October 22, 2026
First Material Breach, Cost vs. Value Damages, and Unsigned Change Orders
For many people, a custom home build, large addition or whole house remodel is the most expensive and complicated transaction they will personally handle in their lifetime. Choosing a contractor and a design takes considerable time and carries high stakes. Most projects see at least one breach or accusation. Most homeowners, even those who can afford a major construction project, are not familiar enough with construction law to know for certain what course of action is necessary in the event of a breach. This post covers three issues from a 2026 Court of Appeals of Virginia decision: the first material breach rule, the cost vs. value measure of damages, and email change orders.
What Is the First Material Breach Rule in Virginia Construction Cases?
Under Virginia law, the party who commits the first “material” breach cannot enforce the contract. But a “minor” breach, one that does not “go to the root of the contract,” does not excuse the other party’s performance. Virginia appellate courts are generally averse to applying the rule strictly in construction cases unless there is bad faith. This is especially true when both sides have offsetting claims for payment and defect correction.
On June 23, 2026, the Court of Appeals of Virginia decided Inviting Structures, Inc. v. Royal in an unpublished opinion. The dispute arose from a $232,180 contract to install an outdoor spa tub, a stone outdoor living space, and landscaping. Each side claimed the other breached the contract first.
Royal claimed the contractor started off on the wrong foot by installing plants in locations that did not match the design. When told of the problem, the contractor stopped work and met with the homeowner. At trial, the court awarded $12,471.60 in damages for landscaping defects. The Court of Appeals held that the misplaced plantings were a breach, but not one that triggered the first material breach rule.
The contractor claimed Royal breached first by seeking damages for a project Royal had not paid for in full. The draw schedule required a $40,000 payment upon delivery of the spa tub. Royal did not make that payment and later claimed in the lawsuit that the tub was defective. The Court of Appeals held that this did not bar Royal’s recovery. Royal had paid $192,170 of the $232,180 contract price, and the court found that withholding the $40,000 payment was not material and not in bad faith.
As this case shows, the “first material breach rule” is something of a misnomer. A breach may be “material” enough to entitle the other party to payment, an offset, or a damages award. Sums of $12,000 to $40,000 are not trivial, even on an expensive project. Courts are still reluctant to apply the rule in such cases because excusing the other party from all further performance is an extraordinary, drastic result. It can derail a project that would otherwise resolve itself through corrective work, substantial completion, and reasonable payment for work received. The takeaway — be circumspect about canceling or terminating a construction contract and immediately suing without first consulting counsel. Many contracts spell out what gives rise to a right of termination for cause and what the effect of a termination without cause would be.
How Are Construction Defect Damages Measured? Cost Rule vs. Value Rule:
The Inviting Structures, Inc. case also addresses how courts measure damages for defective construction work. Under Virginia law, there are two alternative measures of awarding damages for defective work, the “cost rule” and the “value rule.” The cost rule awards the cost one would incur to correct the defects proven. The cost rule is the measure that the courts ordinarily apply and is thus more familiar to judges, attorneys and experts. The cost measure is used unless it would be “grossly disproportionate” to the results, would involve “unreasonable economic waste,” or the cost of remedying the defect is unreasonable compared with the benefit that would be achieved. The value rule considers the difference between the value of the construction if it was properly completed versus the value of the defective work that the purchaser received.
In the Inviting Structures, Inc. case, the Royals complained that the contractor installed a spa tub in their backyard that showed visible corrosion on its exterior. They wanted the court to award them the cost to purchase and install a new spa tub. The Court of Appeals concurred with the Circuit Court’s determination that to do so would give the Royals a windfall, essentially two tubs for the price of one. The trial judge found that the corrosion to the tub was minor, cosmetic, and localized to certain areas.
In other cases, the Supreme Court of Virginia suggests that if the property owner puts on evidence of the breach and the cost to repair, then the burden shifts to the contractor to rebut the accuracy of the cost claim with evidence of the current value, depreciation or betterment. This is consistent with the principle that the defendant bears the burden of proving mitigation of damages. In the Inviting Structures, Inc. case, the record showed that it was the Royals’ own expert who characterized the damage to the tub as “localized” to certain areas.
Are Unsigned or Email Change Orders Enforceable?
