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.