As the inventory of homes drop, more and more people look for the opportunity to build something new. In order to protect yourself in the building process, Berlin Patten published an article this week that addresses this topic. Below are their recommendation:
While there is no substitute for engaging a qualified attorney to address the nuances associated with all construction contract negotiations, some general issues to consider prior to entering a contract for new construction are:
- Construction
Timeframes. Does the contract provide for a definitive
commencement date and completion schedule, and are there penalties if the
builder misses those marks?
- Change
Orders.
Is the scope of the project very clear, and what is the written process
(and price) for requested changes?
- 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?
If you are considering the prospect of building, these import considerations will help in ensuring you sleep better at night.