Virginia courts will enforce provisions in contracts that require any change orders to be made in writing and signed. The law ordinarily enforces contracts as written. This rule is subject to the defense that such provisions may be expressly or implicitly waived in particular instances. But waiver would have to be proven. In the Inviting Structures, Inc. case, the contractor sought payment for additional work that the homeowner informally agreed to purchase as add-on work. The contractor argued that this established liability under a “course of dealing” manner of doing business. The Court of Appeals agreed with the contractor, but on a different ground — the contract’s change order clause itself allowed change orders by email. The parties had agreed to the changes by email exchanges. Those emails were enforceable without a physical signature or formal e-signature.
Legal Authority:
Lee v. Bell, 237 Va. 626 (1989).
Nichols Constr. Corp. v. Va. Mach. Tool Co., LLC, 276 Va. 81 (2008).
Note that the photo used with this blog post does not depict any of the property at issue in the case discussed in this article. It shows a different spa tub.
October 17, 2026
Does Selective Enforcement Make HOA Restrictions Unenforceable?
When the HOA contends a resident violated a rule, the accused may wonder if the rule is unenforceable because of other changes in the use or alteration of structures in the subdivision allowed to continue since the creation of the rule. This is called “selective enforcement.” Does selective enforcement make HOA restrictions unenforceable? That is a reasonable question. But under Virginia law, inconsistent enforcement does not automatically make a restrictive covenant unenforceable. The answer usually depends on the covenant’s language, its purpose, the association’s prior conduct, and the effect of other violations on the community as a whole.
It is human nature to compare oneself with others when accused. They see varying uses and alterations that developed over time and draw their own conclusions based on a sense of fairness. This tendency to compare reflects the fact that the developer made the lots and homes look similar or at least cohesive in some way. One may not be able to avoid comparison during each drive in and out of the neighborhood. This has to do with the peer pressure within and among social classes. Comparison is tricky. Good examples can draw people upward. On the downside, comparison can breed envy or snobbishness, poisoning relationships. If the principle of treating others as one would want to be treated breaks down, mental alarm bells go off. The “golden rule” runs like a thread through community association law. Yet, restrictive covenants are not really expressions of the golden rule. They require everyone to do more specific things.
Whenever a lot owner receives a notice of violation, they immediately think about other houses in the neighborhood that are doing the same thing that they have. When they confront their leaders or management about this, the latter simply point back to the rule. The recorded instruments form the “contract” between the owners. The covenants provide a specific set of parameters for what one ought to expect parameters that are supposed to be clearer and more fair than individual opinions or informal understandings. When the rule appears contrary to the practices and patterns seen in the subdivision, many lot owners wonder if the changes on the ground have nullified the developer’s, “dead hand.” Many people research this issue on Artificial Intelligence programs and receive misleading answers. AI tends to validate negative emotions by rendering an answer favorable to the phrasing of the question.
In Virginia, like most states, the burden of proof to nullify a recorded restriction on the grounds of changed conditions is more onerous than what AI leads many people to believe. According to judicial precedent, the party asserting that the recorded restriction is unenforceable or because changed conditions has the burden of proving that the purpose of the restriction can no longer be achieved. Conditions must have changed so substantially that the essential purpose of the covenant is defeated. The legal precedents require the party attacking the restriction to prove that there was “radical change.” The HOA’s or neighbor’s ability to enforce the restriction is not forfeited by mere failure to object to similar violations in the same neighborhood. How does one distinguish between the “radical change” that nullifies a rule and “ordinary” lapses in enforcement that do not deprive the plaintiff of a remedy? Consider a few case decisions:
- If the homeowner installs a fence that violates a prohibition against side yard walls, the mere fact that some other lot owners have been getting away with having side yard fences does not nullify the rule. Village Gate HOA. v. Hales, 219 Va. 321 (1978).
- If the rules only allow split rail fences, but the developer approved some other fence styles, this is insufficient to nullify the rule requiring split rail fences. Melmore II, L.C. v. Boyer, 45 Va. Cir. 178 (Loudoun Cir. Ct. 1998).
- A defendant constructed a garage without architectural approval. When he did apply, the committee denied it. Defendants identified other outstanding violations in the community. The court declined to find abandonment of the rule requiring architectural approval for alterations. Sugarland Run HOA v. Couzins, 28 Va. Cir. 334 (Loudoun Co. 1992)
- Norfolk Circuit Court found that if a platted street was not constructed, a lot owners were not required to observe a setback rule based on the street location. Miller v. Grinnan, 86 Va. Cir. 446 (Norfolk 2013).
