October 30, 2026
Virginia Court of Appeals Upholds Homeowner’s Judgment After Defective HOA Siding Repairs
The Condominium and HOA industry is a big business, particularly when it comes to maintenance and repair of improvements to property. HOA renovation projects are not just on common areas such as roads, clubhouses, tennis courts and pools. Many community associations are required to repair components that function as part of someone’s home, such as a roof, siding, ventilation, utilities and so on. When community associations make decisions, they commonly rely upon their advisors, such as managers, attorneys or other professionals. Even when volunteer leaders make significant efforts, the price paid and quality of workmanship varies. For this reason, homeowners ought to monitor such activities, especially when the cost passes through as a special assessment, or the repairs are necessary to protect their home interior.
Earlier this year, the Court of Appeals of Virginia decided a case where such things did not go as desired. In Stonehenge HOA v. Tanesha Hudson, the Circuit Court of Albemarle County entered a $4,500 judgment and $44,761.50 for attorney fees in favor of Ms. Hudson. After filing the appeal, the HOA paid the $4,500. This case caught my interest because of the damage caused by defective repairs, the application of the voluntary payment doctrine, and the arguments regarding reasonableness of attorney’s fees.
Defective Exterior Repairs by Company with Relationship with Manager
The following facts are taken from the judicial opinion and supplemented by some additional research that I have done. Ms. Hudson owns a townhouse. The governing instruments require the HOA to maintain the roof, gutter and siding on the townhouses. The HOA worked with Associa. Associa is a community management holding company estimated to have over one billion annual revenue and over 10,000 employees. The HOA hired Community Group, Inc., doing business as Associa Community Group and Associa on Call to install new siding on the townhouses, including Ms. Hudson’s. Many property management companies that work with HOAs and condominiums are owned by Associa. Associa owns complementary businesses such as Community Group and Associa on Call. I do not know how Stonehenge HOA decided to do business with Associa on Call. What could happen is the manager who works for the Associa subsidiary learns that the association needs a contractor. They “refer” Associa on Call to the association. Yet they are subsidiaries of the same company and to my knowledge share common employees. I do not know whether Associa on Call has any employees who perform construction work or if they always “subcontract” the actual work to a separate company at a lower price. This judicial opinion does not say whether Associa on Call had a contractors license or if they subcontracted the work out to a third party. Associa’s management subsidiary is ordinarily familiar with what work is needed, what funds are available, and what the board members want. This practice does not necessarily lead to an unfair result. Note that Virginia law does not have statutes that regulate bidding in the community association context. Government contracting law does not apply to HOAs, but the directors are nonetheless fiduciaries. This issue was not discussed in the Hudson case opinion. Another issue that may arise with the practice of awarding exterior repair contracts to an affiliate of the manager has to do with workmanship warranties that would run from the subcontractor through the affiliate to the association. If the association terminates the management contract, that may complicate warranty claims. That issue was not discussed in the Hudson v. Stonehenge HOA case either.
In the lawsuit, Ms. Hudson alleged that the deficient siding replacement diminished her home’s value, caused black mold, water damage, and allowed rats and bees to enter the house. She sought $280,000 in damages. Ms. Hudson’s expert testified that the contractor removed and improperly re-installed the drip edge flashing, failed to make certain repairs to the roof, improperly installed kickout flashing and failed to install counterflashing. These effects allowed moisture, bees and rats to enter the townhouse. The Circuit Court agreed with her and awarded $4,500 for repairs and $44,761.50 in attorney fees against those defendants. While the appeal went on, the association paid her $4,500 for the judgment portion.
Voluntary Payment Doctrine
The Court of Appeals refused to consider the Association’s challenge to the judgment because it paid the $4,500. The Voluntary Payment Doctrine provides that absent fraud or misconduct, a claimant cannot later demand that a court return to him funds that he voluntarily paid to another. This is because the making of the payment constitutes a voluntary cessation of the dispute. An exception to this rule arises when the transfer of the money occurs due to a garnishment. But that is not voluntary. A garnishment does not require any agreement on the party of the person who puts their money in the bank account. In the appeal, the association admitted making the payment in order to avoid the accumulation of interest. The court found that the making of this payment in full waived the right to have the appellate court consider a reversal that would require return of the money.
Voluntary payment is an important doctrine for anyone in a dispute with their HOA or condominium to understand. Many homeowners assume that if they consider the payment to be made under protest then they can go back and challenge it later. But this is ordinarily not the case. However, by making a payment this does not constitute an admission or concession as to everything in dispute. On December 4, 2020, I posted an article, The Voluntary Payment Doctrine and HOA Liens, which discusses the voluntary payment doctrine in the HOA context.
Under Virginia judicial precedent, if there are several debts in dispute between two parties, the debtor can expressly or implicitly direct that a payment go to one debt and not the other. In Upper Occoquan Sewage Authority v. Blake Construction, the Supreme Court quoted an older case saying:
A payment by a debtor who owes several debts to a creditor, is to be applied to one or the other of the debts; first, as the debtor may direct at or before the time of making such payment; and such direction may be given expressly or by implication. Secondly, if the debtor give no such direction then the creditor may make the application, according to his pleasure; and he may make it, either at the time of such payment, or afterwards, before the commencement of any controversy on the subject.
This allows a homeowner, under certain circumstances, to pay their “regular” assessments while resisting payment on disputed claims.
Prevailing Party Attorney’s Fees in Community Association Cases
These defendants were particularly displeased with the award of attorneys fees. Here, they were sued for $280,000. The plaintiff won $4,500.00. The attorney fee award was $44,761.50. The defendants argued that Ms. Hudson did not substantially prevail, because that was only a 1.7% success ratio. However, under judicial precedent, one may qualify as the “prevailing” party even if they do not prevail on all of their claims. The comparison of damages recovered to damages sought does not change which party prevailed. The defendants also argued that awarding a $44,761.50 on a $4,500 judgment is excessive. The factors that the courts are to consider for attorney’s fees awards are the time and effort expended, the nature of the services rendered, the complexity of the services, the value of services provided, the results obtained, whether the fees are consistent with those for similar services, and whether the services where necessary and appropriate. The court observed that while the ratio of damages sought to damages awarded is a factor to be considered, the other factors ought to be weighed as well. I previously blogged about attorney fee awards in HOA. My July 20, 2022 article was Awards of Attorney’s Fees in Community Association Litigation.
What Should a Virginia Homeowner Do After Defective HOA Repairs?
If association-directed work may have damaged your home, or common elements upon which it relies, consider taking the following steps:
- Take photographs and record videos. Record when you first noticed the problem and the frequency or any reoccurrence.
- Keep notices, emails, letters, inspection reports, invoices, meeting minutes, and communications with the HOA, property manager, and contractor.
- Review the governing document provisions that assign responsibility for the affected building component to the association or the homeowner.
- Notify the HOA and property manager in writing. Describe the condition, identify any immediate risks, and request an inspection and written response.
- Emergency work may be required to stop active water intrusion or protect the property. When possible, document existing conditions before repairs begin and preserve removed materials that may help establish the cause of the damage.
- Construction-defect disputes often depend on technical issues involving flashing, roofing, moisture pathways, installation methods, and building components. An inspection may help identify both the source of the problem and the work required to correct it. HOA leaders and professional advisors take such reports seriously. Sometimes it helps to show the obvious.
- Before paying a disputed charge or judgment, consider whether payment could affect the ability to challenge it.
- Consult with legal counsel should a contractor, HOA lawyer, director or manager ask the homeowner to sign a release, proposal or work order when the financial responsibility is uncertain or contested.
Legal Authority:
Upper Occoquan Sewage Auth. v. Blake Constr. Co., 275 Va. 41 (2008).
Stonehenge Homeowner’s Assn v. Hudson, 2026 Va. App. Lexis 442 (Aug. 18, 2026)(Unpub).
The photo used is a free image and does not depict anything discussed in the article.
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.
June 4, 2025
District of Columbia Demolishes Building After Mailing Notice of Violation
Washington, D.C. has numerous old buildings. The building owners usually want to sell, repair or renovate them. Some owners fail to adequately maintain older buildings. Over the years, the D.C. government has taken an increasingly strict approach to unmaintained buildings. In some instances, the government ignores property that causes problems for adjacent residents. The government’s aggressive approach in such matters has put owners in a bind. The owner may struggle to maintain or remodel the property while simultaneously fight off legal notices.
