Many contractors believe that putting an arbitration provision in their construction agreement is a good practice. While the benefits of arbitration are increasingly questionable, the arbitration provision remains a common component of many construction contracts. For more on whether the arbitration provision is right for you, please read this article: Arbitration Provision in Construction Contracts: Is it right for you?
However, pursuant to G.B.L Section 399-c, mandatory arbitration provisions in construction contracts for residential home improvement are void. This is a little known fact to many contractors. Because the provision is void, it is better to not include it any of your residential home improvement agreements. The reason is that the provision is void at the option of the home owner/consumer. By keeping the provision in your contract, you risk giving the right to arbitrate solely to the home owner. Should you chose to litigate, the home owner can force arbitration. Should you chose to arbitrate, the home owner can chose to void the provision and proceed to litigation. Putting this much power in the home owner's hand is likely not what you intended and can lead to a significant increase in your initial legal costs and you fight the home owner over the course of dispute resolution to pursue.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. He can be reached at (631) 752-7100 or vtp@kushnicklaw.com
Showing posts sorted by relevance for query void. Sort by date Show all posts
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Friday, December 17, 2010
Monday, December 7, 2015
Case Law Update: Court holds Ohio Venue Provision in Contract Void under GOL 757
HVS, LLC v Fortney & Weygandt, Inc.
Decided 9/24/15 by the Supreme Court, Rockland County
The issue in this appeal concerns the validity of an arbitration agreement entered into by the parties.
The parties entered into a written subcontract agreement, wherein the Plaintiff, an electrical company, agreed to furnish all labor and material necessary to complete the electrical scope of the work on the project, which was located in New York. Delays arose during construction, the parties disputed the revised work schedule, and the Defendant terminated the subcontract and refused to permit Plaintiff to complete its work. Soon thereafter, Plaintiff filed a mechanics lien with the Rockland County Clerk and filed a Summons and Complaint, seeking damages for breach of contract and for the foreclosure of the lien. Defendant filed a demand for arbitration with the American Arbitration Association, arguing that pursuant to the subcontract, Cuyahoga County, Ohio, was the proper venue for arbitration.
The Court stated that pursuant to General Obligations Law §757, unless the contract is with a material supplier, any provision in a construction contract which makes the contract subject to the laws of another state and requires any litigation arbitration to be held in another state shall be void and unenforceable. The Court pointed to the fact that as Plaintiff was not merely a material supplier, the provision requiring that Cuyahoga County, Ohio be the forum governing disputes arising from the agreement was void and unenforceable pursuant to GOL §757.
The Defendant argued, citing to supportive case law, that the clause preempts GOL §757 as there were numerous out-of-state entities involved in the transaction. However, the Court was not swayed. The Court found that unlike the case law cited to by Defendant, the Plaintiff here is a local company, obtained the majority of the materials from local suppliers, and performed all of its work in New York. Furthermore, although there were suppliers who, as Defendant pointed out, have offices in other states, they all are present in New York as well. Additionally, all the meetings concerning the project occurred at the project site in New York.
The Court related the present case to another New York case, King C Ironwork, Inc. V Burdg, Dunham & Associates Construction Corp., wherein the Judge found the arbitration provision valid except for the forum selection and choice of law provisions. Thus, keeping in mind that the basic purpose of FAA §2 is for claims to be arbitrated rather than litigated, the Court in the present case severed the improper provision of the arbitration agreement and ordered that the parties proceed with arbitration in New York, rather than in Ohio, and stayed the lien foreclosure action pending the New York arbitration outcome.
Saturday, August 7, 2010
"Pay if Paid Clause" in New York
In New York, unlike many other states, “pay if paid” clauses are void and unenforceable. West-Fair Elec. Contractors v. Aetna Cas. & Sur. Co., 87 N.Y.2d 148, 638 N.Y.S.2d 394 (1995). In Otis Elevator Co. v. Hunt Const. Group, 52 A.d.3d 1315, 859 N.Y.S.2d 850 (4th Dept. 2008) the plaintiff, Otis, sued for payment due from Hunt Construction Group. Hunt argued that payment from the owner was a condition precedent to the requirement to pay Otis. The Appellate Division held that the pay if paid clause in the contract was merely a timing mechanism and did not shift the risk of the owner’s non-payment to the plaintiff. The Court therefore ruled that Otis was entitled to payment despite the owner’s non-payment to Hunt. An identical result was reached in North Cent. Mechanical, Inc. v. Hunt Const. Group, Inc., 43 A.D.3d 1396, 843 N.Y.S.2d 894 (4th Dept. 2007).
Exactly what a pay-if-paid clause is may not be entirely clear. A contract provision stating that payment will occur upon a stipulated event is deemed to be a time for payment provision absent an express provision to the contrary. West-Fair. A true pay if paid clause specifically will state that payment to the general contractor by the owner is an express condition precedent to the general contractor’s obligation to pay the subcontractor. A pay if paid provision thus forces the subcontractor to assume the risk of non-payment from the owner and, as such, has been deemed to be void and unenforceable pursuant to Lien Law §34. On the other hand, a true pay when paid provision is simply a timing mechanism and does not pass the risk of non-payment on to the subcontractor. Pay when paid provisions are therefore routinely held to be valid. Part of the reasoning behind the prohibition against pay if paid clauses is that the subcontractor in effect has waived its right to ever enforce a mechanic’s lien. A necessary element of enforcing a mechanic’s lien is a showing by the subcontractor that there is presently an amount due and owing to it from the general contractor. However, a pay if paid clause means that payment would never become due to the subcontractor.
Notably, New York will enforce pay if paid clauses if the contract calls for the application of the law of a state that does allow pay if paid clauses. However, the Prompt Pay Act of 2003 (G.B.L. §757) specifically voids any contractual provision that calls for the law of another state to apply to a New York construction project. The Prompt Pay Act went into effect on January 14, 2003 so any contract entered into before that date may still provide a valid and enforceable pay if paid clause. However, there are likely very few construction contracts in effect today that were entered into prior to January 12, 2003.
Vincent T. Pallaci is a New York construction lawyer. He can be reached at vtp@nyconstructionlaw.com
Exactly what a pay-if-paid clause is may not be entirely clear. A contract provision stating that payment will occur upon a stipulated event is deemed to be a time for payment provision absent an express provision to the contrary. West-Fair. A true pay if paid clause specifically will state that payment to the general contractor by the owner is an express condition precedent to the general contractor’s obligation to pay the subcontractor. A pay if paid provision thus forces the subcontractor to assume the risk of non-payment from the owner and, as such, has been deemed to be void and unenforceable pursuant to Lien Law §34. On the other hand, a true pay when paid provision is simply a timing mechanism and does not pass the risk of non-payment on to the subcontractor. Pay when paid provisions are therefore routinely held to be valid. Part of the reasoning behind the prohibition against pay if paid clauses is that the subcontractor in effect has waived its right to ever enforce a mechanic’s lien. A necessary element of enforcing a mechanic’s lien is a showing by the subcontractor that there is presently an amount due and owing to it from the general contractor. However, a pay if paid clause means that payment would never become due to the subcontractor.
Notably, New York will enforce pay if paid clauses if the contract calls for the application of the law of a state that does allow pay if paid clauses. However, the Prompt Pay Act of 2003 (G.B.L. §757) specifically voids any contractual provision that calls for the law of another state to apply to a New York construction project. The Prompt Pay Act went into effect on January 14, 2003 so any contract entered into before that date may still provide a valid and enforceable pay if paid clause. However, there are likely very few construction contracts in effect today that were entered into prior to January 12, 2003.
