Building a Home? Here’s What You Should Know About the Construction Contract

By November 19, 2020 Real Estate
Building a Home? Here’s What You Should Know About the Construction Contract

Before the first board is nailed in the home you are building, you need to be sure you have built in some protection for yourself by executing a construction contract. It is likely that your contractor has already furnished you with a contract ready for you to sign, but don’t do it without understanding everything in it and running it by your attorney first.

Better yet, engage an attorney upfront to create the contract that will dictate your relationship with the contractor, including:

Scope of work. This is where you define all the work that the contractor will be doing, including obtaining permits, labor, equipment, materials, and any other services that are required to complete the home build. This provision should also specify that the contractor is to perform the work according to the drawings and specifications for the home. These should be attached to the contract as well. There should also be language that states the contractor must perform the work in accordance will all applicable laws, regulations, and codes.

Timing. You want to protect yourself against a project going well beyond its originally scheduled deadline. The contract should specify when the work will begin, the building schedule, and an end date. There should be extensions granted for events like weather, changes in the scope of work, payment delays caused by the buyer, and other events outside the builder’s control.

Payment. This section dictates how and when you will make payments to the contractor. Most builders rely on scheduled payments to fund the construction, so the schedule should be timed with building phases and the contractor should be asked to submit payment requests that show what work will be completed during each phase. In addition, the contractor should submit signed mechanic’s lien releases or waivers from subcontractors to assure you that the subcontractors have been paid and released any interest in your property.

Changes. It is not unusual for the scope of work to change during construction, so the contract should call for written work orders that reflect every change in the scope of work.

Warranty. Once you move in, you may find some construction defects that you should expect your contractor to fix within a certain period of time. Many contracts include express warranties that cover this.

Dispute resolution. Usually, construction contracts require binding arbitration rather than litigation if there is a dispute. Be sure you understand your rights under arbitration and don’t sign away your rights to sue without consulting a real estate attorney.

Our real estate attorneys represent parties on either side of real estate and financing transactions, including buyers, sellers, landlords, tenants, lenders, borrowers, trustees, guarantors, shareholders, partners, and others. We advise, structure, negotiate, and document a variety of real estate and financing transactions, including leases, purchase and sale agreements, financing agreements, and development agreements for a variety of commercial and residential projects. Contact us today and learn how we can help.