In 2023, the D.C. Court of Appeals decided a case, 1417 Belmont Glen Community Development LLC vs. D.C., where a property owner brought a constitutional due process lawsuit against the D.C. government for demolishing its building on safety grounds. Belmont challenged the sufficiency of the notice provided to it as the owner. The case is important to the owner or occupant of any D.C. property that has or could have a maintenance or renovation issue. D.C. property owners ought to treat Notices of Violation and Notices of Infraction with appropriate seriousness.
Belmont owned a property in D.C. with an existing building. Belmont intended to develop it into a condominium association. In 2008, the building partially collapsed. The D.C. Department of Consumer and Regulatory Affairs (DCRA, now Department of Buildings) found it to be in imminent danger of further collapse, presenting a life safety issue. In 2009, DCRA issued a notice of violation and notice to abate (NOV). The NOV directed Belmont to demolish or repair it to make it safe. The NOV quoted statutes requiring structures that are unsafe or dangerous to be taken down or made safe as deemed necessary. The NOV mentioned that the mayor may summarily correct the violations where there is an imminent threat to safety. The NOV stated that the owner ought to be provided with notice by personal service or registered mail and by conspicuous posting. The NOV included deadlines and indicated an opportunity to request a hearing.
DCRA sent out the NOV by regular first-class mail and posted it on the door of the premises. Belmont contended that it never received a copy of the NOV. DCRA did not hear from Belmont. A second major collapse occurred. Approximately three months after the NOV, the D.C. government demolished the structure.
Belmont filed a lawsuit against the D.C. government, alleging violation of its Fifth Amendment due process rights by failure to provide proper notice. Note that the Fifth Amendment applies because D.C. is a federal city and not a state. The Superior Court initially granted Belmont’s motion for summary judgment. Later, upon D.C.’s motion to reconsider, the court did a 180-degree turn, entering judgment in favor of the government. Belmont appealed.
D.C. admitted that it did not follow the statutory registered mail notice requirements that applied. On appeal, Belmont argued that D.C.’s failure to follow the local procedural requirements in connection with the deprivation of a constitutionally protected property interest amounted to a constitutional due process violation. However, federal and D.C. courts have held that the failure to follow procedural statutes does not by implication amount to a constitutional violation. An error of state (or D.C.) procedural law does not automatically implicate the constitution.
The Court of Appeals agreed with the Superior Court’s reconsidered ruling that a combination of (a) regular first-class mail and (b) posting on the property satisfied minimum constitutional due process requirements. The constitution requires “adequate” notice, not proof of “actual” notice.
What is important about this case is not merely the application of these constitutional law principles, but the question as to whether the content, form and timing of the notice provided was sufficient for the abatement action taken. Many Americans assume that robust procedural guardrails exist and must be observed before the local government can tear down the building that the owner is in the process of renovating.
Initially the Superior Court was dissatisfied with the decision of the D.C. government to raise the building when the NOV did not expressly inform Belmont that it would summarily do so if there was not a correction. The NOV was issued before, not after D.C. made a governmental decision to demolish the building. In its reconsidered ruling, the Superior Court observed that the NOV was “ambiguous” as to whether additional notice would be given before razing the building. The Court of Appeals went even further in validating the government’s powers, finding that the NOV unambiguously provided procedural due process of the imminent possibility that the government would tear down the building if Belmont failed to take action.
Note that the Superior Court and the Court of Appeals, at various times construed the legal characteristics of the NOV in different ways suggests that a homeowner attorney might also find the NOV confusing. What this appellate opinion means for owners is that the courts can be expected to construe any NOV in a manner friendly to the government’s prerogatives. It would be a mistake to assume that there would be subsequent regulatory notice of lawsuit before the building would be demolished. This does not mean that the agencies can do whatever they want. This means that property owners must exercise caution.
The Belmont opinion describes the facts in a manner that does leave the reader feeling particularly sorry for the landowner. The opinion strongly suggests that Belmont was negligent in monitoring the property. However, in other cases the facts that can be put into evidence may appear less clear 1. The statutes do not require the building to partially collapse before the government may take drastic action.
Given this appellate decision, it would be a mistake for any D.C. property owner to assume that the government would make a diligent effort to get in contact with her before taking corrective action, bring a lawsuit or a specific notice to demolish, or provide “grace” in a situation where it would be obvious that the property owner was in the process of renovating or improving the structure viewed as requiring maintenance.
Property owners can take precautions to avoid harsh results. The property owner can keep the government appraised of her best mailing address for legal notices. The owner can monitor the property for unsafe conditions or posted notices. The owner can prevent structures from becoming unsafe by conducting timely repairs. When a NOV or Notice of Infraction is posted or mailed, the owner ought not to view it as an advisory memorandum that can be ignored if it is wrong. For reasons of temperament or cultural background, some may be inclined to show their disapproval of an erroneous notice by ignoring it. This is quite risky. Any NOV, NOI or similar legal document ought to be viewed as something like a lawsuit or final court order which should be contested or appealed as legally required. On the flipside, the homeowner ought not to consider these developments to mean that if a NOV or NOI is issued, there is nothing that can be done to protect her rights. In many cases, the property owner ought to consult with an attorney to discuss what action ought to be taken. If nothing else, the Belmont case shows that simply doing nothing and seeing what happens should be avoided. Ordinarily, the property owner needs to submit a response form within a defined deadline to obtain a hearing before the agency or the Office of Administrative Hearings. As the Belmont case shows, the NOV or NOI does not necessarily need to be clear in order to allow the government to take adverse action.
One frequent issue in such matters is that the abatement or hearing request deadline stated in the NOI or NOV is inadequate to find a contractor, apply for a permit, and to abate the issue in the time allotted. The inadequacy of the time allotted forces the homeowner to either “dual track” the abatement with the legal hearing request and appeal or to abandon a legal challenge. But by abandoning such a challenge the homeowner opens herself up to drastic action like what is seen in the Belmont case.
Case Citation:
1417 Belmont Cmty. Dev., LLC v. D.C., 302 A.3d 512 (D.C. 2023).
November 6, 2023
Work Group Report to Virginia Legislature Regarding Funding Reserves to Maintain Structural Components in Condominiums
Tomorrow, November 7, 2023, Virginians go to the polls to vote for all seats in the House and Senate. The 2024 session is expected to include legislative deliberation regarding the safety and affordability of aging housing stock, including condominiums. Developers and policymakers view condominiums as growing the tax base of the community while allowing for affordable housing. However, realities of condominiums present threats to unit owners, such as surprise assessments of $10,000-$45,0000, stalking neighbors, constricting rental policies, damage from leaking pipes, or even loss of one’s investment in deconversion. For owners of older condominium units with inadequate reserves and dysfunctional polity, sometimes it is best to sell the unit before the burdens become too great. However, for many unit owners, there are few housing options in their metropolitan region that they can afford. Many homeowners simply must find a way to make their current housing investment work for them.
On November 23, 2022, I posted an article to this blog, “Virginia Structural Integrity and Reserves Work Group,” concerning efforts to reform community association laws in Virginia. The 2022 General Assembly directed the Department of Professional and Occupational Regulation (DPOR) to appoint a panel of industry experts to develop recommendations for how state laws may be strengthened so that community associations can adequately fund projects necessary to renovate structural components and critical building systems. I was not a member of this work group, but I did attend one of their meetings as a public citizen. The legislature and the work group both understand that many, if not most, community associations do not have sufficient reserves to fund renovations essential to intended use, health, and safety. In April 2023, this work group published a lengthy report. I expect we will see a flurry of bills in the legislative session that convenes on January 10, 2024. For condominium unit owners, this two-month legislative session may result in a sea change that splashes waves throughout urban habitats in the Commonwealth. Failure to address such matters can lead to buildings losing insurance coverage, the inability of purchasers to obtain conventional financing, or even condemnation. If mishandled, unit owners can experience tremendous financial hardship with little guarantee that the renovation will succeed.