Vincent T. Pallaci is a New York construction lawyer. He can be reached at vtp@nyconstructionlaw.com
Tuesday, November 16, 2010
Appellate Division Reaffirms that "pay-when-paid" is void
In JC Ryan EBCO/H & G, LLC v. Lipsky Enterprises, Inc., the Appellate Division, Second Department, reaffirmed the now well established princple that a "pay-when-paid" clause in New York, which forces the subcontractor to assume the risk that the owner will fail to pay the general contractors is "void and unenforceable as contrary to public policy" as set forth in Lien Law Secdtion 34.
For those of you that are unfamiliar with the pay-when-paid concept, the clause usually states something along the lines of "payment to subcontractor shall not be due until general contractor receives payment from the owner and subcontractor understands that payment to the general contractor is a condition precedent to payment to the subcontractor." There are many variations of the clause but they all generally follow those ideas.
Note that some courts in New York have differentiated between pay-if-paid clauses and pay-when-paid clauses. The recent cases have held that a true pay-when-paid clause is enforceable if it is merely a timing mechanism for payment and does not pass the risk of non-payment on to the subcontractor.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. He can be reached at (631) 752-7100 or vtp@kushnicklaw.com
For those of you that are unfamiliar with the pay-when-paid concept, the clause usually states something along the lines of "payment to subcontractor shall not be due until general contractor receives payment from the owner and subcontractor understands that payment to the general contractor is a condition precedent to payment to the subcontractor." There are many variations of the clause but they all generally follow those ideas.
Note that some courts in New York have differentiated between pay-if-paid clauses and pay-when-paid clauses. The recent cases have held that a true pay-when-paid clause is enforceable if it is merely a timing mechanism for payment and does not pass the risk of non-payment on to the subcontractor.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. He can be reached at (631) 752-7100 or vtp@kushnicklaw.com
Monday, February 20, 2017
The NY Prompt Payment Act: Can it help you get paid?
There is probably not a day that goes by that I don’t hear
someone tell me that something that [insert name of person that owes them
money] did that is a violation of the Prompt Payment Act. It’s really quite amazing how
all-encompassing the Prompt Payment Act (“PPA”) has become over the years…at
least in the minds of those in the NY construction industry. The truth is that the PPA is an effective
(and under-utilized) tool, but it’s not always applicable and it doesn’t,
despite what your buddy told you, cover everything and require you to be paid
within ten days no matter what. Here’s
what the PPA does do:
When does it apply?
It applies to “construction contracts.” Before you jump up and down, read the
definition in the PPA. A construction
contract may not be what you think it is.
Better yet, see what it is not: a
construction contract is not a contract for public works nor is it a contract
for the construction of a one, two or three family home. You can almost hear the collective gasps. I’ll bet more than half of the people that
talk about what their customer must do under the PPA don’t realize that it
doesn’t even apply to them.
If it does apply…
You can still bargain for whatever you want in your contract
and your contract will control over the PPA terms with limited exceptions. If your contract does not cover a particular
issue, then the PPA will control if you are, in fact, operating under a
“construction contract.” The PPA
requires approval or disapproval of invoices within twelve (12) days of the
time that all necessary documentation has been submitted. Disapproved invoices must be explained in
writing. If payments aren’t made as
required under the PPA then it provides for interest at the rate of 1% per
month and expedited arbitration. There
are detailed procedures for invoicing and processing invoices. Everyone that is in accounts receivable or
accounts payable should read the PPA and know what they are required to
do.
Void Provisions?
The PPA makes the following provisions void so, even if they
are in the contract, they cannot be enforced:
1) any provision that requires you to apply the laws of a state other
than NY or to litigate or arbitrate any dispute arising out of the contract
outside of NY (unless it’s a contract with a material supplier); 2) any
provision that prohibits suspending work for non-payment; 3) any provision that
says expedited arbitration, as provided in the PPA, is unavailable; 4) any provision
that establishes payment provisions that differ from those in the PPA.
Tuesday, December 21, 2010
"Pay if Paid" Clause is Unenforceable in New York
In New York, unlike many other states, “pay if paid” clauses are void and unenforceable. West-Fair Elec. Contractors v. Aetna Cas. & Sur. Co., 87 N.Y.2d 148, 638 N.Y.S.2d 394 (1995). In Otis Elevator Co. v. Hunt Const. Group, 52 A.d.3d 1315, 859 N.Y.S.2d 850 (4th Dept. 2008) the plaintiff, Otis, sued for payment due from Hunt Construction Group. Hunt argued that payment from the owner was a condition precedent to the requirement to pay Otis. The Appellate Division held that the pay if paid clause in the contract was merely a timing mechanism and did not shift the risk of the owner’s non-payment to the plaintiff. The Court therefore ruled that Otis was entitled to payment despite the owner’s non-payment to Hunt. An identical result was reached in North Cent. Mechanical, Inc. v. Hunt Const. Group, Inc., 43 A.D.3d 1396, 843 N.Y.S.2d 894 (4th Dept. 2007).
Exactly what a pay-if-paid clause is may not be entirely clear. A contract provision stating that payment will occur upon a stipulated event is deemed to be a time for payment provision absent an express provision to the contrary. West-Fair. A true pay if paid clause specifically will state that payment to the general contractor by the owner is an express condition precedent (although it does not necessarily need to use those exact words) to the general contractor’s obligation to pay the subcontractor. A pay if paid provision thus forces the subcontractor to assume the risk of non-payment from the owner and, as such, has been deemed to be void and unenforceable pursuant to Lien Law §34. On the other hand, a true pay when paid provision is simply a timing mechanism and does not pass the risk of non-payment on to the subcontractor. Pay when paid provisions are therefore routinely held to be valid. Part of the reasoning behind the prohibition against “pay if paid” clauses is that the subcontractor in effect has waived its right to ever enforce a mechanic’s lien. A necessary element of enforcing a mechanic’s lien is a showing by the subcontractor that there is presently an amount due and owing to it from the general contractor. However, a pay if paid clause means that payment would never become due to the subcontractor.
Notably, New York will enforce pay if paid clauses if the contract calls for the application of the law of a state that does allow pay if paid clauses. However, the Prompt Pay Act of 2003 (G.B.L. §757) specifically voids any contractual provision that calls for the law of another state to apply to a New York construction project. The Prompt Pay Act went into effect on January 14, 2003 so any contract entered into before that date may still provide a valid and enforceable pay if paid clause. However, there are likely very few construction contracts in effect today that were entered into prior to January 12, 2003.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. KP has offices in the NYC Metro area and in Buffalo, New York allowing it to provide legal services to the construction industry across the State of New York.
Exactly what a pay-if-paid clause is may not be entirely clear. A contract provision stating that payment will occur upon a stipulated event is deemed to be a time for payment provision absent an express provision to the contrary. West-Fair. A true pay if paid clause specifically will state that payment to the general contractor by the owner is an express condition precedent (although it does not necessarily need to use those exact words) to the general contractor’s obligation to pay the subcontractor. A pay if paid provision thus forces the subcontractor to assume the risk of non-payment from the owner and, as such, has been deemed to be void and unenforceable pursuant to Lien Law §34. On the other hand, a true pay when paid provision is simply a timing mechanism and does not pass the risk of non-payment on to the subcontractor. Pay when paid provisions are therefore routinely held to be valid. Part of the reasoning behind the prohibition against “pay if paid” clauses is that the subcontractor in effect has waived its right to ever enforce a mechanic’s lien. A necessary element of enforcing a mechanic’s lien is a showing by the subcontractor that there is presently an amount due and owing to it from the general contractor. However, a pay if paid clause means that payment would never become due to the subcontractor.
