New construction agreements can be extremely complicated and it is important that the buyer have a thorough understanding of the contract and terms prior to executing. The construction agreements provided by developers are typically one sided and do very little to protect the buyer/owner in the event that an issue should arise. It is important to note that every construction agreement is different and there is no standard new construction agreement out there. The buyer should have a thorough understanding of what it is that the buyer is signing and the terms that they will be bound to. Below are some of more common issues we discover when reviewing new construction agreements:
- Construction Timeframes. Does the contract provide for a definitive commencement date and completion schedule, and are there penalties if the builder misses those marks?
- Plans and Specifications. Are the plans and specifications of the new improvement adequately described in the Contract, and does the buyer have any recourse if the developer fails to construct the improvement in accordance with the plans and specs?
- Change Orders. Is the scope of the project very clear, and what is the written process (and price) for requested changes?
- Financing Contingency. Is the contract contingent on financing and is it a true financing contingency?
- Deposits. Does the contract require a substantial amount of upfront money be paid to the builder?
- Draw Schedule. Does the contract provide for a sufficient number of draws so that the money paid to the contractor is proportional to the work performed to date?
- Inspections. Does the contract permit inspections as a condition to each draw, and, more importantly, as a condition to final payment?
- Punch List. Does the contract address the manner in which punch list items are to be completed and by when? Does the contract require final payment prior to the completion of punch list items?
- Lien Waivers. Does the contract require lien waivers as a condition to each draw, and more importantly, as a condition to final payment?
- Holdbacks/Final Payment. Does the contract provide for an adequate holdback from each draw, as well as a reasonably sufficient final payment, to better insure that there will be sufficient funds to complete the project if the builder fails to perform?
- Closing Date. Does the contract provide for adequate notice to the Buyer prior to setting the Closing Date?
Often times the above issues are not adequately addressed in a manner that best protects the buyer’s interests, and there is very little any lawyer can do after the fact. Negotiating construction contracts can be extremely complex, and should not be done without consulting with an attorney.
Our firm represents buyers/owners as they enter into a new construction agreement by:
- Reviewing contracts and related documentation on behalf of Buyer/Owner prior to contract execution
- Thoroughly explaining contract terms, expectations and timelines
- Drafting legal documents and addenda to contract to protect Buyer/Owner interest
- Closing construction loans and reviewing loan documents
- Ensuring lien releases are completed prior to payment
- Attorney representation throughout the closing process with the builder’s Closing Agent and/or act as both Attorney representation and Closing Agent
- Ordering and addressing any issues on the vacant lot survey and/or final survey
- Ensuring Buyer/Owner receives marketable title
Because of the substantial risks involved with hiring a company to build a home, we strongly encourage any person considering new construction to fully research the contractor and to obtain legal representation to review and negotiate the contracts. If there are any questions as to the financial viability of the contractor, a title search can reveal all pending liens, foreclosures, lawsuits, judgments and many other public records which tend to indicate financial hardship. Further, even if the landowner is obtaining financing (in which the lender will require very specific agreements from the builder for the construction process), we still strongly encourage having an attorney review all documents prior to commencement of construction.
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Berlin Patten Ebling, PLLC
Article Authored by William C. McComb, Esq., email@example.com
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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