The industry of property managers, board attorneys, accountants, contractors, landscapers, and other businesses exert more influence over HOA policymaking than the homeowners do. Advisors and vendors to condominiums do not want boards to continue to defer maintenance until something catastrophic happens. If the advisors must tell the boards to do something difficult, they want to present it as necessary and feasible. Boards can replace the professionals with others if they do not like the service they receive. When a structural collapse or personal injury happens, the victims and unit owners often point fingers at the board and their advisors. The work group wants to facilitate reserve studies, collect assessments faster, and make contracts to replace critical components. The governing documents of common interest communities contemplate homeowners electing worthy candidates to the board to wisely fulfill legal responsibilities for the whole community. However, directors tend to make collective decisions according to their personal views, with a bias towards short-term solutions, or without doing their homework. If all the policies the work group wants are implemented, unit owners will have less control over the governance of their communities, while shouldering onerous financial obligations. Let us take a closer look at a few of the work group’s recommendations.
Use of Reserve Study Professionals: Virginia law requires associations to renew their reserve studies every five years. The work group wants to strengthen this with amendments requiring the study to be done by qualified professionals. Reserve studies evaluate the remaining life of various aspects of the common elements, and how much money ought to be set aside. This is not an easy task, because we are talking about millions of dollars. Reserve studies do not include a business plan for fundraising or bid-solicitation. The work group wants to prevent boards from doing the studies themselves, asking a committee of homeowners to do it, or relying on an estimator who is working for a contractor who wants the work. The firms that specialize in reserve studies often have professional relationships with the managers and attorneys who work closely with the boards. Even if the association purchases a professional reserve study, it may not provide all answers that are needed for the board to make decisions. With a statutory mandate to raise assessments and spend on critical components, according to the reserve study, the work group wants to keep the boards listening to the industry experts. However, boards can replace professionals with those willing to see things their way. Community associations are supposed to make important decisions in duly noticed, open meetings where owners can review the materials and speak if they so desire. An eight-figure commitment to be imposed upon the unit owners by an assessment ought to be managed in an “open” way. The board is forcing people to purchase something expensive together that they will be living with for as long as they own their homes. Such business meetings can get wild. Many unit owners are disengaged. Those who are engaged have strong opinions. There is a tendency to shift the discussion of the details out of the open and into an executive session, an informal committee, or to assign a director or manager to confer with the reserve specialist, contractor or engineer to discuss details and report back. Community associations are organized by recorded instruments that vest power in the board of directors, where the duties and prerogatives are defined. The members have the right to remove or replace the directors. Directors can change the direction things are going by replacing the professionals hired by the previous board. I agree that reserve studies ought to be done by qualified individuals. However, the problems are complex enough that regulating the professional field is not necessarily going to solve the problem. But the reserve studies will cost more because there will be fewer companies authorized to do the work.
Unit Owner Rescission of Additional Assessments: In community associations, there are situations where the members can override a board decision by a vote at a special meeting. The right of rescission may be set out in a statute or recorded instrument. I summarized statutory rescission rights in my post, “Can HOA Boards be Overridden through Group Action by Owners?” The Virginia Condominium Act allows unit owners to rescind board approved additional assessments:
All unit owners shall be obligated to pay the additional assessment unless the unit owners by a majority of votes cast, in person or by proxy, at a meeting of the unit owners’ association convened in accordance with the provisions of the condominium instruments within 60 days of the delivery or mailing of the notice required by this subsection, rescind or reduce the additional assessment.
Va. Code § 55.1-1964(E). This is a powerful tool which, if used wisely, allows unit owners to exercise oversight over board decisions. This cancels or reduces an imposed assessment without undoing related board decisions such as loans or contracts.
The work group takes aim at this procedure. Some view the provision as allowing the wrong kind of interference. The work group cites conflicts between several types of owners. For example, investors favor cosmetic improvements. Older owners tend to view reserve funding as a subsidy to future owners. The work group views boards of directors as more responsible and wiser and the unit owners as a majority as self-interested. All directors and members of condominium associations are under some sort of conflict of interest by the fact that they are investors and residents in the property subject to group decision-making. I touched upon these issues in my post, “Condominium Director Conflict of Interests and the Business Judgment Rule.” This reality is inherent, but the community still must govern itself through business decisions. Some business is to be conducted by the board, other business by the unit owners acting as a group. The owners individually retain certain rights which cannot be voted away even by 99% of the other members. Who is to say that the board or owners are more trustworthy when it comes to a huge decision? Many condominium bylaws were made when the statutory right of rescission was on the lawbooks. To take that procedure away now would in a sense rewrite the “contact.” The work group’s report fails to mention that even where the statutes do not provide an owner rescission procedure, homeowners may be able to block or undo board decisions by filing a lawsuit. In my opinion, the right of rescission ought to be retained, and broadened to include related subject-matter, because the unit owners need the ability to hit the “pause” button without necessarily having to file a lawsuit.
Use of Loans to Finance Major Renovations: The work group’s report recommends that the statutes be amended to authorize borrowing by associations for repair of capital components. A loan might make sense as a last resort for an urgent, essential project for which there are insufficient reserves in the bank but the unit owners are capable of repaying. Many people assume that HOAs and condominiums have the power to borrow money because they are businesses. The POAA and Condo Act do not authorize borrowing. The Virginia Nonstock Corporation Act lists borrowing as a corporate power. Unincorporated associations do not have an inherent ability to borrow money. However, declarations and bylaws may authorize borrowing, even for unincorporated entities. The issue of borrowing is tied to assessments. It is usually the unit owners who push for a loan option. However, bylaws typically do not have provisions that provide a framework for pass-through financing. If the board borrows money, typically the whole community becomes responsible in the event of a default. This can create controversy because responsible owners who pay off their portion initially upon demand do not want to later have to bail out their impecunious neighbors. From the lender’s perspective, the association’s cashflow is collateral, not the property itself. If poorly considered, legal reforms that loosen restrictions on condominiums borrowing money may result in unit owners becoming trapped in their investment. The condominium model was not designed around borrowing. Unit owners do not want the critical components of their building to fail. They also do not want the burdens of ownership to become like those seen in housing cooperatives or timeshares. I am concerned that the legislative proposals may address short term funding needs but change the nature of condominium investments into something more like cooperatives.
Aggressive Collection Tactics: Any attempts to fund reserves will require associations to intensify their debt collection with more liens, lawsuits, garnishments, and foreclosures. The work group recommends that the laws mandate that boards assess and collect sufficient funds to fully fund reserves. The general assembly already provided community association boards with powerful tools for debt collection. I discuss this in my article, “Memorandum of Association Assessment Lien.” The few consumer protection guardrails in the statutes for assessment liens and foreclosures are frequently ignored by HOA debt collectors. When they find themselves trapped in a cycle of community association debt collection, there are steps that a homeowner can take to protect themselves from later discovering that their HOA sold their home to an investor in foreclosure without their knowledge. For example, it is important for the homeowner to keep their association up to date with any changes to their snail mail address, and to confirm that the association acknowledged such updates.
Termination and Deconversion of Condominium: The work group’s report includes some vague statements about promoting redevelopment of condominium property. Usually, condominium termination results in substantial investment losses for those unit owners who are not in league with the developer acquiring the property. My analysis of the most recent amendments to the termination statutes are summarized in my previous post, “Proposed Virginia Legislation Would Empower Developers to Oppress Rights of Unit Owners in Sale of Terminated Condominium Developments.” Sometimes these terminations seem like legalized theft.
So where do things go from here for condominium unit owners? The work group mentions in its report that this mess arose because of the economic bias of current owners against future owners. While there is a natural human tendency to kick the can down the road, the solution for a particular community is going to be unique. Factories do not construct tailored suits. It is understandable that the industry that currently serves condominiums and HOA corporations, when their leaders are organized into such a work group would look for opportunities to present themselves and their friends as solutions. I suspect that the industry lobbyists will propose bills they will argue reflect the recommendations. However, I suspect that the language of the bills may go in a variety of directions. I hope that the General Assembly uses this as an opportunity to protect consumers. One can step back and observe that the condominium concept was flawed from the beginning and should not have spawned so many homes. However, even if legal reforms forbade new condominiums, the plight of current unit owners would remain. Reform of state laws could be of some help to condominiums struggling to address the cash crunch that plagues their efforts to renovate the critical structural components or major building systems. Despite whatever the legislature does, condominiums will still have to devise their own solutions. For many unit owners, the best means of self-protection is to sell their units while they still can. For those from whom that is not an option, they will need to plan to invest their own time and money in a group activity to resolve these problems.