Notably, New York will enforce pay if paid clauses if the contract calls for the application of the law of a state that does allow pay if paid clauses. However, the Prompt Pay Act of 2003 (G.B.L. §757) specifically voids any contractual provision that calls for the law of another state to apply to a New York construction project. The Prompt Pay Act went into effect on January 14, 2003 so any contract entered into before that date may still provide a valid and enforceable pay if paid clause. However, there are likely very few construction contracts in effect today that were entered into prior to January 12, 2003.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. KP has offices in the NYC Metro area and in Buffalo, New York allowing it to provide legal services to the construction industry across the State of New York.
Sunday, July 23, 2017
"Pay-when-Paid" provision struck down by Appellate Court
The District Court in Nassau County was faced with a claim by a contractor that sought to enforce a mechanic's lien and recover for alleged non-payment under a construction contract. The contract at issue contained the following provision:
The Appellate Term held that the provision was a "pay-when-paid" clause and thus, under long settled New York law, was void and unenforceable. Unfortunately for this contractor-plaintiff the contract also contained a severability clause and six month limitations period. Therefore, while the pay-when-paid portion was struck down, it did not void the entire agreement by virtue of the severability clause and the Court refused to strike down the six month limitations period. Because the plaintiff failed to file its claim within six months, the claims were time barred and dismissed.
The case was Polar Bear Mechanical, Inc. v. Walison Corp.
The obligation of Contractor to make any payment under this Agreement, whether a progress or final payment, or for extras or change orders, is subject to the express condition precedent of payment therefor by Owner and Owner's lender. Owner's and Owner's lender's determination of the percentage complete of Subcontractor's Work shall be final and binding and Subcontractor agrees that in no event shall Subcontractor receive payment from Contractor for a greater proportionate value of the Work than what is approved by Owner and Owner's lender.
The Appellate Term held that the provision was a "pay-when-paid" clause and thus, under long settled New York law, was void and unenforceable. Unfortunately for this contractor-plaintiff the contract also contained a severability clause and six month limitations period. Therefore, while the pay-when-paid portion was struck down, it did not void the entire agreement by virtue of the severability clause and the Court refused to strike down the six month limitations period. Because the plaintiff failed to file its claim within six months, the claims were time barred and dismissed.
The case was Polar Bear Mechanical, Inc. v. Walison Corp.
Saturday, October 9, 2010
Contractors Beware: Exaggerating a Mechanic's Lien Can Cause Big Trouble
Contractors have become as familiar with using mechanic's liens on their New York construction projects as they are with issuing change orders. However, while issuing a change order that is exaggerated will simply result in denial of the change order, filing an intentionally exaggerated mechanic's lien can have a number of consequences that go beyond non-payment of the lien.
When a contractor is not paid one of the most common initial reactions is to file a mechanic's lien. Unfortunately, some of those liens do not accurately reflect the amount currently due and properly lienable. Of course there are certain contractors that intentionally inflate the lien thinking it will perhaps give them more leverage to negotiate or increase the chances of quick payment. Some contractors file the intentionally exaggerated mechanic's lien simply to irritate and infuriate the person that owes the money and refuses to pay. Still there are others that exaggerate the mechanic's lien but do so unintentionally. The unintentional exaggeration can result from accounting errors, believing that certain items may be liened when, in fact, they may not or liening for the entire contract balance (including work yet to be performed) rather than the value of the labor and materials actually performed and unpaid for at the time of the filing of the lien. All of these exaggerations can be trouble.
In New York, a mechanic's lien should only be filed for the amount of the labor and materials actually performed and unpaid for at the time that the lien is placed. You also should not file a lien for items such as delay damages or liquidated damages. While you can, of course, still sue for those damages under other theories, your mechanic's lien must be limited to the value of the labor and materials incorporated into the improvement of the real property.
An unintentional exaggeration of a lien may simply result in no being able to recover that portion which is not exaggerated. However, person challenging the lien will likely charge that the lien was intentionally exaggerated and you will be forced to defend yourself against this claim. In addition to dragging out the time and cost of the litigation, it will test the accuracy and adequacy of your book and record keeping practices. Challenging a lien that is exaggerated is a common defense because if the mechanic's lien proves to have been intentionally exaggerated there are devastating consequences to the lienor.
First and foremost a mechanic's lien that has been found to have been intentionally exaggerated is void. You therefore lose your entire lien - even the legitimate portion. Also, the lienor faces liability equal to the amount of the exaggeration. In other words, if a lienor is properly owed $20,000.00 but intentionally exaggerates the lien to $50,000.00 then not only is that entire lien void, but the lienor can be held liable to the owner for the amount of the exaggeration ($30,000.00). Some courts will even award treble damages meaning that the $30,000.00 intentional overcharge becomes a $90,000.00 liability. Intentionally exaggerating a mechanic's lien can also expose the lienor to attorneys' fees and other consequential damages. For example, an owner faced with an intentionally exaggerated mechanic's lien may assert a claim for slander of title. If successful, the slander of title claim could expose the lienor to significant damages - especially if the exaggerated lien prevented the sale of the property.
It is important to keep in mind that proving "intent" in the exaggeration can be very difficult. An unintentional exaggeration or an arguable charge will not provide the relief available in association with an intentional exaggeration. If faced with a potentially exaggerated mechanic's lien it is important to consult with competent construction law counsel that can guide you through this difficult area of law. Construction counsel can help you better understand your situation and your rights and liabilities.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. He can be reached at (631) 752-7100 or vtp@kushnicklaw.com
When a contractor is not paid one of the most common initial reactions is to file a mechanic's lien. Unfortunately, some of those liens do not accurately reflect the amount currently due and properly lienable. Of course there are certain contractors that intentionally inflate the lien thinking it will perhaps give them more leverage to negotiate or increase the chances of quick payment. Some contractors file the intentionally exaggerated mechanic's lien simply to irritate and infuriate the person that owes the money and refuses to pay. Still there are others that exaggerate the mechanic's lien but do so unintentionally. The unintentional exaggeration can result from accounting errors, believing that certain items may be liened when, in fact, they may not or liening for the entire contract balance (including work yet to be performed) rather than the value of the labor and materials actually performed and unpaid for at the time of the filing of the lien. All of these exaggerations can be trouble.
In New York, a mechanic's lien should only be filed for the amount of the labor and materials actually performed and unpaid for at the time that the lien is placed. You also should not file a lien for items such as delay damages or liquidated damages. While you can, of course, still sue for those damages under other theories, your mechanic's lien must be limited to the value of the labor and materials incorporated into the improvement of the real property.
An unintentional exaggeration of a lien may simply result in no being able to recover that portion which is not exaggerated. However, person challenging the lien will likely charge that the lien was intentionally exaggerated and you will be forced to defend yourself against this claim. In addition to dragging out the time and cost of the litigation, it will test the accuracy and adequacy of your book and record keeping practices. Challenging a lien that is exaggerated is a common defense because if the mechanic's lien proves to have been intentionally exaggerated there are devastating consequences to the lienor.
