At What Cost? Navigating the Costly, Tricky Trends in Smaller Construction-Defect Disputes

Megan Ferris and Kristin Tannler | Construction Claims | Winter 2018

There is an ongoing trend in construction-defect litigation where lawsuits or arbitration claims involving contract, payment, or punch-list disputes transform into stubborn, unpredictable, and litigated disputes for which fees and expert costs far exceed the actual issues in dispute. These are not the multi-million-dollar condominium cases with hundreds of units and just as many parties and attorneys, but rather smaller, custom projects for individual homeowners.

The underlying contracts in these matters often contain a prevailing party-fee clause, but little else with respect to key terms.

These matters, because of cost and attorney-fee exposure, rarely go to trial or arbitration, and we don’t have the opportunity to see how courts would rule in such matters if they were given the chance. Recently, the Oregon Court of Appeals issued an opinion in Cedartech, Inc. v. Strader, 293 Or App 252 (2018) that touches on all of these themes.

Defendant Strader owned a historic home with a cedar-shingle roof. Strader contracted with Cedartech to perform certain work on her roof. That work included cleaning and treating the roof. Sometime after the written contract, Strader requested that Cedartech repair two leaks in the roof. However, while attempting to perform those repairs, Strader refused to allow Cedartech to enter the home to investigate the cause and source of the leaks.

The matter proceeded to judgment by way of bench trial. The trial court found in favor of Cedartech, the contractor, for $7,045 (less $1,200 in offset in favor of Strader). The Court of Appeals affirmed the general judgment in favor of Cedartech, finding that Cedartech had substantially performed under the contract.

Even though the Court of Appeals affirmed the general judgment in favor of Cedartech, it remains to be seen if Cedartech will recover substantial prevailing party fees. The trial court denied Cedartech’s petition for $80,829.50 in attorney fees. The trial court held that no factor supported awarding attorney fees and denied Cedartech’s petition in its entirety. The Court of Appeals remanded the attorney-fee issue back to the trial court, which is still pending.

Cedartech does not establish any new significant points of law to guide our practice, but it does inform us that the courts may be willing to enforce contract terms against homeowners and in favor of contractors. Cedartech also serves as a cautionary tale on the attorney-fee issue, which is often the tail that wags the dog in these contractors-versus-homeowner disputes.

These “small” disputes between the contractor and homeowner often land on our desks after the notice of defect period has elapsed, the homeowner has already incurred attorney fees to get the claim to suit, and the contractor has a breach of contract claim for non-payment. On top of that, the dispute has morphed into allegations of over-charging or bad work against the contractor.

Cedartech is a good reminder that the contractor is sometimes right, however obstacles often block the path to a favorable ruling. In addition, there is an ever-mounting fee petition on both sides. As we continue to litigate these contract disputes disguised as construction-defect claims, we should be mindful of the following issues:

  • The potential for a myriad of coverage issues to be addressed when reporting, including how to tiptoe around issues such as an unfinished project, allegedly fraudulent accounting, and often a lack of property damage (in the conventional sense).
  • Emotional investment of the contractor in the job gone wrong, which often implicates matters of pride, workmanship, and a separate worry that there will not be sufficient coverage.
  • Emotional plaintiffs and punitive litigation tactics that are aimed more at punishing the contractor than negotiating a resolution.
  • The decision on whether to file third-party claims against subcontractors whose worst offense is that they were not permitted to finish their work. Bringing the third-party claims increases the breadth and scope of issues and adds a whole new layer of expense, but it also may help raise settlement funds to increase the chance of a mediated resolution. These subcontractors may have their own coverage concerns and claims for non-payment to add to the mix.

In undertaking triage and mapping out the initial strategy, the contractor’s counsel may consider these tactics:

  • A frank discussion with the contractor client about how to approach a non-payment claim and the likelihood of recovery. This is often where personal counsel may be of aid in either aggressively pursuing a counterclaim or assisting the contractor client in making the decision to forego recovery in exchange resolution of the claim.
  • Attempt to outline items that require remediation versus a part of the job that simply has to be finished and arguably is not the basis of a defect claim against the original contractor.
  • Develop contractual arguments in the contractor’s favor. Did the homeowner wrongfully terminate? Did the homeowner improperly withhold payment? What was the homeowner’s role in contributing to project delays?
  • Engage an expert on behalf of the contractor to immediately document the job-site condition, preferably before remediation or repairs have commenced. Even if repairs have begun or have been completed, a consultant will be able to assist in evaluating reasonableness of cost of repairs and assist in sorting out repair costs from costs to finish.
  • Early evaluation if the case requires deposition discovery before attempting ADR. In some cases, even though we all appreciate the need to keep attorney-fee exposure at a minimum, the plaintiff homeowner has to go through a deposition and be forced to appreciate some of its inherent weakness and to educate her own counsel. Further, early discovery assists in identifying facts that can be developed in favor of the contractor client.