Legislative Update (January 18, 2024):
The 2024 General Assembly is underway in Virginia. One proposal under consideration is House Bill No. 1209 which could fundamentally change what it means to own a condominium unit, particularly the financial obligations. Presently, if a Condominium Board makes a bad decision regarding additional assessment, let’s say they adopt a resolution to impose an additional assessment of $20,000-$40,000 per unit to do some sort of project, but the whole thing is poorly considered and needs to be redone, the unit owners can convene a special meeting to vote to rescind the additional assessment, without having to go to the trouble of removing the directors from office or file a lawsuit. HB 1209 would take the right to vote for rescission away from the unit owners. The rescission procedure could be refined through amendment, but the proponents of this bill want to do away with it entirely. Most developers did not put the rescission option into the bylaws because it was already in the statute.
Also, Virginia condominium associations do not have the ability to borrow funds unless the bylaws already allow it. HB 1209, if adopted, would allow the boards to borrow funds for any reason, only limited by what amounts the banks would be willing to lend, at whatever interest rates and terms the boards and the banks agree. Under this amendment, the boards can borrow as much as they want, and the unit owners must pay off their percentage “share” of this to sell their units. Under these amendments, condominium unit owners would need to track all of the board’s deliberations regarding borrowing money, so as to be aware of what additional burdens might be imposed on them as a unit owner. In a condominium where the board is urged to be aggressive with fundraising, this would lead to a approach to assessments whereby the unit owner would not be made aware that a large financial obligation was imposed on her personally for long after the time the loan is agreed upon. This is because boards commonly do not disclose much about their contract negotiations. This borrowing power amendment could have more consumer guardrails added, if attention is paid in the legislative process.
Every condominium unit owner in older (and newer) buildings in Virginia have a stake in this legislation.
Selected Legal Authority:
Va. Code § 55.1-1965 (Condo Act – Annual budget; reserves for capital components)
Va. Code § 55.1-1826 (POAA – Annual budget; reserves for capital components)
Va. Code § 55.1-1964 (Condo Act – Liability for common expenses; late fees)
Va. Code § 55.1-1825 (POAA – Authority to levy special assessments)
Va. Code § 13.1-826 (NSCA – General powers)
Va. Code § 55.1-1958 (Condo Act – Tort and contract liability; judgment lien)
Va. Code § 55.1-1966 (Condo Act – Lien for assessments)
Va. Code § 55.1-1833 (POAA – Lien for assessments)
October 21, 2021
Absolute Privilege and Damages Caused by False Statements in Legal Papers
Virginia statutes provide enforcement remedies giving community association leaders great power over their members. Sometimes such powers are misused by submission of inaccurate statements in a lawsuit, notice, lien or certificate that harms the reputation of the owner or interferes with sale to a purchaser.
May 20, 2021
Making Property Decisions as the Region Reopens
On May 14, 2021, Virginia Governor Ralph Northam lifted the indoor mask mandate in light of updated CDC guidance. Governor Northam also declared that the indoor capacity restrictions and distancing restrictions will ease, effective May 28, 2021. The District of Columbia and neighboring states are also lifting restrictions, effective around the Memorial Day weekend.
February 17, 2021
Delay, Interference, and Acceleration in Construction Contracts
Certain complaints frequently arise in construction disputes. One is that the contractor inexcusably had delayed in completion of the project. Another is that the owner has interfered with the contractors work. This blog post takes a look at common schedule change and delay related issues in construction contracting.
Generally speaking, courts look to the language adopted by the parties in their written contract. Analysis of a construction case starts with careful consideration of how a written agreement may control a particular question.
Parties frequently put clauses in construction agreements that deny awards of damages for delays. Courts in different states have held that “no damages for delay” clauses are generally enforceable. These clauses put a burden on the contractor to ask the owner for an extension of time for a delay that arises due to no fault of the contractor. Such requests shift the focus from whether the delay occurred to whether or not the contractor’s request for additional time is reasonable. Many courts will refuse to award a money judgment for delay where the owner committed fraud, concealment or active interference. The court may find in the contract an express or implied duty by the owner to not interfere. This is because the contract will be enforced as a whole. The request for an extension allows the owner the opportunity to consider and accept or reject the request. If the contractor or subcontractor simply continues work without raising the issue then its possible that the court will find that issue waived, depending on how notice requirements are handled in the agreement.
Some construction contracts allow for the owner to move up the completion date for the contract. If the owner puts such language in its contract, the general contractor will likely add similar language to its subcontract agreements. They may ask for terms in the agreement allowing the completion date to be unilaterally moved up or pushed back to provided necessary flexibility in meeting whatever requirements may exist for the project. Such clauses can put a lot of pressure on contractors because of the financial burden involved in greatly increasing the workforce on a given project if the deadline is shortened. Acceleration issues frequently arise in disputes where delays have already occurred and the owner wants the general contractor (or general contractor wants the subcontractor) to get caught up. If the contractor thinks that the owner caused the delay through interference, and the owner maintains that the contractor caused the delay through inadequate supervision (or some other problem) then a dispute may arise regarding who should bear the financial burden of getting caught up in the construction schedule. Federal courts in Virginia recognize three elements for a claim for damages for acceleration: (1) the contractors delays were excusable, (2) the contractor was ordered to accelerate and (3) the contractor accelerated and incurred additional costs thereby.
Even where the written agreement is clear about rights to change the schedule and the effect of that, it can be difficult for the parties to know how to handle this on the job. The general contractor’s superintendent may know that a subcontractor’s work must move faster, but unsure whether the delays can be blamed on the subcontractor. The managers may not clearly inform the subcontractor that the schedule has been officially changed. A subcontractor may not be obligated to request an extension of time if the general contractor is handling a scheduling issue informally.
When a contractor has a justified claim for an extension of time, but is required to incur additional expenses because the owner refuses to grant the extension and insists upon timely completion, this is called “constructive acceleration.”
Where an owner has a delay claim, the measure of damages is either the rental value of the completed structure for the delay period or a reasonable return for that period on the completed structure treated as an investment. Such damages may be difficult to prove and ordinarily would require use of an appraiser or other expert witness.
Generally speaking, the party who commits the first breach of the contract is not entitled to enforce the contract. This rule is subject to numerous exceptions. For example, it only applies to breaches that are “material” and not those that do not go to the “root of the contract.” Examples of a material breach in construction matters include walking-off of a job, failure to make progress payments to a subcontractor (in a subcontract agreement) or causing a structural defect in the building, or items deemed material in the language of the written agreement.
For an owner of a residential lot negotiating a contract for construction of a custom home, the price can be several hundred thousand dollars or more. Local builders’ contracts are often poorly written, or using forms written for a different type of situation that have been poorly adapted for the owner’s project. Lot owners should seek to have an attorney help them negotiate the written agreement, because the risk of the project not going well outweighs the cost of having the attorney’s help. For purchasers of custom homes, a delay or cost overrun can put incredible strain on the family’s life or the business plan for selling the property. Professional negotiation of the written agreement can help the owner avoid a situation where payment obligations are mounting while the terms of the agreement don’t help resolve various disputes over timing or workmanship.
Subcontractors working on commercial or multifamily projects should carefully consider how to handle delay any acceleration issues when they arise. By timely, written response to the general contractor, the subcontractor can protect itself from future attempts to chargeback for delays that may not be the subcontractor’s fault. The general contractor will be familiar with those portions of its standard subcontractor forms that seem to shift the burden of delays onto the subcontractor. However, courts will likely look at such clauses with skepticism in situations where a delay arose due to no fault of the subcontractor and the subcontractor promptly raised the issue with the general contractor with a request for additional time and money.
Selected Judicial Opinions:
McDevitt & Street Co. v. Marriott Corp., 713 F. Supp. 906 (E.D. Va. 1989) affirmed & reversed in part McDevitt & Street Co. v. Marriott Corp., 911 F.2d 723 (4th Cir. 1990)
Marriott Corp. v. Dasta Const. Co., 26 F. 3d 1057 (11th Cir. 1994)
Shen Valley Masonry, v. S.P. Cahill & Assoc., Inc., 57 Va. Cir. 189 (Charlottesville 2001)
SNC-Lavalin Am., Inc. v. Alliant Techsystems, Inc., 858 F. Supp. 2d 620 (W.D. Va. 2012)
January 29, 2021
Can Construction Contracts Require Arbitration Outside of Virginia?
