Construction Contracts Part 2
This article is second of a 3-part series regarding construction contracts for condos, HOAs and coops, which serves as a follow-up to our live presentation to the Broward County Condominium and Cooperative Association. Please check back frequently to view the final article in the series.
Once your association is under contract with a general contractor, the general contractor will provide the board of directors with a Notice of Commencement that will ultimately be recorded in the public records to preserve the contractor’s rights regarding payment. The Notice of Commencement must be signed by the board’s authorized representative. Some contractors, especially those who are not licensed and insured, can be crafty with the Notice of Commencement, and may ask you to sign an incomplete Notice. This is a red flag and the board should refuse to sign an incomplete Notice of Commencement. A common scheme employed by unlicensed contractors is to present the Notice of Commencement without their name appearing on the document. They leave the area blank until after the Notice is signed by the association, and then write in a different, licensed contractor’s name afterwards. This allows an unlicensed contactor to secure permits and perform work under the name of a licensed contractor, often unbeknownst to the association, city, or county. Be vigilant when signing any Notice of Commencement.
Once the project is underway, it is important for your association to monitor the progress on a periodic basis. For small, relatively quick projects, the contractor should be monitored each day. For large projects, progress should be monitored at least weekly, though 2-3 times per week is recommended. The person or entity engaged by the association to monitor the contractor’s progress should be familiar with the type of working being performed. This could include your community association manager (CAM licensee), a member of the board, a special committee, or consultant such as an engineer.
The larger the scope of your association’s project, the less likely your contractor is to perform all of the work with its own labor or materials. It is extremely common for general contractors to hire specialized subcontractors to perform various portions of the project, which can include plumbing, HVAC, electrical work, painting, carpentry, and masonry, etc. These subcontractors will ordinarily issue a document to the association called a “Notice to Owner” which serves to put the association on notice that the subcontractor is providing labor, materials, or both to the project. It is absolutely critical that the association maintains and keeps track of these Notices to Owner, or the association could end up paying twice for the project. This will be discussed in greater detail in the next installment in this series.
Major projects will generally require that the association make progress payments based upon benchmarks set forth in the original contract. Before making any progress payment, you should confirm with the association’s designated project monitor that all work for that particular segment of the project was completed in a satisfactory manner. You should also demand a partial waiver/lien release from the general contractor. Many contractors are reluctant to issue partial releases even though the law requires them to do so. You may need to involve your association’s counsel, if they are not already involved, to ensure the association is protected.
The Adelson Law Firm represents condominiums, HOAs and cooperatives throughout South Florida and can help you negotiate construction contracts with general contractors and lenders, as well as guide your association through the complex construction process. Call the Adelson Law Firm today at (954) 458-9238 to schedule a consultation.