First and foremost a mechanic's lien that has been found to have been intentionally exaggerated is void. You therefore lose your entire lien - even the legitimate portion. Also, the lienor faces liability equal to the amount of the exaggeration. In other words, if a lienor is properly owed $20,000.00 but intentionally exaggerates the lien to $50,000.00 then not only is that entire lien void, but the lienor can be held liable to the owner for the amount of the exaggeration ($30,000.00). Some courts will even award treble damages meaning that the $30,000.00 intentional overcharge becomes a $90,000.00 liability. Intentionally exaggerating a mechanic's lien can also expose the lienor to attorneys' fees and other consequential damages. For example, an owner faced with an intentionally exaggerated mechanic's lien may assert a claim for slander of title. If successful, the slander of title claim could expose the lienor to significant damages - especially if the exaggerated lien prevented the sale of the property.
It is important to keep in mind that proving "intent" in the exaggeration can be very difficult. An unintentional exaggeration or an arguable charge will not provide the relief available in association with an intentional exaggeration. If faced with a potentially exaggerated mechanic's lien it is important to consult with competent construction law counsel that can guide you through this difficult area of law. Construction counsel can help you better understand your situation and your rights and liabilities.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. He can be reached at (631) 752-7100 or vtp@kushnicklaw.com
Tuesday, May 11, 2010
How to File Mechanic's Lien in New York
There is a lot of wrong, misguided and incomplete information out there about how to file a mechanic's lien in New York. A lot of confusion results from the fact that many mechanic's lienors reside outside of New York and may simply have shipped materials to New York or worked on a project in New York. New York's lien laws, while similar to many other lien laws, are not exactly "typical." So, we come to the key question: How do I file a mechanic's lien in New York? Here is your answer:
Private Lien (Not a Single Family Home)
1. First you need to make sure that you are within your time to lien. For private projects in New York (that are not single family dwellings) you have eight (8) months to file a mechanic's lien. The time begins to run from the last time that you performed services or provided materials to the subject site. There is a lot of confusion out there about just what makes something a "commercial" project subjecting it to the eight (8) month period as opposed to the four (4) month period applied to single family dwellings. Its simple: if its a single family dwelling, regardless of any other factor, it is the four month period. It does not matter if the single family dwelling is owned by a corporation or that the single family dwelling is part of a condo or cooperative (condos and co-ops raise entirely different issues). 2. If you are okay time wise, find out who owns the property. This can be fairly simple within New York City because you can use ACRIS. If you are outside of New York City (or not confident in your ability to properly use ACRIS) a title company can tell you who the owner of the property is for a small fee.
3. Find out the legal description of the property. Normally, the section block and lot along with the address will suffice. Some upstate counties require a more in depth description (including the infamous "schedule A" description).
4. Fill out your notice of mechanic's lien with all of the information required by the Lien Law. If you are not familiar with the information that is required then you should consult with an attorney. Failure to include ALL of the necessary information in the mechanic's lien may render it facially defective and ultimately null and void. In general, the mechanic's lien must include, at least, the following terms: 1) name of the lienor; 2) the lienor's address; 3) the name of the owner of the property; 4) the name of the person/entity that hired the lienor; 5) a description of the labor and/or materials provided to the project by the lienor; 6) the total contracted value of the work; 7) the amount unpaid (the lien amount); 8) the first date when labor and materials were provided and the last date when labor and materials were provided; and 9) a description of the property to be liened.
5. Once your lien is filled out, sign the verification and serve it on everyone required (again refer to the lien law but generally you have to serve the owner, general contractor and any other subcontractor's in the chain above you).
6. Pay the filing fee (varies by county) and file your mechanic's lien and your affidavit of service of the mechanic's lien with the county clerk. The affidavit of service must show that the mechanic's lien was served no more than 5 days before the mechanic's lien was recorded and no more than 30 days after the mechanic's lien was recorded.
7. Remember that your mechanic's lien will last for 1 year if not discharged through some action by a third party (bonding, petition to cancel, etc.).
A few important things to remember: 1) do NOT wait until the day before your lien rights will expire to file your lien. In general, starting the process 10-15 days before the lien rights expired is as close as I would recommend getting to the deadline. You want to give yourself adequate time to gather the necessary information and handle any problems that may come up; 2) do NOT wait until the day before your lien expires to file an extension. Again, try to get the process rolling no less than 10-15 days before the lien expires to deal with any issues that come up; and 3) remember that your mechanic's lien in New York is not self executing. In other words, your mechanic's lien, in and of itself, does very little for you. It does not get you paid. It simply preserves your security interest in the property that you improved. If you want to enforce your mechanic's lien then you need to file a lien foreclosure action.
While filing a mechanic's lien in New York yourself is certainly possible, I highly recommend hiring an attorney to handle it for you. If there is a defect in your lien then you could risk loosing your security interest and, if the owner or contractor you provided services to is insolvent, you could be left with nothing to collect against. Most construction attorneys are able to prepare, file and serve the mechanic's lien to you for a very reasonable price.
Private Project (Single Family Dwelling)
Just about everything above that applies to a non single family home is applicable except: 1) a mechanic's lien against a single family dwelling must be filed no later than four (4) months (120 days) after you last provided labor or services at the project; and 2) you cannot extend the lien as of right. You must obtain a court order if you want to extend your mechanic's lien past the 1 year that it is valid. Keep in mind that the mechanic's lien must actually be extended before it expires so you need to start the process of obtaining a court order (in my opinion) about 60 days before it expires. Note that when filing a mechanic's lien for "home improvement" services, you must generally have a home improvement license issued by the County where the project is located.
Public Project
Public projects are entirely different animals when it comes to filing a mechanic's lien. The biggest distinction is that you cannot file a lien against publicly owned property. You file your lien against the funds due to the general contractor from the public entity. Every public project is different in terms of who you have to serve and where. Therefore, it is highly advisable that you hire a construction attorney in New York to file your mechanic's lien against a public project. You have thirty (30) days from the time that the project is accepted by the public entity - regardless of when your work was finished - to file your mechanic's lien on a public project in New York. If you are doing, for example, site work early on, then it may be difficult for you to know when the project is ultimately accepted since you may have been gone for months or years at that point. The solution is to serve the public entity with a demand at the beginning of the project to notify you when they accept the project.
A note to our construction industry readers that do not maintain an office within the State of New York: Recent cases have held that in order for you to file a valid mechanic's lien, your mechanic's lien must list a New York State attorney as your attorney in order for the lien to be held valid. This only applies if you do not maintain an office within the State of New York.
Remember, with all mechanic's liens in New York, whether public or private, once your lien rights have expired there is nothing even the most skilled construction attorney can do to reinstate them. So if you have a claim that you want to secure and you want to make sure that it is done properly the first time then you should consult with a construction attorney and pay the small fee associated with having the attorney prepare the lien for you. A small fee up front - before a problem develops - can prevent thousands of dollars in legal fees down the line.
Vincent T. Pallaci is a partner in the New York law firm of Kushnick Pallaci, PLLC. His practice focuses primarily on the area of construction law, including preparing mechanic's liens and prosecuting and defending mechanic's lien foreclosure actions. For more information, please visit our website at http://www.nyconstructionlaw.com or contact Mr. Pallaci at vtp@nyconstructionlaw.com or (631) 752-7100.
