 63 So. 3d 861 (Fla. 3d DCA 2011).

While the Florida Legislature tried to protect owners from losing their claims for construction defects that are not easily seen or obvious (are “latent”) by specifically addressing latent defects in Section 95.11(3)(c), Florida Statutes, the protection provided by the language is limited. Generally, owners have four years in which to file a lawsuit based on a construction defect claim. The latent defect language in Section 95.11(3)(c) delays the start of the four years until a latent defect is either discovered or should have been discovered.  

When the Hochbergs moved into their new home they could smell mold and found damp carpeting in their master bedroom. The Hochbergs hired a mold remediation company and an engineer to investigate the problems, but based on the results of that investigation, only filed an action against the general contractor. Eventually, the Hochbergs were able to identify the specific subcontractor that performed the defective work which allowed water to enter their home and they filed a lawsuit against it as well.

By that time, though, the Court found that too much time had passed since the Hochbergs were on notice of the problem and they could no longer pursue the subcontractor. The Court held that “Florida law is clear that ‘where there is an obvious manifestation of a defect, notice will be inferred at the time of manifestation regardless of whether the [owner] has knowledge of the exact nature of the defect.’” (emphasis added). Based on the Court’s holding, if an owner fails to promptly investigate symptoms of a construction defect (as examples, smells, wet carpet, cracks in walls), the owner not only runs the risk of a small problem becoming bigger and more expensive to fix, but also runs the risk of losing his or her right to hold the responsible entities accountable. The Hochbergs learned that lesson the hard way. Other owners can avoid losing their claims by learning from the Hochbergs’ experience, admitting that they have a problem, promptly investigating it and timely filing lawsuits against the responsible entities.

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Chapter 558 Fla. Stats. is Florida’s pre-suit notice and right to cure procedure, which applies before property owners may assert a claim against a developer, contractor, subcontractor or design professional for construction and design defects. It expressly provides for “destructive testing” of the defective areas of the property via written request and mutual agreement. 

Destructive testing may be performed to refute the existence of defects. Examples of destructive testing may include such things as removing drywall, stucco, or other components to view the hidden conditions beneath it.

At a minimum, a developer or contractor’s request for destructive testing should describe: (i) who is performing the testing, (ii) the anticipated testing methods and locations, (iii) the estimated anticipated damage and repairs to or restoration of the property resulting from the testing, (iv) the estimated amount of time necessary for the testing and to complete any repairs or restoration, and (v) who will bear financial responsibility for covering the costs of repairs or restoration. 

Developers or contractors may be asked to sign a written agreement prior to the commencement of any destructive testing, setting forth the rights and obligations of all participants. If the property owner fails to request it, the developer or contractor should have their attorney draft such an agreement.  Among other things, it could include the anticipated timeframes and locations for testing, identify the mutually agreed upon testing methods and indentify who will bear the costs for testing, materials, permits, governmental fees, post-testing repairs, consultants’ fees, security costs and the like.

Developers and contractors should also consider whether they wish to post a bond. If they have not done so already, they should obtain and maintain liability insurance coverage and workers compensation insurance before any destructive testing begins as well as throughout the destructive testing process.

Developers and contractors also need to determine in advance whether they are prepared to indemnify, hold harmless and defend the property owners from any personal injury or property damage which could be caused by the destructive testing. Lastly, developers and contractors should come to an agreement not only each other, but with any other testing parties, such as design professionals, subcontractors and the property owners, as to each of the testing parties’ respective duties, if any, to share reports or results of the destructive testing with each other.

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Unfortunately for property owners, manufacturing and workmanship defects are prevalent in the building industry.  Such defects not only represent a large cost to Community Associations and homeowners in terms of repairs, but they can also present serious health and safety issues and reduce the value of the property.

I am going to identify and address, in a series of postings, some of the building products which have been alleged to be defective, and about which lawsuits have been filed.  If your property was constructed with any of these materials, or you have an issue with a different material, it may be in your best interest to contact a professional in order to protect your rights and interests. 

If you are unsure whether any of these products were utilized in the construction of your home or condominium, it may be necessary to consult any warranty you may have, speak with your property manager or hire an independent contractor to examine the materials. 