Once the initial discovery issues are mapped out and the pressure points are identified, the case can be set on a course for resolution. If resolution is not possible, perhaps certain contract terms can be construed in favor of the contractor, especially where the contractor was improperly terminated before completion of the project or prevented from completing work. If the analysis in Cedartech can be extended to these other instances, then homeowners should be more hesitant to prosecute contract claims where they themselves were in material breach and should be advised that attorney-fee recovery is not always a given.

Floating on Assumption: Navigating Construction Project Float Ownership

Whitney Judson | International Law Office | January 7, 2019


Construction project schedules are oftentimes the source of many disputes between project owners and contractors. These disputes notoriously evolve into the subject of litigation and arbitration claims that assign fault for delayed project completion to one party or another. A party finding itself in such a scheduling dispute involving concurrent delays will need to demonstrate that the delays it caused did not affect the project completion date, while delays caused by the other party did impact the schedule. One way to prove this is to effectively evaluate the float on the project schedule and to make a careful evaluation of the circumstances surrounding each delay, including which party had the right to absorb any available project float. Oftentimes when delays occur and float is available, each party assumes it has a right to absorb the float. There are sensible reasons why one party may assume entitlement to float and subsequent exemption from liability for damages related to its delay. However, mere assumptions about float ownership—as reasonable as they may seem—could lead to unfavorable outcomes.

Project float is defined as “[t]he amount of postponement which a path of activities can experience without delaying the overall project completion.” Titan Pacific Const. Corp. v. U.S., 17 Cl .Ct. 630, 636 (1989). See also MW Builders, Inc. v. United States, 134 Fed. Cl. 469, 478 n.5 (2017) (“The term ‘float’ refers to the amount of time an activity may be delayed before affecting the critical path of the project”). Ownership of float is critical to a concurrent delay analysis and has a strong impact on whether a contractor has a legal right to delay damages or time extension of a project.

Contractor-owned float

Contractors sometimes assume that they should own and control any float on a project schedule. Many construction contracts require the contractor to control means and methods in the most efficient manner, including effectively sequencing work on the project. Having the ability to control project sequencing and coordination assists the contractor in creating the schedule and estimating the completion and float times for all activities. When delays later interrupt the schedule, the contractor may be responsible for using means and methods to efficiently make adjustments so that the project may nonetheless finish on time when possible. The contractor could arguably also use any available project float for schedule recovery.

For this reason, some construction contracts may include clauses granting the contractor float ownership. Such clauses could mean that owner-requested changes to activities that are not on the critical path require the owner to grant an extension to the contract completion date, despite the availability of unused float. If the contractor is contractually granted ownership of float, the contractor may argue that it has the right to use the float however it wishes—including reserving the float as a safety net for any contractor-caused delays, or conserving the float in an effort to complete the project ahead of schedule.

It is not completely safe to assume however, that a contract clause granting the contractor ownership of project float will fully safeguard the contractor from being affected by owner-caused delays. A contractor’s responsibility to control the means and methods of the project likely involves the contractor’s good faith effort to mitigate delays. If the owner causes a delay, the contractor owning float nonetheless may have a duty to adjust the work and schedule to mitigate the effects of that delay. The owner may likely be responsible for any costs related to the adjustment of the work and the mitigation of the delay without use of available float, but the contractor is still affected by an owner’s delay because it may have to work to implement the same scheduling and sequencing adjustments required when the owner simply utilizes available float.

Owner-owned float

Owners sometimes assume that they should own all available project float. After all, the owner is financing the project and owns and takes responsibility for its construction and completion. If a contract specifies that the owner of a project controls the float, the owner may argue that it has the right to direct the contractor to make non-critical changes without being required to grant the contractor an extension of the completion date. The owner may also argue that in certain circumstances, it has the right to use the float to excuse itself for its own delays. If the length of the owner-caused delay does not overrun the project float, it likely will not affect the critical path. In this situation, the owner may not be required to extend the project completion date, despite being responsible for project delays.

A contract clause granting float ownership to a project owner, however, may not shield the owner from the obligation to compensate the contractor for any damages that the owner’s non-critical delays cause. For example, an owner who uses float to make a change to a non-critical activity that requires additional manpower or materials may not be required to extend the contract completion date, but likely will be required to compensate the contractor for any costs associated with implementing the owner’s requested change.

Project-owned float

If the contract does not specify which party owns the float, the float is typically assumed to be owned by the project itself. This means neither the owner nor the contractor has exclusive control over the float. The float is instead consumed by whichever party needs it on a “first come, first served” basis. Here are two examples with different outcomes that illustrate the implications of shared float: A contractor builds a schedule indicating that glass window installation on a project carries 32 days of float before it begins to affect the critical path. The owner, at some point, decides to implement circular windows on the project, rather than keeping the original square-shaped design contemplated in the project schedule. This increases the amount of time needed to install the glass windows on the project. The contractor determines that cutting circular windows takes 29 days longer than cutting squared windows. The owner’s change therefore causes a delay and consumes all but 3 of the 32 days of float available for window installation. This delay is clearly the fault of the owner, but does not require the owner to grant a contract extension because the delay does not affect the critical path of the project, as the owner had a right to use available project float to offset its delay.