Thursday, March 3, 2011
Construction contract tip of the day
When dealing with construction contracts on private construction projects, pursuant to GBL Section 757, any contractual provision that attempts to make the contract subject to the laws of any state other than New York, or that requires litigation or arbitration in another state, is void an unenforceable. Note that this does not apply to material suppliers.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. He can be reached at (631) 752-7100 or vtp@kushnicklaw.com
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. He can be reached at (631) 752-7100 or vtp@kushnicklaw.com
Thursday, February 11, 2010
Legislature Bans Contract Provision Requiring Subcontractor to Exhaust All Remedies Before Filing Bond Claim
The New York State Legislature recently amended Section 5-322.1 of the General Obligations Law to declare that any contract provision which requires a subcontractor to exhaust all other remedies prior to filing a claim on a payment bond is void and unenforceable.
Vincent T. Pallaci is a New York construction lawyer. He can be reached at vtp@nyconstructionlaw.com
Vincent T. Pallaci is a New York construction lawyer. He can be reached at vtp@nyconstructionlaw.com
Saturday, September 28, 2013
Quick Construction Contract Tips: Sometimes its OK to Suspend Work for Non-Payment (even if your contract says its not...)
One of the most common responses to non-payment under a construction contrat is almost human nature: don't pay me and I'll stop working. But can you? Some contracts, if not many, say that a contractor may not suspend work even if he or she has not been paid. Luckily for contractors in New York, the legislature has given them protection against these clauses. Specifically, Section 757 of the General Business Law says some contract clauses are void, including:
2. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract stating that a party to the contract cannot suspend performance under the contract if another party to the contract fails to make prompt payments under the contract.
Now this doesn't mean that you can simply walk off the job the first day a payment is "late." There are two important things to remember when attempting to use Section 757: First, we have to determine whether another party has failed to make "prompt payment." Just what is "prompt payment" in a construction contract? You can look two places: the contract itself and the rest of the Prompt Payment Act in G.B.L. Article 35E. Second, Section 757 of the GBL only voids the provision prohibiting suspension in the event of non-payment, it does not say that the unpaid contractor may abandon the job. So while work may be suspended, the contractor would have to return upon cure of the failure to make "prompt payment."As always, make sure you read, and understand your contract before signing it and before taking a drastic action like suspending work.Vincent T. Pallaci is the managing partner of the New York law firm of Kushnick | Pallaci PLLC where his practice concentrates on construction law. With offices in the New York City metropolitan area and Buffalo, KP serves the construction industry across the State of New York.
Saturday, May 7, 2011
Court gives lesson to subcontractors: when your contract incorporates the terms of the prime contract READ IT
In CNP Mech. Inc. v. Allied Bldrs. Inc. the Appellate Division reduced a trial verdict that had been rendered in favor of a subcontractor and against a prime contractor. While the trial judge awarded the subcontractor the full value of the change orders it submitted, the Appellate Division reduced the amounts of the award. The reason behind the reduction was that the subcontract stated that it incorporated the terms of the prime contract between the owner and the prime contractor. The prime contract contained a clause stating that the owner only had to pay for change orders in the amount approved by the owner. Since the owner did not approve the full amount of the change orders related to the subcontractor's work, the general contractor was not required to pay the full value to the subcontractor. Rather, the Appellate Division held, the general contractor only had to pay the subcontractor the value that was approved by the owner.
Another interesting aspect of this case is that while the trial court awarded interest from the time the task was performed, the Appellate Division pointed out that the subcontract contained a valid "pay when paid" clause and, therefore, determined that the interest ran not from the time of performance but, pursuant to the contract, 15 days from the time that the general/prime contractor received payment from the owner.
It is important to note the difference between a "pay if paid" contract, which is void in New York, and a "pay when paid contract", which is enforceable in New York. Essentially the "pay if paid" provision shifts the risk of non-payment to the subcontractor. If the general contractor is not paid, the general contractor is allowed to not pay the subcontractor. A "pay when paid" provision on the other hand has been determined to be simply a timing mechanism for payment. So, as in this case, it simply sets the time when payment becomes due. Here, payment was due within 15 days of receipt of payment from the owner.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on construction law. He can be reached at (631) 752-7100 or vtp@kushnicklaw.com
Another interesting aspect of this case is that while the trial court awarded interest from the time the task was performed, the Appellate Division pointed out that the subcontract contained a valid "pay when paid" clause and, therefore, determined that the interest ran not from the time of performance but, pursuant to the contract, 15 days from the time that the general/prime contractor received payment from the owner.
It is important to note the difference between a "pay if paid" contract, which is void in New York, and a "pay when paid contract", which is enforceable in New York. Essentially the "pay if paid" provision shifts the risk of non-payment to the subcontractor. If the general contractor is not paid, the general contractor is allowed to not pay the subcontractor. A "pay when paid" provision on the other hand has been determined to be simply a timing mechanism for payment. So, as in this case, it simply sets the time when payment becomes due. Here, payment was due within 15 days of receipt of payment from the owner.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on construction law. He can be reached at (631) 752-7100 or vtp@kushnicklaw.com
Saturday, December 11, 2010
Possible statutory amendments that will impact contractors
The New York State legislature is considering a number of statutory amendments that could impact contractors in New York in 2011 and beyond.
A00185A: Provides that the education department shall set guidelines relating to noise and work hours on school construction sites.
A00399: Establishes the responsibility of bidder on public works contracts and provides for establishment of a construction contract lowest responsible bidder registry.
A00612: Requires the payment of prevailing wages on construction projects involving the state university of New York, the dormitory authority or the state university construction fund and any third party.
A01033: Requires the state fire prevention and building code council to implement rules and regulations requiring the use of radon-resistant features in new home construction.
A01047: Provides standards and procedures for determining whether or not a contractor is responsible for purposes of public construction projects, including documentation of previous experience with comparable projects, financial statements, disclosure of any professional suspensions or OSHA violations.
A01264: Requires contractors in cities having a population of one million or more to recycle 50% of the waste generated on construction and demolition sites.
A01787: Requires that any newly enacted or adopted building code in NYC shall contain notice provisions similar to those required for buildings with truss type construction; additionally, such new building code shall contain identical notice provisions, as set forth for residential structures.
A02369: Prohibits any agreement relating to the construction, alteration, repair or maintenance of a building requiring subcontractors and materialmen to exhaust all their remedies prior to filing a claim and/or commencing an action on a payment bond.
A02372: Makes indemnification agreements, relating to construction contracts void as against public policy.
A02697: Relates to building new one-family residential construction.
A03752: Requires developers to deposit a portion of the total estimated project cost into an escrow account for damage caused to neighboring properties during construction; provides that any work on a project shall be stopped until repairs are made on the adjoining property; provides that the New York city department of buildings shall develop a procedure whereby individuals who suffer damage as a result of the construction may be reimbursed within a period of sixty days.
The New York Construction Law Update's sister site, New York Mechanic's Lien, has posted its own list of possible amendments relating to the Lien Law in New York. Those amendments can be viewed here:
http://nymechanicsliens.blogspot.com/2010/10/possible-lien-law-amendments-in.html
The New York Construction Law Update and New York Mechanic's Lien will continue to keep you updated with any developments as these potential statutory changes wind their way through the system.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. He can be reached at (631) 752-7100 or vtp@kushnicklaw.com
A00185A: Provides that the education department shall set guidelines relating to noise and work hours on school construction sites.
A00399: Establishes the responsibility of bidder on public works contracts and provides for establishment of a construction contract lowest responsible bidder registry.