MI WINDOWS

MI Windows and Doors, with its headquarters in Pennsylvania and manufacturing plants across the country, is one of the nation's largest suppliers of vinyl, aluminum and composite windows and doors.  Throughout the United States, property owners are filing complaints against MI Windows regarding defects in their 8500 and 3500 Series Windows.  A class action lawsuit has been instituted in North Carolina against MI Windows.

Despite the fact that these property owners and homes are spread throughout the country, homes constructed with these windows are experiencing similar, significant water intrusion, leading to water damage not only to the window, but to the building materials adjacent to the window, floors and carpets.

A design and manufacturing defect has been alleged against MI Windows in several lawsuits.  Several experts working on behalf of the property owners have concluded that the windows are poorly designed and manufactured, the result of which is water entering through the window assemblies during normal rain events.  Many property owners have been forced to make costly repairs to their homes and/or replace the defective windows at great expense.  As we all know, water intrusion into a home will ultimately lead to several problems including rotting, mold growth and significant damage to the underlying structure of a home.

If you have MI Window 8500 and 3500 Series Windows in your home or condominium, you would be well advised to investigate the matter further and determine whether or not you need professional assistance and/or have a claim against the manufacturer.  For those builders utilizing these windows, they would be well advised to get guarantees from the manufacturer that the windows will function properly once installed.

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Chapter 558 Fla. Stats. is Florida’s pre-suit notice and right to cure procedure, which applies before property owners may assert a claim against a developer, contractor, subcontractor or design professional for construction and design defects. It expressly provides for “destructive testing” of the defective areas of the property via written request and mutual agreement. 

Destructive testing is often performed to establish or refute the existence of defects. For example, sections of drywall may be removed in order to view water damage within a wall, or stucco may be removed to expose the hidden conditions beneath it.

At a minimum, a developer or contractor’s request for destructive testing should describe: (i) who is performing the testing, (ii) the anticipated testing methods and locations, (iii) the estimated anticipated damage and repairs to or restoration of the property resulting from the testing, (iv) the estimated amount of time necessary for the testing and to complete any repairs or restoration, and (v) who will bear financial responsibility for covering the costs of repairs or restoration. Where the owner has retained any consultants to inspect or document defects, he or she should seek their opinions about the proposed testing and repair methods prior to performing any destructive testing.  

While many owners are concerned about the potential damage or disruptions that destructive testing may pose, not agreeing to destructive testing could cost the property owner far more in the long run. Owners who ignore the statutory destructive testing procedures or refuse to comply with them altogether, may be barred from pursuing defects claims that could have been mitigated or even avoided had the destructive testing been allowed. However, taking the time to document the parties’ destructive testing obligations in writing should provide property owners with some measure of comfort in proceeding with destructive testing.

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Well, you might not be. While you might have prudently thought ahead and gotten a performance bond from an entity downstream, to protect you from its defective work, the protection afforded by a performance bond only lasts so long. After some point, if you have not filed a lawsuit against the performance bond surety, you lose your right to make a claim and it is as if the performance bond never existed. As explained below, it might be relatively easy to determine the deadline for an owner to file a lawsuit against its general contractor’s performance bond surety, but calculating the deadline for a general contractor to file a lawsuit against one of its subcontractors’ performance bond sureties might not be so easy.

A lawsuit against a performance bond must be filed within five years from the date the work at issue was completed and accepted, or the lawsuit will be forever time-barred. Generally, the time period for filing a lawsuit based on a construction defect that is not readily observable (a "latent" defect) does not start to run until it is discovered. That general rule does not apply to claims against a performance bond surety, however. Therefore, even if a defect in the work is not discovered until five years and one day after the work is completed and accepted, you will not have the ability to hold the performance bond surety accountable.

When calculating the deadline to file a lawsuit against a general contractor’s performance bond surety, the work at issue is typically the entire project and the acceptance starting the five-year period is the owner’s acceptance. For a claim by a general contractor against its subcontractor’s performance bond, the operative work and the contract with which it must comply are the subcontractor’s work and the subcontract. Therefore, when the claim at issue is against a subcontractor’s performance bond, the five-year period starts to run when the general contractor accepts the subcontractor’s work, in accordance with the subcontract, and pays for it in full.