Conversely, if the contractor experienced 5-day delay in the staining of the glass for the windows prior tothe owner requesting a change in the shape of the windows, the contractor has the right to use 5 of the 32 days of float, leaving 27 days of float remaining. The owner’s subsequent 29-day circular window change would then overrun the available float and affect the critical path, requiring the completion date to be extended by 2 days. In each example, the first party to use the float is granted priority of ownership. If the other party is responsible for a subsequent, additional delay to the same activity on the schedule, it is only allotted whatever amount of float is remaining. Delays running beyond the remaining float may require a contract extension or delay damages.


Successfully staking claim on project float may excuse a party’s delay in a concurrent delay dispute. This should not be done by reliance on assumptions of float ownership. Rather, the parties should engage experienced counsel to negotiate a contract clause that clearly and unambiguously assigns ownership of project float. Such clauses may not offer unbridled use of non-critical delays to the float-owning party, but they allow the parties greater control over the possibilities of legal outcomes and provide a clear understanding between the parties of how float is to be utilized. If the parties do not specify float ownership, shared float is assumed and the parties then lose the ability to specify how the float is allocated. When the parties share project float, they must take care to expeditiously exercise their right to it, as float is consumed on a first come, first served basis. Simply assuming that the amount of float indicated on a project schedule will be available at any given time could have grave consequences. Speaking with legal counsel experienced in construction law matters, including scheduling and delay issues, is helpful to any party who wishes to proactively address float ownership issues and avoid or limit future liability for delays on a construction project.

“Up On The Roof”

Victor Metsch | Smith Gambrell & Russell LLP | October 18, 2018

When this old world starts getting me down

And people are just too much for me to face

I climb way up to the top of the stairs

And all my cares just drift right into space…[*]

Every aspect of residential cooperative or condominium life sooner or later becomes the subject of disagreement. And disputes as to responsibility for maintaining, and the right to use or build on, the roof are frequent in our Courts. A few recent examples follow:

Hersh v. One Fifth Ave. Apt. Corp., 2018 NY Slip Op 05522, App. Div. 1st Dept. (July 26, 2018)

Supreme Court granted defendant’s motion to dismiss the claim for breach of fiduciary duty and denied plaintiff’s motion to amend the complaint.

The Appellate Division summarized the facts and complaint:

In this case, plaintiff alleges that her apartment sustained extensive water infiltration due, in large part, to the condition of the greenhouse on the roof terrace located on the floor above her. According to plaintiff, the individual owners of the offending greenhouse (defendants Alan Belzer and Susan Martin), the cooperative (defendant One Fifth Avenue Corp.), and the individual board members failed to adequately address and remedy the situation, and their failure to act resulted in catastrophic water damage to plaintiff’s apartment[.]

And affirmed dismissal of the complaint as against the individual cooperative board member:

It is well-settled that a breach of fiduciary duty claim does not lie against individual cooperative board members where there is no allegation of “individual wrongdoing by the members…separate and apart from their collective actions taken on behalf of the” cooperative…Here, the complaint does not allege that any of the individual board members committed an independent wrong that was distinct from the actions taken as a board collectively. Thus, the breach of fiduciary duty claim is not viable. Because the proposed amended complaint fails to cure this deficiency, plaintiff’s motion seeking to amend the complaint was properly denied.

Contrary to plaintiff’s contention, this result is entirely consistent with Fletcher v Dakota, Inc….In Fletcher, we concluded that “although participation in a breach of contract will typically not give rise to individual director liability, the participation of an individual director in a corporation’s tort is sufficient to give rise to individual liability”…Thus, we declined to dismiss claims against a cooperative board director who was alleged to have participated in the cooperative’s violation of the State and City Human Rights Laws.

Here, in contrast, there is no viable corporate tort alleging breach of fiduciary duty, because a corporation owes no fiduciary duty to its shareholders…Thus, in the absence of a corporate tort in which the individual board members could have participated, the breach of fiduciary duty claim as against them was properly dismissed. Indeed, Fletcher made this very point by dismissing the breach of fiduciary duty cause of action against an individual board director, while at the same time sustaining Human Rights Law claims against him.

Fairmont Tenants Corp. v. Braff, 2018 NY Slip Op 04083, App. Div. 1st Dept. (June 7, 2018)

Supreme Court granted Fairmont’s motion for summary judgment, denied Braff’s motion for summary judgment and declared that the cooperative had right, title and interest to the roof adjacent to units 2F and 2G and enjoined Braff from occupying or using that space.

