Common Issues in Northern Michigan Residential Construction Lawsuits
Nationally, construction litigation is on the rise, both in terms of the number of disputes and the dollar amount of disputes. Building costs are rising, and there is a shortage of skilled workers. This puts builders in a position of increased difficulty in putting the appropriate number of qualified workers on the site to get the job done, and higher damage exposure if the job isn’t done right. What follows is my analysis of common residential construction disputes in northern Michigan.
Inadequate Contract Documents. As the cost of construction rises, even basic jobs deserve to be adequately contracted. Simple invoices or one-line scope of work descriptions are inviting trouble down the road—let alone “handshake agreements”. Even when adequate contracts are signed, I often seen building contracts which reference a scope of work or pricing estimate as exhibits, but these exhibits never made it into the final document package. If you are using a template, be sure to review it before the final contract is signed. And it goes without saying that if the contract requires change orders, as it should, both the owner and contractor should be diligent about executing as many change orders as needed during the construction.
Elevation. Northern Michigan has a lot of walk out basements, and lakeside properties where the view is an important component of the quality of the homesite. In my experience many owners have a hard time visualizing what the home will look like depending on the elevation chosen, and of course have a hard time understanding how drainage and soil will affect elevation choices. The danger, of course, is that if the owner is unhappy with the elevation, it leads to a claim that the whole house is built incorrectly. Most template contracts have a clause stating that the builder’s pricing does not include changes for soil conditions, which is good. I also recommend that the building contract have a clause stating that the owner and builder will agree on elevation in writing, and, of course, that the agreement on elevation be documented in writing once it is confirmed.
Timing: Completion and Owner Choices. There is always a give-and-take on this issue. An owner wants a home done “on time”, but a builder needs timely decision-making from the owner so that construction can progress. Many owners don’t understand the sequence of building and the need to make decisions early, and some builders do a very poor job of communicating this issue. Most residential building contacts (unlike commercial contracts) do not have penalty clauses for failing to complete a project on time. Yet, at the insistence of the owner, most do have an estimated completion time. This leaves the completion status in limbo, where the contract calls for, or at least suggests, a completion date, yet there is no remedy for failing to complete by that date. The contract should have a clause outlining a procedure and timeline for the owner to make decisions. In addition, the owner and builder should do as much decision making as possible at the outset of the project. As always, if there is expected to be a change in the completion date, the adjustment (along with any structural changes leading to the adjustment) should be documented in a change order.
General Build Quality. Most disputes fall into this category. A build that is over-budget and under-quality is sure to lead to a lawsuit. My advice for builders is to communicate as much as possible to appropriately set owners’ expectations as to the quality of finish, what is included in the contract price, and the timing of the construction. My advice to owners is to review the contract as thoroughly as possible, ask questions, and choose an established and respected builder.
Sworn Statements and Budgeting. There are plenty of folks who are great at building but poor at setting and updating budgets. Michigan law requires sworn statements, and these should be updated as draw requests proceed. I’ve seen many projects that are on time, with good workmanship, but have unhappy owners because they don’t know where the money is going. Both the builder and the owner must always be on the same page (literally) when it comes to knowing where the project funds are going.
Conclusion. I have represented builders and owners in litigation in all the above situations. If you are a contractor or an owner considering building a home, I’d be happy to review your contracts to try to avoid these situations. If you are in the middle of a build and it is not going well, I’d invite you to contact me to discuss possible solutions before the entire project goes wrong. Finally, if you believe you need to take legal action, either as an owner or contractor, please contact me to discuss your options.