A00612: Requires the payment of prevailing wages on construction projects involving the state university of New York, the dormitory authority or the state university construction fund and any third party.
A01033: Requires the state fire prevention and building code council to implement rules and regulations requiring the use of radon-resistant features in new home construction.
A01047: Provides standards and procedures for determining whether or not a contractor is responsible for purposes of public construction projects, including documentation of previous experience with comparable projects, financial statements, disclosure of any professional suspensions or OSHA violations.
A01264: Requires contractors in cities having a population of one million or more to recycle 50% of the waste generated on construction and demolition sites.
A01787: Requires that any newly enacted or adopted building code in NYC shall contain notice provisions similar to those required for buildings with truss type construction; additionally, such new building code shall contain identical notice provisions, as set forth for residential structures.
A02369: Prohibits any agreement relating to the construction, alteration, repair or maintenance of a building requiring subcontractors and materialmen to exhaust all their remedies prior to filing a claim and/or commencing an action on a payment bond.
A02372: Makes indemnification agreements, relating to construction contracts void as against public policy.
A02697: Relates to building new one-family residential construction.
A03752: Requires developers to deposit a portion of the total estimated project cost into an escrow account for damage caused to neighboring properties during construction; provides that any work on a project shall be stopped until repairs are made on the adjoining property; provides that the New York city department of buildings shall develop a procedure whereby individuals who suffer damage as a result of the construction may be reimbursed within a period of sixty days.
The New York Construction Law Update's sister site, New York Mechanic's Lien, has posted its own list of possible amendments relating to the Lien Law in New York. Those amendments can be viewed here:
http://nymechanicsliens.blogspot.com/2010/10/possible-lien-law-amendments-in.html
The New York Construction Law Update and New York Mechanic's Lien will continue to keep you updated with any developments as these potential statutory changes wind their way through the system.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. He can be reached at (631) 752-7100 or vtp@kushnicklaw.com
Saturday, May 22, 2010
How to Collect Unpaid Fees on a Construction Contract
If you have been around the construction industry long enough then you know that payment disputes are part of the package. But how do you make sure that you do everything necessary to give yourself a chance to actually collect? Follow these steps and you will be headed in the right direction.
1. Don't Do Any Work Without A Written Contract
If you are doing home improvement work then this is a statutory requirement. No written contract will make it very difficult, if not impossible, to collect payment. Even if you are not doing home improvement work, set out your contractual terms at the beginning to make sure everyone is on the same page and the terms cannot be changed once a problem develops.
2. Remember Your Lien Rights
Most contractors have heard of mechanic's liens but not all of them know how to properly use this powerful tool to help in the payment process. If you are not paid for your work then you have a right to file a mechanic's lien. There are basically three types of mechanic's liens that you need to concern yourself with in New York: 1) a mechanic's lien for a single family dwelling (must be filed within 4 months of last materials furnished or services performed); 2) a mechanic's lien against any other private property (must be filed within 8 months of last materials furnished or services performed); and 3) a mechanic's lien against a public improvement (must be filed within 30 days of the public entities acceptance of the project). I recommend that you hire an attorney or a lien service to take care of the mechanic's lien filing for you because it is a very strict process and even the smallest error on the lien could void it.
3. Submit A Payment Bond Claim
In New York, almost all, if not all, public projects are covered by a payment bond issued by a surety. The payment bond will pay you any unpaid contract sums in the event that the contractor that hired you does not pay. Of course, if there is a reason that you were not paid (defective work for example) then the surety does not necessarily have to pay until the dispute is resolved. Some private projects also have payment bonds. Before you start a project, inquire as to whether there is a payment bond. If there is a payment bond, get the information before you start work. It is much easier to get the information before there is a problem. Make sure to get a copy of the bond, the name of the surety, the bond number and any claim submission procedures.
4. Try Negotiating
Whether you were not paid by the general contractor or the owner, you should try contacting them to negotiate a settlement on paying your balance owed for the project. Perhaps there are only a few disputed issues and if you are both willing to concede certain points you may be able to reach a settlement sum that is acceptable to everyone involved. Remember that litigation or arbitration are expensive and time consuming so if you can settle before incurring those fees, it may be worth it to take a small "hair cut" on the project.
5. Arbitration or Mediation
If you have tried negotiating, filed a mechanic's lien and submitted a payment bond claim and still not been paid, then your only option is to proceed with a legal claim. Now is the time to read your contract. It may require you to submit the claim to binding arbitration rather than litigation. If that is the case, you probably now need to contact an attorney to make sure that you submit the arbitration claim the right way and start putting your case together. Some contracts also require mediation before arbitration and/or litigation. You may have to try your hand at mediation before you can proceed to the arbitration or litigation.
6. Litigation
This step is really on the same level as arbitration it is just an alternative method to resolve the dispute. Arbitration though is not always a viable option, litigation is always permissible unless you have a binding arbitration clause in your contract. Whether it is litigation or arbitration you probably need to prepare for the long haul. Litigation (and arbitration to a lesser extent) is expensive and time consuming. Hopefully you protected yourself in that initial contract to give yourself the best shot at winning once you reach this stage.
Vincent T. Pallaci is a New York construction lawyer. For more information on enforcing your rights under your construction contract please visit us at http://www.nyconstructionlaw.com/ or contact me at vtp@nyconstructionlaw.com.
1. Don't Do Any Work Without A Written Contract
If you are doing home improvement work then this is a statutory requirement. No written contract will make it very difficult, if not impossible, to collect payment. Even if you are not doing home improvement work, set out your contractual terms at the beginning to make sure everyone is on the same page and the terms cannot be changed once a problem develops.
2. Remember Your Lien Rights
Most contractors have heard of mechanic's liens but not all of them know how to properly use this powerful tool to help in the payment process. If you are not paid for your work then you have a right to file a mechanic's lien. There are basically three types of mechanic's liens that you need to concern yourself with in New York: 1) a mechanic's lien for a single family dwelling (must be filed within 4 months of last materials furnished or services performed); 2) a mechanic's lien against any other private property (must be filed within 8 months of last materials furnished or services performed); and 3) a mechanic's lien against a public improvement (must be filed within 30 days of the public entities acceptance of the project). I recommend that you hire an attorney or a lien service to take care of the mechanic's lien filing for you because it is a very strict process and even the smallest error on the lien could void it.
3. Submit A Payment Bond Claim
In New York, almost all, if not all, public projects are covered by a payment bond issued by a surety. The payment bond will pay you any unpaid contract sums in the event that the contractor that hired you does not pay. Of course, if there is a reason that you were not paid (defective work for example) then the surety does not necessarily have to pay until the dispute is resolved. Some private projects also have payment bonds. Before you start a project, inquire as to whether there is a payment bond. If there is a payment bond, get the information before you start work. It is much easier to get the information before there is a problem. Make sure to get a copy of the bond, the name of the surety, the bond number and any claim submission procedures.
4. Try Negotiating
Whether you were not paid by the general contractor or the owner, you should try contacting them to negotiate a settlement on paying your balance owed for the project. Perhaps there are only a few disputed issues and if you are both willing to concede certain points you may be able to reach a settlement sum that is acceptable to everyone involved. Remember that litigation or arbitration are expensive and time consuming so if you can settle before incurring those fees, it may be worth it to take a small "hair cut" on the project.