The Appellate Division summarized the dispositive provision of the proprietary lease:

There are no issues of fact requiring a trial. The proprietary lease defines the apartment as “the rooms in the building as partitioned on the date of the execution of this lease designated by the above-stated apartment number, together with their appurtenances and fixtures and any closets, terraces, balconies, roof, or portion thereof outside of said partitioned rooms, which are allocated exclusively to the occupant of the apartment” (emphasis added). This clause is ambiguous because it is unclear from the lease whether the disputed roof area has been exclusively assigned to defendants. As such, the court properly looked to extrinsic evidence, including the offering plan, which is a “controlling document” that gives the proprietary lease meaning…The offering plan makes clear that there is no outdoor space allocated exclusively to defendants’ apartment.

And concluded that:

Supreme Court also properly granted plaintiff summary judgment dismissing defendants’ waiver defense and counterclaim. Paragraph 26 of the lease addresses “facilities outside the apartment,” and under this provision, the Coop has a revocable license to that area…Further, the coop’s knowledge of defendants’ use of the roof space does not raise issues of fact regarding the coop’s waiver of a right under the lease in light of an unambiguous no waiver clause[.]

Supreme Court also properly dismissed defendants’ adverse possession defense and counterclaim. It is undisputed that defendants have permitted workmen on the roof at issue in 2015, and that they have given access to the roof space to building staff from time to time. Accordingly, the court properly found that defendants’ use of the roof space was not “exclusive” for any period of time prior to 2015[.]

Finally, defendants’ continued trespassing on the roof space entitles the coop to injunctive relief as the irreparable injury is the interference with the coop’s property rights[.]

Lee v. Scott, 2018 NY Slip Op 31029(U), Sup. Ct. N.Y. Co. (May 29, 2018)

Supreme Court, entertaining plaintiff’s motion for summary judgment in a roof rights dispute, summarized the background:

In September 1996, sponsor Bennco Properties, Inc….converted a five-story garage into a mixed-use condominium building…pursuant to the Offering Plan. Stefan Benn…was the principal of Bennco. Le Toulouse Condominium is located at 79-81 East 2nd Street, New York, New York. Charles W. Weiss, attorney for the Sponsor, filed the Declaration of Condominium and By-Laws…in December 1996. Article Fourth of the Declaration provided for five total units — four residential units and one commercial unit…The Declaration zoned Unit C-1 for commercial and residential use, and restricted the four remaining units, Units R-1 to R-4, to single family residential use only…Each residential unit occupies one floor of the second through fifth floors of the Condominium.

In February 2004, Bennco transferred ownership of residential Unit R-3 and Unit R-4 to Stefan Benn. In December 2012, Benn transferred ownership of Units R-3 and R-4 to the LGB Family LLC…with Benn as its sole Managing Member. Defendant Charles Weiss, individually, and through Charles W. Weiss, P.C. acted as the building’s attorney from 2007-2012. Weiss helped to draft the 1996 Offering Plan. Plaintiffs Patricia Lee…and Marc Lester…purchased the one commercial unit (“Unit C-1”) in September 2011 from defendant Michael Scott…Lee currently serves as the President of the Board of Managers of the Condominium.

The dispute:

The dispute between the parties concerns the right to use and build on the Condominium’s roof. Plaintiffs allege that the Benn Defendants do not own the Condominium’s roof, and that the Declaration and By-Laws do not grant any rights to construct any material structure on the roof. Plaintiffs argue, instead, that the no unit owner can access the roof for any reason other than for repair and maintenance with Board permission…Plaintiffs also argue that the roof is commercial space, and therefore, only plaintiffs have access and use of the roof…Defendants Benn allege, inter alia, that the March 2010 Third Amendment and the December 2012 Third Amendment read together, grant Unit R-4 extended roof rights, including the right to build a Penthouse apartment, swimming pool, and lawn…In addition, defendants Benn contend that the Declaration always provided that the roof deck is a limited common area for the exclusive use of Unit R-4’s owner[.]

The declaration and by-laws:

Under the Declaration and By-Laws, the roof contains General Common Elements, including a caretaker’s room and bathroom, the former freight elevator tower, and stairwell bulkhead, and a Limited Common Element roof deck…The Offering Plan lists the stairwells, lobby, and a portion of the roof deck (stairway bulkhead and 46 square feet of roof space) as “shared residential common elements.” Schedule C, under the Declaration, lists Unit R-4’s limited common elements as “Balcony, 96 sq. ft.” and Roof Deck “3,084 Sq. Ft.”…However, Schedule C, attached to the 2010 Declaration, lists Unit R-4’s limited common elements as “Balcony, 96 sq. ft.” and Roof Deck “1,852 Sq. Ft”…The footnotes to Schedule A, in the Offering Plan provide that the ‘RD’ notation (for “Roof Deck”) allocates exclusive use of the roof deck to unit R-4…The Offering Plan, Schedule D, also includes architectural drawings for the building where its “Legend” indicates the roof is a residential element and shares the same tax lot identification number (1005) as unit R-4…However, the House Rules delineated in Article IX Subsection 5(j) provides “roof-top areas of the Building shall not be used by any Residential Unit Owners, occupants, guests, servants, employees, agents or invitees, at any time for any purpose, [except] with the consent of the Board of Managers for repair or maintenance purposes only.”