- Where a covenant protected the historic character of an adjacent property, and that historic home was later relocated to a different location and the agricultural neighborhood became a commercialized. This constituted a “radical change” that nullified enforcement of the covenant. Chesterfield Meadows Shopping Center Assoc.. v. Smith, 264 Va. 350 (2002).
- There were two lots in a subdivision. One lot bore a restriction that it must be sold with the other. But the other lot was not burdened with a reciprocal restriction. The court found the purpose of the restriction defeated. Wells v. Beville (March 31, 2022 unpublished Supreme Court of Virginia decision).
- A restriction forbade commercial uses. There were some commercial uses surrounding the lot. The subdivision did retain its residential character. The court found that the existence of those commercial uses nearby did not defeat the purpose. River Heights Assocs. v. Batten, 267 Va. 262 (2004)
As you can see, “radical change” is rarely found where the defendant merely pointed out various other lots around them also breaking the rule. Seem to violate the principle of mutuality that the HOA, as the enforcer, should not expressly or implicitly not condone the violation of the rule for one and not another, especially since all of the directors are also burdened by the same rule. However, the courts tend to look at restrictions as something more than a legal mandate asserted by a peer group. What the restriction seeks to achieve ought not to be defeated by a few violations. In other words, two wrongs do not make a right. The protection afforded by the recorded covenant is not lost merely because the HOA fails to properly enforce it. A HOA may lose its ability to enforce a covenant by express waiver. The HOA may change or nullify the rule by amending the declaration or handbook. But in the end the HOA’s role in covenant enforcement is understood in terms of contract law.
Unfortunately, the concept of “selective enforcement” can be ambiguous. Although the “radical change” standard is enforcement-friendly and not often useful to owners who receive notices of violation, this does not mean that everyone has to do as their HOA orders them at all times. There are other grounds upon which enforcement activity may be resisted, as discussed in other articles on this website. For example, the rule may be inapplicable. In other cases, the rule may be valid but cannot be enforced due to abandonment, waiver or estoppel. That inquiry focuses instead on the HOA’s particular actions or communications.
Maryland also applies the “radical change” rule. Dumbarton Improvement Assn v. Druid Ridge Cemetery Co., 434 Md. 37 (2013).
In 2026, the D.C. Court of Appeals applied the “radical change” doctrine. In that case, the landowner wanted to use an alleyway property as a large nightclub featuring exotic dancing. However, a restriction against nightclub use burdened the property. The landowner believed that it could operate the property as a nightclub without unreasonably burdening the neighbors. D.C. ruled against them, rejecting a suggestion to adopt the “reasonableness” rule used in New Jersey. DTLD, LLC v. Power Station Ltd. P’ship, 350 A.3d 1285 (D.C. 2026).
New Jersey courts apply a reasonableness test: “‘reasonableness’ is necessarily a fact sensitive issue involving an inquiry into present business conditions and other factors specific to the covenant at issue.” In addition to issues of ambiguity or non-ambiguity of the restrictive covenant language and the property purchaser’s actual or constructive notice of the restriction, the factors they consider are: (1) the intention of the parties when the covenant was executed and whether the parties had a viable purpose which did not at the time interfere with existing commercial laws or public policy; (2) whether the covenant had an impact on the consideration paid, “a measure of the value to the parties of the covenant at the time”; (3) whether the covenant is reasonable concerning area, time, or duration (with a caveat that covenants that extend for perpetuity may often be unreasonable); (4) whether the covenant imposes an unreasonable restraint on trade (such as “where there is limited space available to conduct certain business activities”); (5) whether the covenant interferes with the public interest or the public welfare; and (6) whether, even if the covenant was reasonable at the time it was executed, “changed circumstances” now make the covenant unreasonable. Davidson Bros. v. D. Katz & Sons, 121 N.J. 196 (1990). This is not currently the law in Virginia, Maryland or D.C.
Given that much of the advice that one may receive from artificial intelligence is misleading, homeowners ought to consult with an attorney before “digging in” opposition to a notice of violation, complaint or lawsuit regarding challenged alterations or use of their property.