To be useful, contract rights need a reasonably convenient remedy. What is convenient to one party may not be convenient to the other. When parties include an arbitration clause in a contract, such proceedings will have to occur in a “place” such as a lawyer’s conference room, a hotel room or nowadays, perhaps a zoom videoconference. In some construction cases, the builder, owner and property are all in the same state. In others, the contractor and owner, or the subcontractor may be based in different places. No one wants to be forced to litigate or arbitrate far from their home base. Contractors frequently put language in arbitration clauses that designate a mandatory state, city or county where any arbitration proceedings must take place. This can be confusing, because one would naturally expect any dispute over a specific property to take place in the city or county where that property is located. However, federal law includes a public policy in favor of arbitration and the freedom of parties to make agreements in arbitration clauses. However, in Virginia and other states, there are statutes which try to prevent out of state parties from requiring that arbitration be conducted outside the state for construction work done in state. Va. Code § 8.01-262.1 provides that,
The forum for any arbitration proceedings required in such a contract . . . , shall be in this Commonwealth. If the contract provides for arbitration proceedings outside the Commonwealth, such provision is unenforceable and arbitration proceedings shall be in the county or city where the work is to be performed, unless the parties agree to conduct the proceedings elsewhere within the Commonwealth.
How does one reconcile this statute with federal law that tries to honor the language of arbitration agreements? In 1998, the U.S. District Court for the Western District of Virginia considered this question, with Senior Judge Jackson L. Kiser publishing a decision. Gray Company was a general contractor on a project to be performed in Halifax County, located in southern Virginia. Gray brought M.C. Construction Corporation on to this project by two subcontracts. MC sued Gray in Virginia courts. Gray removed the case to the federal district court and sought to force MC to arbitrate the claims in Kentucky (Gray was a Kentucky corporation) pursuant to Kentucky law. The arbitration agreements in the subcontracts authorized Gray (not MC) to decide between Halifax County or Lexington, Kentucky as the forum for any arbitration proceedings. Unsurprisingly, Gray chose Kentucky. MC argued that Va. Code § 8.01-262.1 made the forum selection clause unenforceable. Gray said that the Federal Arbitration Act preempted Virginia’s arbitration forum statute, pursuant to the Supremacy Clause of the U.S. Constitution. The FAA applies to proceedings to enforce arbitration provision of contracts affecting interstate commerce. The U.S. Supreme Court, in numerous decisions, ruled that in enacting the FAA, Congress intended to foreclose or preempt state statutes that would work to undercut the enforceability of the language of arbitration agreements. A contract may be otherwise governed by state law, except for the arbitration clause to which the parties look to federal law. Does it make sense for general wording in the FAA to preempt attempts by states from enacting consumer protection or “home-town” legislation with the idea of promoting procedural fairness in the arbitration context? This is generally the policy of the federal courts. However, the effect of the FAA is to give precedence to the language of the arbitration agreement made by the parties. Each arbitration agreement is construed according to its own terms. Upon efforts by parties to have courts compel or deny arbitration of claims, the FAA requires the court to, “make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.” Judge Kiser found that the Virginia statute preempted by the FAA, to the extent that the agreement required arbitration elsewhere. I am not aware of any Supreme Court of Virginia or Fourth Circuit Court of Appeals agreeing or confirming this with regard to that state statute. Any party to a construction contract with a forum selection clause where a legal claim needs to be brought or defendant ought to seek the assistance of an attorney to determine whether or not such a clause is enforceable, because the language and circumstances may be different from those in the MC vs. Gray case.
Many newer HOAs and condominiums have arbitration agreements in their covenants that may apply to some or all disputes arising out of the dealings between the lot owners, developers and/or boards. I have never seen a HOA arbitration clause that required the parties to arbitrate outside of the state where the subdivision was. However, usually the FAA applies to association arbitration agreements. I can imagine a HOA related dispute over the arbitration forum arising in the community association context where the association is in a rural area and the developer or management company are based in a nearby city. Board members don’t want to travel for arbitration hearings any more than owners do.
The MC v. Gray decision came out in 1998, when videoconferences were relatively uncommon and usually only conducted by large companies with significant budgets for such technology. Even before the Coronavirus, it was common for arbitrators to hear motions by teleconference or on briefs submitted by email. Now, in 2021, most Americans have Zoom, FaceTime or some other videoconference app on the laptop or smartphone. Since 2020, internet videoconference has mostly replaced the traditional in person meeting. Many courts are conducting hearings and trials through videoconference. Many HOAs hold their meetings on Zoom or GoToMeeting. Mediations and arbitrations are also now conducted through internet videoconference in light of the coronavirus pandemic. Most arbitration agreements do not mention videoconference as a requirement or option for arbitration, however groups such as the American Arbitration Association are trying to promote that, because it means that more arbitration can move forward. The option of videoconference or teleconference for arbitration ought to be explored or considered when looking at the prospect of arbitration or in negotiating a contract with an arbitration clause.
Arbitration is not necessarily a bad thing, particularly in larger cases where cost and time savings may be had. Because of the greater flexibility of arbitration procedures and the pandemic related backlogs in the courts, arbitration may get a result faster. However, when an arbitration agreement is being negotiated or disputed it is necessary to have an attorney familiar with this area of the law review the language with the client so that decisions can be made on more than an assumption as to what is enforceable. There are no appellate court precedents (yet) specifically interpreting Virginia’s construction arbitration forum statute.
Legal Authority:
M.C. Construction Corp. v. Gray Co., 17 F. Supp. 2d 541 (W.D. Va. 1998)
April 10, 2019
How to Fire a Contractor
Property owners often have bad experiences with contractors and desire to end the relationship. In such instances, knowing just how to fire a contractor is important. An owner “invests” in the contractor by signing a written agreement, paying substantial amounts of money, and allowing demolition and construction to begin. At this time, the owner is vulnerable, and the true character and competence of the contractor, or lack thereof, becomes evident. If the contractor is good, the work continues diligently. There are many great contractors out there; this blog post isn’t about them. If the contractor is bad, the owner may see signs of a lack of commitment to the owner and supervision of the work, such as piles of dirt or trash, apparent workmanship defects or unapproved changes, communication problems and disputes over payment. After this happens, it’s all too common for the relationship to deteriorate. Sometimes the owner is to blame, in part. Many owners experiencing a breakdown in the relationship wonder if they should cut ties with the contractor or continue to make payments in the hope that the situation will improve. Be aware that unless the owner is the government, getting out of a contract may not be easy. Firing a contractor is more akin to getting a divorce than letting an employee go. An owner wanting to know how to fire a contractor will likely need an attorney and expert witness.
We all experience contracts daily, when we purchase retail goods, sign up for an online service, or summon an Uber driver. Contracts are like the air we breathe – something that happens without much ceremony: part of day-to-day living in a post-agrarian society. Many “contracts” are easily undone or abandoned without large consequences. A defective microwave oven may be returned with a swipe of a card. If they miss stains, dry cleaners will usually re-do garments for no extra charge. Signed builder contracts are not so easy to avoid. Part of this is practical or logistical. The contractor pulls permits, the county approves the owner’s drawings, subcontractors demolish existing structures, and the owner makes significant payments. The parties are usually bound by a written agreement. This agreement determines many issues during the course of the relationship, including how easily either party may get out of the deal.
Property owners want contractors who have the character, capability and competency to do the work properly without undue delay, for the agreed upon price. It is easier to choose the right contractor for the job before anything else happens than to try to make big changes in the middle of a project. For many owners, such preparation is easier said than done.
This blog post focuses on the rights and responsibilities of owners considering whether to unilaterally end their relationship with a contractor before the work is complete. The details may come as a surprise to anyone accustomed to having businesses bend over backwards to keep them as patrons.
- Any Contract May be Terminated by Mutual Agreement. Ordinarily, a contract may only be undone by agreement of all the parties. Many legal disputes may be avoided if the contractor and the property owner mutually agree to terms cancelling the agreement.
- Many Written Agreements Include Termination Provisions. There may be language in the contract that spells out how a party may terminate the contract for breach and which actions do not constitute a breach. Many agreements contain language limiting the ability of owners to terminate a construction contract unilaterally. For example, the owner may be required to give notice of the perceived defect, triggering a lengthy opportunity for the builder to cure. Experienced builders have been through this before. They know that it is in their interest to secure owners’ payment obligations and to restrict termination by the owner. If the termination clause is ambiguous, the court may resolve ambiguity contrary to the interests of the contractor who prepared it. Many sophisticated property owners retain an attorney to review the ten- to thirty-page contract before responding to the contractor. Professional assistance with the contract is imperative when the price is six or seven figures.