Subsequent developments:

On June 15, 2004, the New York City Department of Buildings…issued a building permit…to Benn (as owner of Unit R-4) for alterations to the roof. Plaintiffs Lee and Lester assert that Benn commissioned two sets of plans. Plaintiff argues that Benn fraudulently submitted fake 2004 plans to the Department of Buildings…to obtain a Permit that only encompassed a renovation of the caretaker’s bedroom, bathroom, and former freight elevator tower…However, Benn then used that Permit to build a residential unit without permits, approvals, or amendments, and in violation of the NYC Zoning Resolutions…Today, as a result of planning and alterations that Benn commenced in 2004, the rooftop structure currently includes multiple bedrooms, bathrooms, living spaces and a pool…It appears Benn has controlled the use of the Penthouse apartment after the completion of the buildout.

The Third Amendment to the Declaration of Condominium of Le Toulouse Condominium dated March 15, 2010…attempted to resolve the Offering Plan’s different characterizations of unit R-4’s roof rights and incorporate the roof’s square footage into Unit R-4. However, the Condominium never filed the March 2010 Third Amendment with the New York City Department of Finance Office of the Register[.]

In December 2012, the Condominium filed a version of The Third Amendment, dated December 7, 2012, with the Register…Unlike the March 2010 Third Amendment, that the five current owners signed, only Stefan Benn signed the December 2012 Amendment. As of December 7, 2012, only three of the five original signers (60%) of the March 2010 Third Amendment still owned units in the Condominium. Article XII of the Offering Plan entitled “Amendments” provides, “[an] amendment shall be approved by eighty percent (80%) of the Unit Owners in number and common interest.” Article XII further provides “said amendment shall be set forth in a duly recorded amendment to the Declaration. . . . no amendment affecting any Commercial Unit, or the rights of the Commercial Unit Owner, may be made without the consent of the affected Commercial Unit Owner.

Plaintiff’s allegations:

Plaintiffs allege that the Offering Plan and Declaration do not establish that Unit R-4 has exclusive possessory rights to the roof, and that defendants Benn were not entitled to construct a rooftop structure on a Condominium common element. Plaintiffs note the documentation (regarding their purchase of Unit C-1) proffered by the defendants, including the Offering Plan, and the state-filed condominium amendments, do not disclose the Penthouse’s existence, and that they could not have known of defendants’ claims to the Condominium’s rooftop as the March 2010 Third Amendment never was filed with the Register. Plaintiffs also contend that defendant Benn misled the Unit Owners into signing the 2010 Amendment by withholding information from them.

Specifically, plaintiffs allege that the 2010 Draft Amendment included many false statements of fact that hid the true nature of the alterations to the roof and resulting violations from the Condominium, and induced the owners of Units C-1, R-1, and R-2 to execute the document…Plaintiffs likewise maintain that Benn falsely represented to the Condominium the roof alterations were performed with proper approvals under New York State law, but that the addition exceeded the scope of the June 2004 Permit when defendants Benn built a luxury Penthouse apartment instead of the permitted caretaker’s room. Plaintiffs allege Benn has unjustly reaped over $500,000 in rental income from the illegal Penthouse apartment.

Defendant’s allegations:

Defendants Benn however argue that the unit owners’ signatures on the March 2010 Third Amendment unanimously granted the limited common element of the roof deck to be incorporated into unit R-4, and that notwithstanding defendants’ failure to file the March 2010 Third Amendment, the identical language appears in both the 2010 and 2012 versions of the Third Amendment. Defendants further allege that the Third Amendments clarified the extended roof top rights owned by unit R-1 (encompassing over 3000 square feet of common elements owned by all unit owners) and defendants therefore were free to build a Penthouse apartment there. Defendants further allege that they obtained the appropriate permits from the Department of Buildings and that their renovations were performed within the scope of the DOB permit.

Denying summary judgment and concluding that:

Based on the foregoing, there are disputed material issues of fact that the court cannot determine without a trial. The parties dispute the scope of defendants’ claim of rooftop rights as delineated by the Offering Plan, the By-Laws, the House Rules and the validity of the March 2010 Third Amendment and the December 2012 Third Amendment defendant Benn filed. Issues of fact exist as to whether Benn fraudulently induced the unit owners into surrendering rooftop rights to defendants based on defendants’ alleged misrepresentations, and if any consideration was given to the unit owners for the surrender. Notwithstanding the foregoing, issues of fact exist as to whether defendants were permitted to build a Penthouse apartment (assuming the validity of the Third Amendments), and if so, whether defendant Benn built the Penthouse within the parameters of the DOB permit[.]