5. Arbitration or Mediation
If you have tried negotiating, filed a mechanic's lien and submitted a payment bond claim and still not been paid, then your only option is to proceed with a legal claim. Now is the time to read your contract. It may require you to submit the claim to binding arbitration rather than litigation. If that is the case, you probably now need to contact an attorney to make sure that you submit the arbitration claim the right way and start putting your case together. Some contracts also require mediation before arbitration and/or litigation. You may have to try your hand at mediation before you can proceed to the arbitration or litigation.
6. Litigation
This step is really on the same level as arbitration it is just an alternative method to resolve the dispute. Arbitration though is not always a viable option, litigation is always permissible unless you have a binding arbitration clause in your contract. Whether it is litigation or arbitration you probably need to prepare for the long haul. Litigation (and arbitration to a lesser extent) is expensive and time consuming. Hopefully you protected yourself in that initial contract to give yourself the best shot at winning once you reach this stage.
Vincent T. Pallaci is a New York construction lawyer. For more information on enforcing your rights under your construction contract please visit us at http://www.nyconstructionlaw.com/ or contact me at vtp@nyconstructionlaw.com.
Saturday, April 7, 2012
The World of Construction in 2012: Protect Yourself or Say Goodbye
Well, its April and the first quarter of 2012 is already behind us. The good news is that its not 2010 anymore. The construction industry is healing itself but its by no means healthy. The bad news is we're not that far from 2010. While those in the construction industry are still hanging on, and some are still even making a decent profit, we're a long way from prosperity across the board. In a few years maybe the recession will be looked at as a good thing for the construction industry. Unhealthy contractors and suppliers have mostly, by this point in 2012, gone out of business. Those who survived have tightened up their controls and hopefully have put measures in place to keep them healthy and growing. Part of getting and staying healthy is making sure you have all the proper legal protocols in place to prevent problems and address problems promptly and efficiently when they do arise. So as we venture into the second quarter of 2012, here are my tips for maintaining a healthy growing construction business in 2012 and beyond (in no particular order):
Know Your Contract
Former President Bill Clinton once ran on the famous campaign slogan "its the economy stupid." In the construction world "its your contract stupid." With few exceptions, my answer to every question I have ever been asked by anyone in the construction industry, whether they were a contractor, subcontractor, materialman, supplier, architect owner or developer, has been "it depends on your contract." The construction industry relies on contracts for every transaction. Not every transaction involves a full blown 200 page agreement, but that doesn't mean your one page proposal is any less of a contract. Just ordered 2 tons of steel on a purchase order? That's a contract. Just ordered 10 gallons of paint? That's a contract. With so many in the construction industry relying on contracts on a day-to-day basis, it is nothing less than shocking that many do not read or understand the contracts they enter into.
There are a few particular issues you should always look at, and understand, before you sign your contract:
Know Your Contract
Former President Bill Clinton once ran on the famous campaign slogan "its the economy stupid." In the construction world "its your contract stupid." With few exceptions, my answer to every question I have ever been asked by anyone in the construction industry, whether they were a contractor, subcontractor, materialman, supplier, architect owner or developer, has been "it depends on your contract." The construction industry relies on contracts for every transaction. Not every transaction involves a full blown 200 page agreement, but that doesn't mean your one page proposal is any less of a contract. Just ordered 2 tons of steel on a purchase order? That's a contract. Just ordered 10 gallons of paint? That's a contract. With so many in the construction industry relying on contracts on a day-to-day basis, it is nothing less than shocking that many do not read or understand the contracts they enter into.
There are a few particular issues you should always look at, and understand, before you sign your contract:
- Payment terms (including payment schedule)
- Timing requirements
- Venue provisions (note that in New York a provision requiring the contract to be subject to the law of a state other than New York is void under the Prompt Payment Act)
- Dispute resolution provisions
- Scope of work (I know, its obvious, but you do have to read it)
- Attorneys fees provisions
- Waivers of consequential damages
- Change order provisions and procedures
- Site cleaning obligations
This is by no means an exhaustive list. But the above items are some of the most common ones to cause problems. Ideally, you should review each contract you enter into with your legal counsel before signing it. As the saying goes, an ounce of prevention is worth a pound of cure.
Its OK to Ask for Documents and Information
Not sure if there is a payment bond on the project? Worse yet, know there is a payment bond but you don't have a copy or any idea who the surety is? Do yourself a favor - at the beginning of the project when all is well and everyone is still getting along, ask. Ask your client if there is a payment bond. If there is a bond, ask if you can have a copy. Odds are you are not offending anybody. Tell them it is just part of your standard procedure to ask at the beginning of every project. If you get a copy, keep it in a safe place.
Not sure who the owner is? Ask. It is really just that simple. More likely than not, the general contractor is going to know who the owner is. Maybe first tier subcontractors will even know who the owner is. But second and third tier subcontractors may have absolutely no clue who the owner (or even general contractor) is and material suppliers probably don't have a clue. Find out who the owner of the project is and keep the information in your project file. The same goes for identifying the general/prime contractor, the project architect and the project engineer. You need to know who is in the contract chain and who is in charge on the site.
Know The Construction Team
You should know everybody above you and everybody below you. You don't need to be their best friend but you should have the information in your project file (names, address and phone numbers). You should also know the full design team, Know the engineers and architects. At some point in the project there is going to be headbutting. Knowing your team will make it easier for you to work the process, work the problem out and keep the job moving. Knowing the team before the contract is signed is even better. You may recognize someone from past run-ins and be able to predict problems that you may encounter on the job.
READ Lien Waivers
The capital letters above are not a typo. All lien waivers are not created equally. How often have you seen a lien waiver that is longer than one page? Have you ever seen a lien waiver that is longer than two pages? My point is you can probably read the entire waiver in 5 minutes. Its really not that much to ask. Read it with your morning coffee. Make sure that partial lien waivers are just that - partial. If its a final lien waiver, make sure that you intend it to be a final waiver. Look for things that were snuck in that don't belong there. You never know what you will find in a lien waiver. If it doesn't belong there, or you think it doesn't belong there, call your attorney and have her take a look. I don't care if she charges you $500.000 an hour; if she looks at it for 5 minutes to make sure its OK then you are only paying her $50.00. Is your piece of mind not worth $50?
Know Your Lien Rights
This ties in with the above regarding knowing what your lien waivers say but there is much more. First, know that New York law prohibits a contract from requiring you to waive your right to file a mechanic's lien before you have even done the work. Second, know what kind of project you are working on. A different type of mechanic's lien is filed against a public project than against a private project. If its a hybrid project where the owner is public and the developer that hired you is privately building on public land it is probably that rare project where you have no lien rights. Third, know your lien deadlines. You have 4 months to file a mechanic's lien on a single family dwelling. You have 8 months to file a mechanic's lien on a commercial project. You have 30 days from completion and acceptance of the project to file a public lien. If your lien is for retainage only, you have 90 days from the day that the retainage became due to file the lien.
Keep Your Books and Records Straight
Lien Law Article 3-A is becoming much more widely known in New York but it is still not part of everyone's common knowledge. Don't get caught up in trust violations. Remember, lack of intent to divert trust funds is not a defense. The trust laws do not require you to maintain separate bank accounts for each project but you do have to maintain separate books and records. Let's say you have projects A, B, C and D going on at the same time. You should have a ledger for A, a ledger for B, a ledger for C and a ledger for D. Each project's books should show every penny that came in and show where every penny that went out went. Before any money goes to a different project or back to you as profit, make sure all proper trust expenditures have been satisfied first or you are risking a trust fund diversion.