- It’s Called “Contracting” Because Parties Get a Contract: Many owners sign builders’ proposals under a false sense of security. The owner might get the results that they bargained for. Or they may simply bind themselves to papers. Generally, a contract is only as good as the character, competence and solvency of the contractor. If a contractor violates the regulations of the state licensing board, he may be fined or suspended. That proceeding won’t fix the defects in the work on the owners’ property, but it may interfere with that contractor’s ability to later pay a money judgment awarded by an arbitrator or court. Many states require contractors to pay into a fund or purchase a bond to provide some protections. For example, the Commonwealth of Virginia has a fund that can pay up to $20,000.00 for predatory practices with contracting. However, claims to this fund usually require the owner to first get a money judgment for fraud or misrepresentation. There are other technicalities that the board requires that may be used to deny a claim. Egregious problems usually exceed $20,000. To litigate a case to judgment may cost over $20,000.00 in attorney’s fees, let alone the damages for repairs. Many claims by owners against contractors aren’t covered by insurance. Many contractors organize as small limited liability companies or mom and pop corporations that don’t have many assets. The law obligates a contractor to maintain sufficient financial resources to keep the promises made in the contract. If the contractor is unable to perform the contract due to illiquidity, this may be grounds to terminate. This is of little consolation to an owner prejudiced by the impecuniousness of the contractor. Mistaken views of how regulatory safeguards work impairs owners’ ability to properly assess risks presented by various opportunities.
- Misrepresentation or Concealment. If one party commits fraud or the intentional concealment of facts to induce the other into signing the contract, then the court or arbitrator may “undo” the contract and relieve the parties of its terms. Even if a contractor blatantly failed to fulfill the contract terms, the building codes or professional regulations, it may not constitute fraud. Fraud is difficult to prove. The facts of the case may look like deceit to one person, and simple incompetence to another.
- Unilateral Right of Termination for Material Breach of Contract. When the contract does not outline terms for termination for breach, the law of contracts provides an answer. Sometimes, a contractor’s breach of the contract justifies the owner’s decision to terminate the contract. Whether a contractor’s breach is significant enough to justify termination presents an issue of fact to be proven later by the owner. Submitting a termination letter to a contractor with the sounds of construction work in the background is a drastic move. If the owner’s termination is unjustified, the contractor may have a claim for money damages or lost profits. The owner and the contactor should make a diligent effort to resolve any disputes amicably to avoid litigation. Even if the contractor materially breaches the contract, the contractor may eliminate the right to terminate by curing the breach. A material breach is one that “goes to the root of the contract” and defeats the contract’s essential purposes. For example, a breach by a contractor may be of great annoyance to the owner and require considerable cost to correct and still not be “material breach”. A material breach is so great that the work actually provided could be counted as nothing. One example is when the contractor causes a defect to the structural integrity of the building, eliminating all value of work done. The burden to obtain a money judgment for breach of a contract is significantly easier.
- Abandonment of the Job by the Contractor. Repudiation is a kind of, “material breach”. Sometimes, the contractor’s abandonment is obvious. He convinces the owner to pay the full price in advance (“Help me keep things going”), and then slowly winds down work on the project, removes his equipment, and stops responding to calls and emails. Or the contractor may directly refuse to do more work. Often, abandonment is less clear. Experienced contractors, even the unscrupulous kind, know that blatant abandonment gives the owner a clearer claim of repudiation. When contractors “ghost” a jobsite, it’s often in slow motion (with promises that the crews will be back soon) or by picking fights with the owner seeking any pretext to stop work.
- Owner Interference. Contractors frequently complain that owners interfere with their performance. For example, an owner might pressure a subcontractor to do something contrary to the general contractor’s instruction. There is a human tendency to try to hold things “hostage” to get demands met in a dispute. For example, upset owners may bar the contractor from the jobsite. Or, the contractor may try to misuse the “right to cure” in efforts to achieve milestones for additional progress payments. Such efforts may backfire if it appears in litigation that one side prevented the other from performing or mitigating damages.
A property owner with ongoing construction problems wants to know how to fire a contractor if necessary. In many cases, this is the best move for the owner because of the severity of the situation. It’s not impossible, but it will most likely test the owner’s patience, like going through any other “divorce.” The best way to avoid these problems is to make smart choices in “dating” a contractor before signing a high-priced deal, by asking good questions during meetings, checking out the contractor’s background and work history, and retaining other consultants as necessary to help with negotiating the agreement and inspecting the work. Because practical considerations make owners often vulnerable in such matters, and contractors highly motivated to make sales, it is usually not the owner’s fault for finding herself bound to a contract with the wrong builder and out lots of money with a half-finished project. In such situations, owners need legal, financial and technical advice to chart a pathway out of the mess in order to avoid potentially materially breaching the contract themselves or giving the contractor carte-blanche to make things worse.
photo credit: WSDOT A glimpse into the waterfront’s future via photopin (license) This photograph is provided to depict a construction site. The author of this post has no evidence of any defects on the depicted job site and contracting company
March 27, 2019
Rain, Rain, Go Away: Drainage Problems in the HOA
Drainage disputes among adjoining property owners are common anywhere developers subdivide and build on land. Raw land’s natural grading channels surface water into streams and rivers. Development plans frequently ignore potential drainage problems and construction disturbs drainage patterns, often causing water to divert or accumulate. When buildings and hardscapes replace trees and grass, soil cannot absorb water. Instead, the grading of the road, sidewalk, eaves or gutters channel water. All rainwater has to go somewhere. Unless a house or other building is on the top of a hill, a property owner may suffer from surface water diverted from adjoining parcels.
State common law governs the rights and responsibilities of adjoining property owners regarding surface water diversion. In residential neighborhoods, HOA roads, greenspace and other common areas encompass owners’ lots. Many lots lie at lower elevations from neighbors or common areas. Even if a developer constructs the subdivision according to an acceptable drainage design, all it takes is one neighbor or HOA board that improperly maintains or modifies drainage features to cause nuisances at lower-lying homes.
In Virginia and elsewhere, adjoining property owners are not strictly liable for damage or interference caused by changes they make to drainage conditions on their own property. Courts apply a reasonableness standard, but the burden is on the aggrieved neighbor to prove that the diversion of water is improper. The Supreme Court of Virginia’s judicial precedents provide guidance as to whether damaging changes to grading conditions on an adjoining property subject that owner to liability.
One leading Virginia case is Kurpiel v. Hicks. In 2011, Patricia and George Kurpiel of Stafford County sued their adjoining neighbors, Tammy and Andrew Hicks. The Kurpiels alleged that the Hicks stripped their land of vegetation, changed the elevation of their land, brought in additional fill dirt and caused stormwater, sediment and siltation to flow onto the Kurpiel lot. The Kurpiels sued the Hicks for trespass, requesting the Circuit Court to enter an injunction against the flooding.
Under Virginia’s common law, the courts view surface water as a “common enemy.” By general rule, owners may “fight off” surface water by construction or changing drainage conditions to their own property, even if this discharges additional water onto an adjoining parcel. This recognizes the higher landowners’ freedom to make changes to their land, within reason. The focus of this blog post are the exceptions to the common enemy doctrine, and how such exceptions may be tools to adjoining owners.
Unreasonableness:
The “common enemy” doctrine’s main exception provides that diversion of surface waters may not be done wantonly, unnecessarily, or carelessly, must not injure the rights of another, and must be a reasonable use of the land exercised in good faith. Whether any exception applies will depend upon each case’s unique facts. Many cases require the testimony of an engineer or another expert to professionally evaluate the sufficiency of drainage. Because the exception to the “common enemy” doctrine is fact specific, the reasonableness of the adjoining owner’s changes present a factual question to be decided at trial.
To sue an adjoining owner for flooding, the aggrieved party must choose one or more claims or “causes of action.” The “common enemy” doctrine applies regardless to whether the lawsuit is for trespass, nuisance or negligence. The adjoining owner may also be able to sue for violation of restrictive covenants recorded in the land records. The Kurpiels only sued for trespass, which provides that every owner is entitled to the exclusive and peaceful enjoyment of their own land, and redress if such enjoyment shall be wrongfully interrupted by another.
The Circuit Court of Stafford County dismissed the Kurpiels’ lawsuit on the grounds that it failed to allege sufficient facts to establish the “reasonableness” exception. The Supreme Court of Virginia reversed the decision, finding that the Circuit Court improperly short circuited the case, finding reasonableness of surface water diversion to be a factual issue for trial.