Rushmore v. Park Regis Apt. Corp., 2018 NY Slip Op 31335(U), Sup. Ct. N.Y. Co. (June 20, 2018)

Supreme Court was presented with various motions for summary judgment, stating at the outset that “at the core of this action to recover damages for, inter alia, breach of a proprietary lease and the by-laws of a residential cooperative housing corporation, is the parties’ dispute over the plaintiffs’ right to use and convey certain roof terrace space adjacent to their penthouse apartment.”

Supreme Court summarized the submissions:

In support of their motion, the plaintiffs submit, inter alia, the affidavits of the plaintiff Stephen Rushmore…the plaintiffs’ former real estate attorney Jesse Gordon, and an attorney’s affidavit, the pleadings, a copy of the proprietary lease, an acknowledgment agreement they were requested to and did execute in 2006, a 2014 contract of sale referable to the subject penthouse apartment, a proposed acknowledgment agreement that their prospective purchasers were requested to sign in 2014, and copies of letter and electronic mail correspondence.

In opposition to the motion, and in support of their cross motion, the defendants rely on some of the same documentation, along with affidavits from [board members] Bourque and Rachmani, the coop’s offering plan and by-laws, closing documents referable to the 2014 sale of the subject penthouse apartment, deposition transcripts of the parties, sales listing agreements, an apartment appraisal report, the final signed acknowledgment agreement between the purchasers of the plaintiff’s apartment and PRAC, photographs, and correspondence.

The plaintiffs’ submissions show that, in 2006, they purchased shares in PRAC referable to a penthouse unit on the roof of PRAC’s cooperative apartment building, and were issued a proprietary lease in connection therewith. There are two roof terraces in the building that are at issue — one terrace space above, or on the roof of, the penthouse unit, as well as a terrace on the same level, just outside the unit. The plaintiff’s claim of entitlement to the latter space arises from section 7(a) of the proprietary lease, which provides, in relevant part, that “[i]f the apartment includes a portion of the roof adjoining a penthouse, the Lessee shall have and enjoy the exclusive use of the terrace or balcony or that portion of the roof appurtenant to the penthouse.” As the plaintiffs explain in their supporting affidavits and deposition, and as set forth in the 2006 acknowledgment agreement, when they closed on their purchase of the unit, they executed a statement in which they “acknowledge[d] that we were advised by the Board of Directors of Park Regis Apartment Corporation that the Co-op intends to re-open the garden on the roof over the penthouses for use by residents of the building” (underscoring in original). The plaintiffs’ acknowledgment did not concern the terrace space level with the unit.

Subsequent developments:

It is undisputed that, when the plaintiffs later placed their unit on the market in 2014, members of PRAC’s board of directors suggested that they advise prospective purchasers that the board still had the intention of using the roof over the penthouse unit for a garden, accessible by all residents of the coop. According to the plaintiffs, on October 8, 2014, prospective purchasers executed a contract to purchase the plaintiffs’ penthouse unit for the sum of $8.75 million. The plaintiffs assert that, shortly thereafter, board members Bourque and Rachmani drafted a proposed acknowledgment agreement for signature by the prospective purchasers, pursuant to which the purchasers were to acknowledge that the “Roof and Roof Terrace are the property of [PRAC] and that pursuant to the [Proprietary Lease] or otherwise, neither is owned nor was ever intended for the exclusive use and occupancy by the [Unit] or by its owner.” The prospective purchasers declined to execute the agreement, and the sale was never consummated. The plaintiffs claim that they complained to Bourque that the required agreement reduced the market value of their unit.

Thereafter, as described by Stephen, the plaintiffs lowered their asking price and, after making attempts to negotiate new language for the acknowledgment agreement, ultimately sold their unit for the sum of $8.25 million. PRAC’s attorneys thereafter billed the plaintiffs the sum of $23,773.00 for their involvement in the final closing, and PRAC assessed the plaintiffs therefor.

Plaintiffs’ assertions:

[P]RAC breached the proprietary lease and the coop’s by-laws by compelling prospective purchasers to execute the subject acknowledgment agreement, thus causing the plaintiffs to incur damages by depressing the resale value of the subject penthouse. They argue that imposition of a new acknowledgment agreement improperly stripped away the inherent rights reserved by penthouse owners to object to PRAC’s use of a penthouse roof as a garden terrace. In addition, the plaintiffs claim that the fees charged by PRAC’s attorney were improperly assessed against them or, at the very least, excessive and unreasonable, thus constituting a further breach of the by-laws. The plaintiffs also assert that Bourque and Rachmani breached the fiduciary duty owed by board members to shareholders by drafting the proposed acknowledgment agreement to their detriment.

Defendants’ assertions:

[T]he new acknowledgment agreement simply clarified the status quo, the plaintiffs never had a right to prevent the coop’s use of the penthouse roof as a garden, subject to approval by the New York City Department of Buildings, there were no breaches of contract or fiduciary duty, and the attorneys’ fees assessed against the plaintiffs were reasonable and authorized by the by-laws.