Change orders that expand the scope of work to be performed by a subcontractor, disputes between the owner and general contractor over whether the subcontractor satisfactorily completed its work, and the use of replacement or completion subcontractors can make it ambiguous when the subcontractor’s work at issue was completed and accepted. The general contractor’s representations in its payment applications to the owner as to the status of a subcontractor’s work, the general contractor’s payments to the subcontractor and certifications by the architect of record and inspectors could support arguments that the five-year period started on different days. As a potential claimant against a performance bond, the resolution of that uncertainty could mean the difference between having a performance bond surety pay to address the defects and you having to pay to address them.

Performance bonds can provide valuable protection against construction defects. However, given the time sensitive nature of the requirements to pursue a claim against a performance bond, a potential claimant must be careful to preserve that protection. To make sure that protection is available when it is needed, a claimant must be sure to follow the notice and claims procedures stated in the bond, and, if necessary, ultimately file a lawsuit against the performance bond surety prior to five years after the work at issue was completed and accepted. To be safe, a claimant should use the earliest arguable completion and acceptance date in calculating the deadline to file its lawsuit, to avoid a dispute over whether the lawsuit was timely.

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Construction problems, such as design defects, poor workmanship, code violations and the like could arise after any construction project, and may signal the beginning of a construction defects claim.

Chapter 558, Fla. Stats. is Florida's pre-suit notice and right to cure procedure, which applies before property owners assert a claim for damages against a developer, contractor, subcontractor, supplier, or design professional for construction and design defects or deficiencies. Chapter 558 requires a series of notices, inspections, and opportunities to cure construction defects before an owner/claimant may sue for defects. Developers should be mindful that Chapter 558 includes in its definition of a “contractor” any person legally engaged in the business of developing real property.

As of October 1, 2009 the Chapter 558 pre-suit notice provisions automatically apply to all new construction contracts, unless the procedure is expressly waived. Once a developer has received a written notice of claim for construction defects, the developer should contact its attorney to determine its next course of action. Once it has been determined that Chapter 558 applies to the claim, the developer is encouraged to provide all potentially responsible parties, such as the design professionals, contractors and subcontractors, with a written “secondary notice of claim” of any alleged defects before the expiration of the time limits imposed by Chapter 558, Fla. Stats.
After receiving the owner’s Notice of Claim, the developer may schedule and attend an inspection with the owner, and/or its attorney, engineer or design consultant, to observe the conditions that comprise the owner’s Chapter 558 construction or design defect claims. Destructive testing of the premises is also allowed via developer’s written request and mutual agreement with the owner. If testing is desired, the developer must describe who will be performing it, the anticipated damage, and the time needed to perform the test. The developer should also identify who will perform any restoration necessitated by the testing and who will cover the cost of those repairs.

The developer should also send a written response to the owner within specific statutory timeframes, either disputing the claim, or providing the owner with: (i) repairs of the alleged defects, (ii) a monetary settlement, which may include insurance proceeds, or (iii) some combination of repairs and money, along with a timetable for making payments and/or repairs. If the developer fails to provide a timely response to the owner’s claim, the owner is free to deem the lack of response a rejection of its claim, and may commence litigation. Moreover, before it can file suit, the owner must respond to the developer’s offer within the specified statutory timeframes.
Similarly, the recipients of the developer’s secondary notice of claim are also required to respond to the developer, accepting or disputing the alleged claims within specific statutory timeframes.
The developer and owner are free to extend the statutory timeframes or even waive the statutory requirements altogether by written agreement. For this reason, developers are advised to document any time extensions or waivers which have been provided by the owner. This becomes especially important where an owner files suit before fully complying with the Chapter 558 notice procedure. Depending on the circumstances, the developer may have a basis to stay the owner’s construction defect litigation until such compliance is achieved. 

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Owners are responsible for monitoring their property for signs of construction problems, which may include design defects, poor workmanship, code violations and the like. Problematic conditions could arise during or after any construction project, such as roof repair and/or replacement, concrete restoration, elevator upgrades and repairs, and work on the air conditioning systems, to name a few. Once the owner suspects there is a problem or has a dispute with its contractor, the engineer or others, it should contact its attorney to determine its next course of action. Since there are time limits imposed by warranties and statutes of limitation, it is important to provide all potentially responsible parties with notice of any suspected or known defects as soon as possible, before the expiration of those time-frames.

