July 5, 2017
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.
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.
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 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.
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.
March 15, 2017
Property owners frequently have complaints about construction contractors. Some of these complaints involve thousands of dollars in damage or serious infringement upon the use or value of property. These property owners (and their attorneys) want to know who to turn to. Should homeowners bring complaints against contractors before courts or regulators? This question raises issues about how the government ought to enforce its laws and resolve disputes. There is a perspective that regulatory boards ought to be a welcome forum for owners threatened or damaged by alleged contractor misconduct. In this blog post I will explain why I believe that, for all its imperfections, the judicial system is the best venue for vindication of legal rights in consumer disputes.
In 2015, the Court of Appeals of Virginia decided an illustrative case arising out of a complaint of a home purchaser about the seller’s contractor. Around 2002, Mark Holmes purchased an Alexandria, Virginia home, including an addition constructed by Culver Design Build, Inc. Mr. Holmes was unhappy about defective construction of the addition. He went to the city government, whom the General Assembly tasked with enforcing the building code in his locality. The City Code Administration found extensive water damage caused by construction defects and issued a Notice of Violation to Culver. Holmes was not satisfied with Culver regarding corrective work, so he filed a complaint with the Virginia State Board of Contractors. Holmes asked the Board to suspend Culver’s license until it corrected the violation. Culver Design Build, Inc. argued that Holmes did not have legal standing to seek judicial review of the Board’s ruling because this was a license disciplinary proceeding. The Holmes case also includes issues about how deferential the courts should be to a licensing agency’s administrative rulings. This case is unusual in that Mark Holmes represented himself in his appeal to the Court of Appeals of Virginia. Mr. Holmes acknowledged that unlike the seller, he lacked the privity of contract with the contractor which potentially could be used to go to court in breach of contract. The Court of Appeals agreed with Culver and the Board for Contractors.
When homeowners conclude that a state-licensed contractor or tradesperson committed a wrongful act depriving them of their home or damaging its value, it is easy to see why the aggrieved party would want a governmental agency to help them. Most people deal with governmental agencies much more than courthouses or law offices. Lawsuits require significant commitments to pursue or defend. Public resources go to supporting various agencies that have apparent subject-matter authority. This may appear to be a taxpayer-financed legal authority to go after the professional. However, this strategy often does little more than aggravate the licensed professional, the agency officials and the consumer. The Holmes v. Culver case illustrates one key weakness with homeowners pursuing consumer complaints through the professional licensure and disciplinary board process.
When consumers are harmed by unprofessional conduct, usually what they want is to have the defect corrected, an award of money or the transaction voided. These kinds of remedies are conventionally handled in the court system. The professional regulatory boards focus on licensure. They consider whether a business is properly licensed, should the license be suspended or revoked, should fines be assessed, and so on. Prominent members of the industry typically dominate these boards. For example, licensed contractors sit on the Board for Contractors. Initiating a professional licensure proceeding is a clumsy means of advancing the specific interests of the consumer having a transactional relationship with the business. It is the judiciary that can grant money damages or other remedies arising out of the formation and any breach of the contract. Regulators focus on whether disciplinary action is warranted regarding the registration or licensure of the business. In the Culver Design Build, Inc. case, the Board for Contractors and the Court of Appeals for Virginia agreed that Mark Holmes did not have standing to contest a regulatory decision in favor of the contractor. The board had authority to punish Culver for failing to abate a regulatory violation. However, the board had no authority to order the contractor to take any specific action at the job site. The board did not deny Homes any right or impose upon him any duty in its decision, because its authority revolves around Culver’s licensure. It is the State Building Code Technical Review Board that has the authority to review appeals of local building code enforcement decisions, not the Board of Contractors. One of the appeals judges suggested that if Holmes’ contentions were taken to a logical conclusion, the new buyer of the house could have greater leverage over a contractor than the previous owner, whose remedies may be limited by the contract. In his oral argument, Mark Holmes admitted that trying to resolve his complaints through the Board of Contractors complaint process was, “cumbersome and very long lasting.”
Even if the consumer unhappy with an adverse decision made by a regulatory agency in response to a complaint has standing, her appeal to the courts may encounter other obstacles. The licensure dispute is unlikely to starts afresh on appeal. The courts tend to be receptive to the agency’s interpretation of the legislature’s statutes. In Virginia, courts accord deference to an agency’s reasonable interpretation of its own regulations (as adopted by the board pursuant to the statutes). A consumer’s ability to raise new factual issues may be strictly limited in her attempts to get the courts to overturn the board’s decision. Judicial deference to agency rulemaking is not without controversy. Judge Neil Gorsuch, whom President Trump nominated for the U.S. Supreme Court is a high-profile critic of judicial deference to agencies. In his August 23, 2016 concurrence to a federal appeals decision Gutierrez-Brizuela v. Lynch, Judge Gorsuch explained that concentration of both legislative and judicial power in regulatory agencies creates constitutional problems. The constitution protects the public from authoritarianism by separating the government by the type of power, not the subject-matter. Under the constitution, the legislature prescribes new laws of general applicability. Taken to its logical conclusion, doctrine that courts should defer to agencies’ quasi-judicial determinations of what the statutes mean unconstitutionally undercuts the independence of the judiciary. The constitutional problems identified by Judge Gorsuch are illustrated in the arena of housing industry occupational regulation.
Where does this leave an owner when property rights are infringed by regulated professionals? Should everyone should go back to renting? Certainly not! This is what the independent judiciary is there for. Usually owners have privity of contract with the contractor and do not need to go to an agency. They can sue for remedies for breach of contract or deceptive practices. Consumer advocates with an interest in legislation should focus on increasing access to the court system and not promoting an administrative process that may not be a good fit for the homeowner. If you find yourself needing to bring or defend a construction claim, contact my office or a qualified attorney in your jurisdiction.