And, after setting forth the legal template for summary judgment motions and contract disputes as to the breach of the contract claim that:

The motion is denied and the cross motion is granted to the extent of dismissing the first and third causes of action, which respectively seek to recover for breach of fiduciary duty against PRAC and the individual board members, and so much of the second cause of action as alleges that PRAC breached its own by-laws and the subject proprietary lease by requiring a prospective purchaser of the plaintiffs’ penthouse unit to acknowledge PRAC’s right to use the roof of that unit as a garden for the benefit of all tenant shareholders of the cooperative corporation. Thus, upon disposition of the motion, the only issue remaining to be tried is that portion of the second cause of action which alleges that PRAC breached its by-laws by assessing the plaintiffs an unreasonable amount in closing costs, including attorneys’ fees, upon the ultimate sale of the unit.

As to breach of contract that:

[T]he court concludes that the defendants established that the word “roof,” as employed in the proprietary lease, refers only to the roof of the building, and gives exclusive use, to the owners of a penthouse unit, of that portion of the roof of the building adjoining and appurtenant to the penthouse unit, i.e., the portion of the roof of the building which is on the same level as the floor of the penthouse unit. An “appurtenance” is a right of way that is necessary to give usable enjoyment to the conveyed premises…Here, the exclusive use of the penthouse roof by the owner of the penthouse unit is not necessary to give that owner usable enjoyment of the unit, just as the use of the roof of the building is not necessary to give the owner of the apartment units immediately thereunder usable enjoyment of those apartments. Contrary to the plaintiffs’ contention, the phrases “portion of the roof adjoining a penthouse” and “portion of the roof appurtenant to the penthouse” in the proprietary lease were not intended by the parties to refer to different areas of the roof but only the roof area on same level and just outside the penthouse…[T[he First Department reached the same conclusion in interpreting nearly identical lease provisions as that in the parties’ lease. Thus, the plaintiff’s rights extended only to the roof area on the same level and just outside the penthouse, not to any roof area on top of the penthouse.

Indeed, there is no dispute here that the former and current owners of the penthouse unit had and have exclusive use of that portion of the roof of the building that is adjacent to the floor of the subject penthouse unit, the terrace on the same level as and just outside the unit. The proprietary lease was clearly not intended to refer to the roof over the penthouse unit itself since it neither “adjoins” the unit nor is an “appurtenance” thereto. In opposition to the defendants’ showing in this regard, the plaintiffs do not show that the proprietary lease was ambiguous, and fail to raise a triable issue of fact as to whether the parties intended for the plaintiffs to reserve any rights in connection with the roof of the penthouse unit itself.

Conversely, the defendants’ submissions establish that the acknowledgment agreements executed by the plaintiffs in 2006, and drafted by Bourque and Rachmani in 2014, clearly refer to the roof of the penthouse unit itself. Contrary to the plaintiffs’ contention, their alleged retention of some unwritten, inchoate “right to object” to PRAC’s conversion of the roof of the penthouse unit into a garden terrace neither defeats PRAC’s right to such use of that roof under the by-laws, as protected by the business judgment rule…nor precludes PRAC or its board members from asking prospective purchasers to acknowledge PRAC’s right in this regard.

Thus, the plaintiffs failed to establish their prima facie entitlement to judgment as a matter of law on so much of the breach of contract cause of action as is premised on the defendants’ conduct in compelling the purchaser to execute an acknowledgment agreement. For the same reasons, the defendants have thus shown that their claim of right over the use of the roof of the penthouse unit itself, as opposed to the roof of the building adjacent to the penthouse unit, does not constitute a breach of the proprietary lease. Thus, in connection with their cross motion, the defendants have established their prima facie entitlement to judgment as a matter of law dismissing the breach of contract cause of action, except as to the claim that attorneys’ fees assessed against the plaintiffs in connection with the closing were unreasonable. In that regard, the defendants have not shown that the entirety of the $23,773 in attorneys’ fees that was billed was necessary to the consummation of the closing. The plaintiffs’ opposition, however, is insufficient to defeat PRAC’s entitlement to judgment dismissing the claim that it breached the lease and by-laws by requiring the purchasers to execute the acknowledgment agreement since, even if the plaintiff’s version of the facts are accepted as true, PRAC’s conduct does not rise to a breach of contract[.]

And as to the breach of fiduciary duty claim that:

The plaintiffs correctly point out that Business Corporation Law § 501(c) prohibits the unequal treatment of similarly situated shareholders…It is also well settled that members of a board of directors of a corporation “owe a fiduciary responsibility to the shareholders in general and to individual shareholders in particular to treat all shareholders fairly and evenly.”[.]

Like any other corporate board, the board of a residential cooperative has a fiduciary duty to the shareholders, and where violations of individual officers’ and board members’ fiduciary duties are alleged, a breach of fiduciary duty claim may be maintained against such individuals…The party challenging the board’s actions has the burden of demonstrating the breach…by showing “(1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant’s misconduct.”[.]