No Artificial Channels:
“Unreasonableness” is not the only exception available to flooded neighbors. The Supreme Court of Virginia held in other cases that a landowner cannot collect water into an artificial channel or volume and pour it upon the land of another to his injury. As one example, an owner cannot drain surface water into a ditch or pipe and aim that artificial channel onto an adjoining property.
Eaves of Buildings:
Sometimes disputed stormwater is from the eaves or gutters of a building. The water that drips from the eaves or downspouts of a building is not treated as “surface water” per the “common enemy” doctrine. Stormwater from a roof or downspout is another exception. There is no natural right of drainage from the roof of a building. This is consistent with the other exception, because gutters and downspouts are “artificial channels.”
Disturbing Existing Watercourses:
An additional exception is where the flow of water is in a defined channel or watercourse. In that instance, a landowner may not injure another by interfering with its natural flow.
HOA Covenants:
The afore described rule and exceptions define the obligations that adjoining property owners have to one another that arise where there are no covenants of record regarding nuisances and drainage. Most residential subdivisions have restrictive covenants, and many establish HOAs. Those covenants may include provisions regarding nuisances or other restrictions on how an owner may divert water. Those covenants will define the HOA’s rights and obligations to maintain common areas and rights of way. Some covenants contain provisions inserted in attempts to limit the liability of the homeowners association for property damage from stormwater problems. If the flooding comes from an adjoining lot or an HOA common area or road, the aggrieved lot owner needs copies of the declaration of covenants and any amendments to determine how they may add or subtract from the adjoining owners’ rights and responsibilities in dealing with the “common enemy.”
Courts do not apply local government-type legal standards in evaluating HOA actions. Also, courts do not interpret restrictive covenants encumbering real estate according to the general rules regarding garden-variety contracts. There are a few basic principles to consider when interpreting HOA covenants:
- Courts treat HOA covenants like “contracts” to which each party owning land in the subdivision are party, including the lot owners, the HOA, possibly the declarant and/or holders of easement rights such as utility companies.
- Courts interpret covenants according to conditions existing at the time the developer recorded the document. HOAs or lot owners commonly change grading and drainage on their lots to fend off the accumulation of rainwater in the cheapest means possible.
- The courts treat interpretation of what HOA covenants mean as “matters of law” discernable on motion or appeal without taking evidence. Applying them to disputable facts requires evidence at trial.
- The courts interpret covenants “as a whole,” resisting the tendencies of trial lawyers to quote language out-of-context.
- The courts enforce restrictive covenants where the intentions are clear and the restrictions are reasonable.
- While ambiguous covenants may be a challenge to enforce, courts may find that a party has a right that may not be explicit but is plainly implied by the language.
- Covenants are construed strictly against persons seeking to enforce them, and substantial doubt or ambiguity is resolved in favor of free use and against restrictions.
HOA directors frequently misunderstand their rights and duties. Many falsely believe that once the members elect the board of directors, they enjoy unfettered exercise of business judgment. Some believe that a lot owner can’t challenge decisions outside of the next election. Many HOA boards believe that when they award a contract to maintain or renovate a road or drainage system to the lowest bidder, lot owners can’t complain. This is not true. The HOA must fulfill the requirements imposed upon it by the declaration. The HOA, as a fiduciary, cannot show favoritism towards certain owners over others, and divert flooding away from one lot onto another lot. The HOA is liable in contract for failure to fulfill obligations clearly established by the declaration.
Under Virginia law, the fundamental purpose of a property owners association is to collect assessments from lot owners and spend those receivables on maintaining the common areas, such as roads, greenspace and drainage improvements. The Supreme Court of Virginia has held that if the declaration fails to require this, the governing body established by the covenants may not qualify for the various remedies and powers established by the Property Owners Association Act. This rule is consistent with federal law requiring community or public purpose for the spending of HOA assessments to preserve tax exempt status. It is often difficult for a HOA board evade its duties to maintain the common areas it owns.
If an HOA or adjoining neighbor makes changes to their property that causes a flood, the damaged landowner has rights. When the stormwater diversion is harmful, usually there is at least one legal theory by which the adjoining owner or HOA may be held accountable. Flooding of houses, yards and driveways is a nuisance that no landowner should have to live with.
Selected Legal Authorities:
Kurpiel v. Hicks, 284 Va. 347 (2012)(rule of reasonableness)
Third Buckingham Community, Inc. v. Anderson, 178 Va. 478 (1941)(channels)
Noltemeier v. Higginbotham, 32 Va. Cir. 388 (Spotsylvania Co. 1994)
Raleigh C. Minor, The Law of Real Property (1908)
Scott v. Walker, 274 Va. 209 (2007)(how to read covenants)
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July 5, 2017
To Whom Should Owners Turn with Contractor Complaints?
Property owners are frustrated when their builder fails to properly complete the agreed upon work for the purchase price. Sometimes these difficulties are relatively minor. Perhaps only a timely warranty claim letter to the builder will get the problems fixed. Not all disputes can be resolved amicably. For relatively simple matters, the owner may be able to sue pro se in small claims court. Many construction disputes require greater commitment of time, know-how and resources to resolve. When the relationship between the contractor and the owner breaks down, it may not be clear to whom should owners turn with contractor complaints. This blog post highlights various options owners may have for obtaining assistance with builder problems.
The Contracting Company’s Leadership:
Owners should first seek to amicably resolve disputes over a contractor’s performance with the company’s representatives. If the concerns can be effectively communicated and negotiated, the owner may avoid having to go to court, arbitrator or governmental agency. Sending a certified letter to the contractor may be necessary under the provisions of a statutory or contractual warranty. Check out my previous post about “Construction Defect Warranty Claims.” Communication can be a useful means of obtaining information. The owner may need to contact the leadership if their inquiries to company employees are ignored.
City or County Government Officials:
In Virginia, the city or county has the legal mandate to enforce the statewide building codes. There are offices staffed with experienced officials who conduct inspections and reviews to determine whether the project meets the building codes. The primary purpose of building code enforcement is to protect public health and safety. The code enforcement process begins long before anyone brings a complaint before the local government. Many projects, especially major renovations and new home construction require drawings to be submitted and a permit granted before work may commence. When presented with a complaint, code enforcement will look at the work on the property and consult the approved drawings and the building codes.
While compliance with the building codes is important, it is not the end of the story. If the contractor only builds to the minimum standard required to pass county inspections, the owner may be disappointed. The concept of a “dream home” includes code compliance, but goes significantly beyond that. Owners have rights not simply to a product that passes code inspection but work that conforms to the contract, warranty and drawings. There are quality control issues that aren’t addressed in most contracts, drawings or building codes. Take caution regarding contractors who talk about “dream homes” before the contract is signed and then only in terms of “code compliance” after getting several payments.
It is important for owners to understand what code enforcement is not. While the officials promote a public function, they do not exist to provide pro bono expert services. They will not provide cost estimates to finish or repair the work. Their job is not to make sure that the owners get what they bargained for in the contract with the builder. In some situations, they may enforce the building code against the owner. If the project is shut down because of code enforcement action, this may cause delays and additional expenses to the owner.
In general, the code enforcement offices do a great job within their specific legal mandate of enforcing the building codes. However, owners must understand that the county or city does not have the broad powers of a court to provide remedies and protections.
If a contractor or owner does not agree with a decision made by code enforcement, there is an appeal process available. However, appeals are rare because of the expenses and delays.
State Board of Contractors:
Contractors must be licensed to engage in the construction services they deliver. The state board performs a useful function in the contracting field. Consumers and the public have good reason to expect the government to protect their health and safety. Also, contractors often take large amounts of money from owners who then expect them to perform on the work. Some people lose motivation once they get the money in their bank account. While we don’t usually categorize contractors as “fiduciaries,” in a sense they are such. The Virginia Board of Contractors deals with the application, issuance and suspension of contractors’ licenses. They also have regulations that can be the basis of a professional disciplinary proceeding if violated. The Contractor’s Recovery Fund provides a means for financial recovery for some consumers in egregious suits where the contractor lacks resources to satisfy a judgment. In a previous post I explored the question, “Should Homeowners Bring Complaints Against Contractors Before Courts or Regulators?” As discussed there in more detail, often there isn’t much benefit to owners to go to the state board until they exhaust remedies elsewhere. However, owners and their attorneys should know what the requirements are for recovery against the state fund so that they can meet those requirements in the lawsuit. The state board will look to the records of the proceedings of the lawsuit in the city or county courts in their investigation. Also, the failure to pay a court judgment is a violation of the licensure regulations. For many aggrieved owners, petitioning the state board only makes sense towards the end of the legal process.