Have a Good Support Team
Everyone in the construction industry needs to surround themselves with three crucial people. It doesn't matter if you are a contractor, subcontractor, materialman, engineer or owner, you need a good team. Everyone in construction should have a good attorney on call that knows construction (don't hire a personal injury attorney to review your contracts). Everyone in the construction industry should have a good accountant on call that knows construction (especially the trust laws). Finally, everyone should have a good insurance broker. A catastrophic injury can put you out of business. Make sure you have the proper insurance in place and the proper certificates have been issued, notices provided and protocols followed.
There are, of course, many, many,other important issues that must be addressed to run a successful construction business in 2012. The items mentioned here are just a few of my personal suggestions based on my own experiences and the common pitfalls that I have seen. 2012 may have come in like a lamb but let's hope it goes out like a lion.
Vincent T. Pallaci is a partner in the New York law firm of Kushnick Pallaci, PLLC. His practice focuses mainly on the construction industry. Mr. Pallaci can be reached at (631) 752-7100 or vtp@kushnicklaw.com. You can also visit our firm site at www.nyconstructionlaw.com
Friday, November 28, 2014
Court enforces 6 month contractual limitations period against NYC
Generally, a claim for breach of contract in New York has a 6 year limitations period. However, parties are generally free to negotiate and shorten the limitations period in their contract. Such was exactly the case in Dart Mech. Corp. v. City of New York where the contract limited the period to bring claims to 6 months. In upholding and enforcing the 6 month limitations period, the Court found that six months is not an unreasonably short period (as would have permitted the Court to void the provision). Dart Mech. Corp. is a good lesson for contractors: always read your contracts! Don't assume that what you have experienced in the past is the "rule" in your current and future situations.
Vincent T. Pallaci is the managing partner of the New York law firm of Kushnick | Pallaci PLLC where his practice concentrates on construction law. With offices in the New York City metropolitan area and Buffalo, KP serves the construction industry across the State of New York.
Vincent T. Pallaci is the managing partner of the New York law firm of Kushnick | Pallaci PLLC where his practice concentrates on construction law. With offices in the New York City metropolitan area and Buffalo, KP serves the construction industry across the State of New York.
Sunday, May 15, 2011
Construction contract tip of the day
In New York any provision in a construction contract that attempts to prohibit another party to the contract from suspending work under the construction contract if another party fails to make prompt payments under the contract is void. Note that this prohibition only applies to "construction contracts" as that term is defined under General Business Law Article 35E (Section 756). Generally, the GBL defines a construction contract as a contract for construction where the aggregate cost of construction is more than $250,000.00. Excluded from this definition is certain residential construction projects and all public construction projects.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practices focuses primarily on construction law. He can be reached at (631) 752-7100 or vtp@kushnicklaw.com
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practices focuses primarily on construction law. He can be reached at (631) 752-7100 or vtp@kushnicklaw.com
Tuesday, March 30, 2010
Fraudulent Inducement Voids Arbitration Clause
In Chris Keefe Bldrs, Inc. v. Hazzard, a general contractor filed a mechanic's lien for unpaid contract amounts. The general contractor then proceeded to enforce the mechanic's lien by commencing a foreclosure action. The property owners responded by filing a motion to stay the action to enforce the mechanic's lien and to compel arbitration as required in the construction contract. The foreclosure action was eventually stayed and the parties went forward with the arbitration where the contractor was eventually awarded $122,606.82.
The general contractor then sought two forms of alternative relief: 1) he sought to void the arbitration clause in the contract by claiming fraud in the inducement; or 2) alternatively he sought to confirm his arbitration award. The Appellate Division agreed that evidence was presented to warrant a fraudulent inducement claim (the owners defaulted by that point so the complaint was deemed admitted) and vacated the order compelling arbitration. The issue of whether the general contractor could then proceed to enforce its mechanic's lien (successfully) was not addressed by the court because there was an interesting issue with the mortgage holders that required a trial.
Apparently the mortgage holders claim that a letter submitted to them prior to loan disbursement indicated that the general contractor's lien had been satisfied and would be removed (this letter was purportedly written by the general contractor). Based on this letter, the lenders apparently disbursed the loan proceeds despite the fact that the lien still remained on the property. The general contractor, of course, claims that he never wrote such a letter and it appears undisputed that mechanic's lien was never actually removed of record. The lenders claim they detrimentally relied on the letter and therefore should not be punished and the general contractor claims he didn't prepare the allegedly fraudulent letter so he should not be prejudiced either. Hopefully this case results in further motion practice and/or a written decision that will give us some details on how this scenario plays out.
One interesting question is why the lenders would disburse funds when a mechanic's lien is still of record against the subject property? The usual course of action (in my experience) is for the lender to insist that the mechanic's lien be officially discharged of record prior to disbursing the funds. This is usually accomplished by the filing of a satisfaction and presenting the lender (or the title company) with a copy of the satisfaction bearing the stamp of the County Clerk. Alternatively, if filing cannot be achieved before closing then the title company may agree to hold a certain amount in escrow (sufficient to satisfy the lien) pending discharge of the mechanic's lien and then the closing can proceed without delay. Another option would have been to file a discharge bond and then the lien would not have been an issue for closing on the loan. In any event, none of these things apparently happened and the lenders relied on the letter so we are left with these interesting cases to discuss.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. He can be reached at (631) 752-7100 or vtp@kushnicklaw.com
The general contractor then sought two forms of alternative relief: 1) he sought to void the arbitration clause in the contract by claiming fraud in the inducement; or 2) alternatively he sought to confirm his arbitration award. The Appellate Division agreed that evidence was presented to warrant a fraudulent inducement claim (the owners defaulted by that point so the complaint was deemed admitted) and vacated the order compelling arbitration. The issue of whether the general contractor could then proceed to enforce its mechanic's lien (successfully) was not addressed by the court because there was an interesting issue with the mortgage holders that required a trial.
Apparently the mortgage holders claim that a letter submitted to them prior to loan disbursement indicated that the general contractor's lien had been satisfied and would be removed (this letter was purportedly written by the general contractor). Based on this letter, the lenders apparently disbursed the loan proceeds despite the fact that the lien still remained on the property. The general contractor, of course, claims that he never wrote such a letter and it appears undisputed that mechanic's lien was never actually removed of record. The lenders claim they detrimentally relied on the letter and therefore should not be punished and the general contractor claims he didn't prepare the allegedly fraudulent letter so he should not be prejudiced either. Hopefully this case results in further motion practice and/or a written decision that will give us some details on how this scenario plays out.
One interesting question is why the lenders would disburse funds when a mechanic's lien is still of record against the subject property? The usual course of action (in my experience) is for the lender to insist that the mechanic's lien be officially discharged of record prior to disbursing the funds. This is usually accomplished by the filing of a satisfaction and presenting the lender (or the title company) with a copy of the satisfaction bearing the stamp of the County Clerk. Alternatively, if filing cannot be achieved before closing then the title company may agree to hold a certain amount in escrow (sufficient to satisfy the lien) pending discharge of the mechanic's lien and then the closing can proceed without delay. Another option would have been to file a discharge bond and then the lien would not have been an issue for closing on the loan. In any event, none of these things apparently happened and the lenders relied on the letter so we are left with these interesting cases to discuss.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. He can be reached at (631) 752-7100 or vtp@kushnicklaw.com
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