Chapter 558, Fla. Stats. is Florida's pre-suit notice and right to cure procedure, which allows both residential and commercial property owners to assert a claim for damages against a developer, contractor, subcontractor, supplier, or design professional for construction and design defects or deficiencies. As of October 1, 2009 the Chapter 558 pre-suit notice provisions automatically apply to all new construction contracts, unless the procedure is expressly waived. Therefore, owners are encouraged to review all agreements for construction or design services with their attorney at the first sign of any defects, to determine if Chapter 558 applies. Once it has been determined that Chapter 558 applies, an owner is required to comply with the statutory notice process before it may file a lawsuit for construction and design defect claims. In accordance with Chapter 558, the owner is required to provide third parties with a “reasonably detailed” description of the defects. The owner’s attorney can prepare a Notice of Claim letter to all potentially responsible parties setting forth any construction or design conditions which the owner believes to be defective. Very often, the defects may be documented by a licensed design professional, via a written inspection report. Parties receiving the Notice of Claim may schedule and attend an inspection with the owner, and/or its attorney, engineer or design consultant, to observe the conditions that comprise the Chapter 558 construction or design defect claims. The recipients of the Notice of Claim are also required to issue a written response, accepting or disputing the owner’s claims within specific statutory time-frames. The owner may accept or dispute these responses. The owner is then free to sue upon any portion of the claim rejected by the parties or any portion of the parties’ responses which have been rejected by the owner.

The owner and contractor are also free to extend these time-frames or even waive the statutory requirements altogether by written agreement. This is an important consideration for owners, who should be mindful that a failure to comply with the Chapter 558 notice procedure may result in their litigation being stayed until such compliance is achieved. Consequently, owners are in danger of losing considerable time and money when they do not follow this statutory procedure.

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There are some circumstances in which a lender may be directly liable to third parties for construction defects as a principal or alter ego of the developer.  Most jurisdictions hold that for this liability to exist more than just the holding and protection of a security interest and the monitoring of the developer’s operations must exist.  A form of this liability may be found when the developer and the lender are partners or joint venturers. Banks and financing institutions may be held liable to home and condominium buyers if the lender has participated in the management of the project to a degree that the court finds that the lender-borrower relationship was a joint venture.  Also, when the lender assumes control of the contractor it will usually be bound by the construction contract.  If the developer notes construction deficiencies and the lender refuses to withhold disbursements without investigation, the lender may also be liable.

Lender as De Facto Developer
Closely related to the theory of direct or joint venture partnership liability is the theory that the lender is liable to third parties for construction defects because of the control it exercises over the developer’s day-to-day operations.  A lender is considered a developer when it is also involved in the development of the homes sold to the purchasers.  Similarly, a lender is presumably a joint venturer when the lender has an equity ownership in the project with another entity.  Likewise, a lender is deemed to be amalgamated if it merges with a developer or builder so as to appear to be a united entity.  The issue is one of “control.”  By controlling the developer the lender in effect becomes the developer of the construction project.

Banks and financial institutions that limit their involvement in construction projects to financing will not be found liable under a lender liability theory.  However, when the bank takes over the project and constructs or finishes construction as if it were its own, or has some direct involvement, the lender can be held liable for construction defects. 

Subsequent Developer
The issue of de facto developer is further complicated when dealing with Community Associations because lenders can become a “Successor Declarant.”  In cases involving lenders as Successor Declarants, the courts are faced with evaluating the extent to which the lender should be required to fulfill the obligations of the original developer.  When making loans on condominiums or planned unit developments, lenders should consider including “Successor Declarant” language in the documents that more clearly define the rights and obligations of the parties if the original developer conveys the remaining portion of the project to the lender or to another successor.  Successor provisions are beneficial when the facts of the law result in the successor being deemed responsible for fulfilling the obligations of the original developer.  Whether such a provision would limit a successor’s liability for construction defects will depend on the facts and circumstances and the laws of the jurisdiction where the project is located.

A special situation arises when the lender is forced to foreclose or takes the deed in lieu of foreclosure on a construction project.  In our current economically distressed real estate market, an increasing number of lenders are forced to acquire new homes and condominiums from defunct builders and developers and lenders should be aware of potential liability if they become the vendor of these homes.  The seller of a new home (whether it’s a developer or a lender who has acquired a property through foreclosure) impliedly warrants the habitability of the home or condominium.

Stay tuned for more on this issue.