Law Enforcement:
In particularly egregious cases of fraud, embezzlement or other wrongful activities, the contractor may have criminal liability. In most cases, inquiring with law enforcement will not result in charges or restitution order. However, owners should not rule out going to law enforcement entirely. Some cases do rise above civil disputes.
Arbitration Services:
As the years go by, more builders put arbitration clauses in their consumer contracts. In many cases, these arbitration clauses do not help owners. Often, they tend to limit or practically eliminate the consumer’s rights to legal remedies. It can be difficult for owners to navigate the arbitration process without legal counsel because of certain delaying tactics that often occur in arbitration. I recently wrote a blog post about a New Jersey case where a consumer overcame obstructionist use of arbitration provisions. Many property owners do not focus on these provisions when they review the contract during the sales process. When a legal dispute develops, the parties should check the dispute resolution provisions of the contract to see if they mandate arbitration, waive the right to a jury trial or limit the courts where claims may be brought.
Judges & Juries:
Last but not least, owners can bring their complaints against builders before state or federal courts. Under our legal system, the judiciary, i.e. judges, have the legal mandate to interpret contracts and statutes and provide remedies for any breach. In Virginia, if the claim is for $5,000.00 or less it may be brought in the Small Claims Division where the parties do not ordinarily have attorneys. However, any party may bring a case out of small claims by retaining an attorney and filing for removal. Claims for money for $25,000.00 or less (not including court costs, attorney’s fees or interest) may be brought in the General District Court for the city or county where the property is located. The General District Court has the advantage that proceedings there tend to be faster and cheaper for consumers. Claims over $25,000.00 may be brought in the Circuit Court where cases may take up to a year to be resolved. Litigation in the Circuit Court tends to have lots of motions, discovery and other pretrial activities. Some of my readers say that consumers and owners should not go to litigation because it can be expensive and uncertain. In my view, there are reforms that the general assembly or the judiciary could take to reduce the laboriousness of litigation. I do not believe that creating an alternative to the court system within government agencies procedures works for owners or consumers. I explored this in a previous post on this point. That makes it too easy for special interests to gain control over the process through lobbying.
The Bank:
The bank exercises a significant amount of control over the construction process. The builder typically looks to the bank for payment. The bank will send out its own private inspectors to look at the progress on the job site and report to the loan officer whether completion of a phase of construction warrants disbursement of a draw. The purpose of the bank inspector is to protect against fraud and to confirm that the payment would be adequately secured by the bank’s lien on the property. This inspector works for the bank and does not focus on whether the owner would ultimately be happy with the work that is being done. Owners should not impede the bank inspection process and take heed if the loan officer calls to their attention that the inspector raises any questions.
Mechanic’s Lien Agent:
In Virginia and some other states, the law requires that a Mechanic’s Lien Agent be appointed at the beginning of the project. The purpose of the MLA is to accept delivery of notices by subcontractors and material suppliers that they have not been paid so that such issues can be resolved without a mechanic’s lien being filed by anyone working or supplying to the jobsite. The MLA is not there to provide a dispute resolution service regarding any threatened lien but may be a source of information for owners seeking to confirm what is happening with their contractor and its subs.
Conclusion:
To whom should owners turn with contractor complaints? That depends upon the facts of the case. One of the problems with all these separate venues, officials or information sources is that an owner might focus on one and miss a deadline to obtain the remedy they are entitled to from another. This consumer protection landscape is ripe for confusion by the people it is designed to protect. Ideally, the owner will not need to resort to any of these options and can negotiate a good deal and obtain a great result without having to bring grievances before an official, judge or arbitrator. Many owners experience this. However, owners are at a disadvantage. While they have the money that contractors want, they don’t have the technical or legal experience needed to get what they want out of the process. Contractors have experience preparing and negotiating written contracts and change orders. They know what to say to sell their services. They know the officials that work at the county inspection offices. They have their own lawyers. Consumers look to the builder for both the service itself and information about how to shop for the service. For most property owners, a custom home is the largest purchase they will ever make. Getting an attorney or other experienced person to review the contract before signing it can go a long way towards getting the bargain they seek. Owners should not rely upon their adversary to provide them with useful legal counsel. Seeking legal counsel may not require a commitment to a year of litigation. In fact, it may be the best means of avoiding that.
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May 16, 2017
Breach of Agreement to Purchase Insurance
Many construction contracts contain provisions requiring one or more parties to purchase insurance to cover certain activities or property related to the project. These provisions put an affirmative duty on a party to go out and obtain insurance to protect themselves, the other party in the contract or for against third party claims. Given the potential for expensive property damage claims or even personal injury, it makes sense for the parties to consider insurance provisions. This can be a great way of protecting against the risks of loss and litigation. If there is damage or loss and it is covered by a policy, this “Plan B” works. But what if in the event of loss the party that agreed in the contract to purchase insurance failed to do so? Is there a “Plan C?” Can they sue for breach of agreement to purchase insurance? In Virginia, the courts often deem the party who failed to fulfill their obligations to purchase insurance responsible for the loss. This seems obvious, but in cases where the opponent also breached the contract, it may not be clear how to sort out the liabilities. Whether an owner, contractor or subcontractor is what lawyers and judges call a “constructive insurer” by failure to buy insurance turns on the specific language in the agreement.
The leading Supreme Court of Virginia case on this is the 1983 decision, Walker v. Vanderpool. Roland and Elizabeth Walker owned a home in Virginia, southwest of Richmond. In 1977, they retained Vanderpool Heating & Air Conditioning Service for purchase and installation of an oil-burning furnace for $2,305. The contract said, “All work to be completed in a workmanlike manner according to standard practices.” The terms also required the Walkers to acquire and maintain fire insurance on the house. After completion, the furnace caught fire and the house burned. The Walkers had not purchased fire insurance. The Walkers alleged that their home burned because Vanderpool negligently connected the new oil furnace to a “non-existent chimney” and then turned it on. The Walkers sued Vanderpool for $45,000.00 in damages.
Vanderpool argued that if a person enters into an agreement to obtain insurance and neglects to fulfil this obligation, that person becomes the insurer and is potentially liable as such to the other party to the contract. The Walkers responded that the insurance provisions do not properly work to protect Vanderpool from liability for their own negligence.
The Supreme Court of Virginia took a “freedom of contract” approach on this case, observing that the Walkers were free to reject the Vanderpool contract unless the insurance provision was removed or modified. The Court agreed with Vanderpool that by their failure to procure the insurance, the Walkers became self-insured on this risk, and could not come after Vanderpool.
It’s easy to see how these parties looked at the contract and saw in it what they wanted. Vanderpool liked the insurance provisions, and the Walkers liked the scope and standard of workmanship provisions. In general, courts will try to harmonize different provisions in a contract so that no sections are effectively removed or rewritten in the judge’s decision.
Owners and contractors often do not focus on the insurance provisions in a contract until after something unfortunate happens. It pays to understand any contract before signing it.
Sometimes a party who fails to purchase required insurance for a project has no means to pay on a claim. A contractor may have no assets except a few pieces of equipment. An owner may have spent all of their extra cash on the project. It is important to obtain certificates of insurance to confirm that there is coverage in place.
These insurance provisions are found in a variety of other real estate related agreements, such as lease agreements, condominium or HOA covenants or mortgage documents. Newer HOA and condominium covenants seek to shift risks off the board and onto individual owners in sections dealing with liability, indemnification and insurance. Sometimes state statutes will impose insurance requirements. For example, in the District of Columbia, the Condominium Act requires owners and the association to purchase insurance. To understand insurance obligations for an owner in a HOA or condominium, it is necessary to also check what statutes, if any may apply should a dispute arise. Owners and contractors usually need the assistance of a qualified attorney to answer questions raised by mumbo jumbo in real estate and construction documents. Individual persons can often protect themselves by purchasing insurance. Being fully insured can save property owners from potential costs, including repairs and related attorney’s fees.
Case Citation:
Walker v. Vanderpool, 225 Va. 266 (1983)
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