Before the Coronavirus pandemic caused exterior construction to grind to a halt, facade projects were commonplace throughout New York City and most metropolitan areas. Associations with professional management and an attorney and engineer guiding them, have to all be prepared for problems that may occur. Since COVID-19, we have received numerous calls about coops, condos and HOAs experiencing problems with their contractors, and as a result of thorough and well-thought out provisions in their contracts, they were protected and able to get out of their contracts or hold the contractor’s feet to the fire to get the association what it needed.
The contract is the most important thing when a dispute arises. The terms are critical. Sometimes associations have their engineer prepare the initial AIA contact and then have an attorney review the contract. This is not suggested for a number of reasons. Engineers are usually listed in a contract with terms that may favor the engineer. For instance, there is a provision regarding intellectual property which favor the engineer over the association. That provision should be changed and engineers typically include it. If the association is having an attorney involved in the contract process (which it most definitely should be doing), then the attorney should be drafting the contract from the inception. Another reason is that contract drafting is considered the practice of law and engineers are not licensed to draft contracts.
Associations should make sure that their contracts are well thought out and comprehensive. For instance, if an association did not include a provision permitting it to delay or terminate a contract for convenience or with, the Coronavirus shut down could have been devastating economically.
The Board of Managers of 215 East 80 Condominium had problems with its facade contractor Jerrick Associates back in 2016, and they are still litigating about it now. The condo didn’t make the last $88,685 payment on the $700k plus contract because it claimed the job was poorly done and there were leaks into apartments resulting in damage. The contractor filed a mechanic’s lien and then sued the condo and its management company Rudd Management in 2018. The Court just issued a decision and the litigation goes on. The Court couldn’t decide the contractor’s claims for breach of contract and an account stated on evidence and couldn’t decide the condo’s counterclaims either. The Court did dismiss the claims against management based on the agent for a disclosed principle doctrine, but it took 2 years to get to that point.
Hopefully the condominium included an attorney fee provision in the contract so that the breaching party is responsible for the non-breaching party’s legal fees and costs. This could be problematic for an association though if the contractor is correct and thus, the association could be responsible for the contractor’s legal fees and costs.
The condo and management should document the issues as they are happening during the project and coordinate with the engineer with respect to those issues so that there is good evidence if there is a dispute. It is very difficult to do so years later. In the 215 East 80 Condominium case, the engineer seemingly certified that the work for final payment was performed. The Court, however, explained that the contract provided that certification of payment does not mean that the work was performed according to the contract and thus, did not entitle the contractor to summery judgment. The certification could be very persuasive at trial. It certainly would have been better if the engineer and association were on the same page so that the engineer did not make such certification unless the certification was correct.
As you can see, problems with facade contracts can be awful and lead to expensive lawsuits. Knowing this, associations and management should be careful from the very beginning and make sure their contracts are thorough and comprehensive, that the execution of the project is well managed in a coordinated way by management, the attorney and engineer on behalf of the association. The failure to document issues and coordinate efforts can lead to a lot of headaches when problems arise.
Read the decision here.