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The recent change to §558.005 of the Florida Statutes appears to make that statutory code requiring pre-litigation notice and opportunity to cure applicable to all claims for construction defects when the construction contract was executed October 1, 2009 or later unless the claimant and the potential defendant have agreed in writing to opt out of the requirements of that code.  This statutory change suggests that, unless a contract waives the provisions of Chapter 558, the notice and opportunity to cure provisions apply to all construction defect claims arising out of  contracts dated October 1, 2009 or later.  However, a closer examination reveals that may not be the case.  In particular, it does not appear Chapter 558 applies to construction defect claims a developer may bring against its contractor and subcontractors.

Chapter 558 requires a series of notices, inspections, and opportunities to cure construction defects before a “claimant” may sue for defects.  The definition section of Chapter 558 defines “claimant” as a property owner asserting a claim for damages arising from construction defects.  However, the definition provides that “claimant” does not include a “contractor.”  The statute goes on to define “contractor” as including any person legally engaged in the business of developing real property.  Therefore, a glitch in the statute appears to completely exempt developers from the provisions of Chapter 558 and all the pre-suit notice requirements when they are the Claimant.  Certainly, this is happy news for developers who may wish to avoid the onerous pre-litigation procedures unless they choose to voluntarily submit to them.  On the other hand, contractors contracting with developers should ensure their contracts require compliance with Chapter 558 as a contractual term and require abatement of any litigation that may be brought before the statutory provisions are satisfied.  This way, even though the statute may not technically apply, incorporating the statute into one’s contract could make non-compliance with the statute a breach of contract or failure of condition precedent should the developer sue for defects before satisfying the statutory requirements.  While you are considering whether to add this clause to your construction contracts, think about all the other construction statutes for which you should craft contractual provisions compelling compliance, or waiving compliance, as your situation dictates.
 

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 With the financial and mortgage market fallout, home and condominium sales throughout the country are taking a hit. Many home and condominium developers have defaulted on construction loans resulting in an explosion of distressed projects. Lenders face the prospect of foreclosing on residential property developments that are in various stages of construction as a consequence of the downturn of the residential real estate market and developer defaults. The foreclosing lender may acquire completed projects or may wish to complete construction before the homes or condominiums can be sold.  Due to the conflicting and complicated issues involved, financial institutions in today’s market face a daunting task deciding whether to foreclose on a construction loan and what to do with the property upon foreclosure.  Not only does the lender have to consider the factors ordinarily involved in the foreclosure process, the lender also has to consider the exposure to liability for construction defects when it steps into the shoes of the developer. 

In most jurisdictions, a mere lender is not liable to the purchaser of a new home for construction defects. Instead, the buyer traditionally looks to the builder or contractor for relief in tort or contract for construction defect claims. However, with the ever-increasing role of construction lenders, the question arises as to whether the buyer's contract and statutory remedies should extend to the lender.

Each situation is different. Depending on the level of involvement, lenders may become a joint venturer with the developer, a de facto developer, or a successor developer, all of which have varying levels of liability for the lender. Stay tuned for more on this issue.

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If it is summertime in Florida, then there must be a thunderstorm rolling in.  Unfortunately for many residents, the afternoon thunderstorms result in water intrusion through windows, roofs or other portions of the building envelope.  This is a worrisome proposition for most as the thoughts of what is wrong with our brand new homes or condos run the gamut, from the simple lack of sealant at a location to significant construction defects. 

One of the most important legal considerations is the running of the statute of limitations.  The statute of limitations is the time frame within which a lawsuit must be filed in order to have any recovery against the party or parties responsible for the damage.  This is especially important where the defect is one resulting in building leaks.

There is 4 years from the date on which the first leak is observed, or should have been observed with the exercise of reasonable diligence, within which to file suit.  This puts the onus on an owner to not ignore the problem, but conduct reasonable investigation to determine what the issue is and how it can be addressed and file suit if necessary.  The liability of the responsible parties is not endless.

An important point is that the limitations period continues to run, even if the developer or contractor attempts to repair the defective items.  I have seen numerous cases over the years where people had the contractor attempting to repair the building to no avail, and then found themselves outside the limitations period.  Unfortunately, there is no tolling of the limitations period merely because the parties were “trying to work it out.”  Every owner should be vigilant and take necessary steps to protect their rights.

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