[T]here is no principle of corporate law that director liability arises only where the director commits a tort independent of the tort committed by the corporation itself. On the contrary, it has long been held by this Court that `a corporate officer who participates in the commission of a tort may be held individually liable, . . . regardless of whether the corporate veil is pierced.'[.]

However, the plaintiffs have failed to allege any conduct on the part of Bourque or Rachmani which would constitute a breach of fiduciary duty so as to impose individual liability upon them. They failed to show that the treatment of their unit by these defendants was unfair, that these defendants committed misconduct, or that they imposed any unauthorized restrictions on the sale of their unit.

On the other hand, in connection with the cross motion, the affidavits of Bourque and Rachmani establish, prima facie, that the treatment of the plaintiffs was no different than the treatment of any other penthouse owner, and that such treatment was fair, authorized, and within the intendment of the proprietary lease and the by-laws. For the same reasons as their failure to establish their own right to judgment, the plaintiffs failed to raise a triable issue of fact in this regard.

Behrend v. Gramercy-Tutherford Townhouse Corp., 2018 NY Slip Op 32172(U), Sup. Ct. N.Y. Co. (September 5, 2018)

Supreme Court, addressing a motion to dismiss the petition, summarized the proceeding:

Petitioner brings this Article 78 proceeding against Respondent, seeking an order annulling and setting aside Respondent’s November 21, 2017, determination denying Petitioner possession and access to the roof directly above Petitioner’s apartment; compelling Respondent to restore Petitioner’s right of possession and access to the roof by delivering all keys, to Petitioner, necessary to access the roof; declaring that Petitioner has the right to improve the subject roof amenity by building decking, subject to all applicable laws and obligations under her proprietary lease and at law; and deeming Petitioner the prevailing party and directing a hearing in her favor for an award of attorney’s fees.

The contentions of the parties:

Petitioner has been the proprietary lessee of apartment 222/#4…at Respondent Gramercy-Rutherford Townhouses Corporation, the cooperative building located at 220-222 East 17th Street, New York, New York 10003, since July 11, 2007. The residential cooperative is comprised of two buildings, 220 East 17th Street…and 222 East 17th Street…New York, NY 10003…Petitioner alleges that she is the proprietary lessee of both her apartment and the roof directly above her apartment and that the description of “Demised Premises” and Paragraph 7 of the Lease, set forth her rights and obligations with respect to the roof appurtenant to her apartment[.]

Respondent contends that Petitioner lacks standing to pursue the instant action because Petitioner never served a demand on the board prior to the commencement of this action and thus has failed to fulfill the necessary preconditions to the commencement of an Article 78 proceeding. Respondent avers that Petitioner failed to make a demand on the board with respect to her roof rights and/or the right to build a structure on the roof, and thus Respondent argues that Petitioner failed to allow the board to render a determination with respect to the issue of the Petitioner’s roof rights. The only demand Petitioner made to Respondent, that falls within the applicable four-month statute of limitations, was to approve her request to sublet her apartment “beginning in either November 2017 or December 2017, subject to the Coop’s rules and regulations”[.]

Grounds for motion to dismiss:

In support of its motion to dismiss the Petition, Respondent has submitted the affidavit of Matthew Crowe, the Treasurer of the cooperative since 2008…Crowe contends that based upon his review of the historical documents of the cooperative, the terms of the proprietary lease agreement signed by Petitioner do not give her the right of ingress and egress to/from the roof of Building 2 through the common space of the cooperative and that, prior to the roof repair in 2017, any resident in the building could have accessed the roof through the door Petitioner is demanding the keys for, as Petitioner did not have exclusive access to the roof because she did not sign the Roof Access Agreement…Respondent contends that the only historical agreement between the shareholder of the Apartment (currently Petitioner) relating to shareholder rights and obligations with respect to the roof of Building 2, is set forth in “Agreement Between Gramercy Rutherford Townhouse Corporation and the Owners of #4, 222 East 17th St. NY NY 10003 Regarding Roof Rights/Ownership”, dated November 1997[.]

Respondent admits that it was not able to secure a fully executed Roof Access Agreement between the cooperative and the prior shareholder of Petitioner’s apartment, and that none exists as between Petitioner and Respondent, but argues that the terms of the Roof Access Agreement forms the basis of the cooperative board’s understanding that the shareholder of the apartment is financially responsible for the roof in Building 2 and that the board received no compensation for allocation of the roof rights of Building 2, other than the shareholder’s promise to bear such financial responsibility…Based on this understanding and the terms of the Roof Access Agreement and Petitioner’s Proprietary Lease, Respondent contends that its request that Petitioner bear financial responsibility for the roof was made in good faith.

Petitioner’s response:

Petitioner alleges that going back to 2009, there is a history of leaks from the roof into her apartment…On May 20, 2013, Petitioner sent an email to the members of the board indicating that she had noticed further evidence that the roof was leaking into her apartment and in that email, directs several questions to the board and seeks information relative to her apparent intention to purchase additional shares allocated to the roof in exchange for the board permitting her to do construction on the roof. Specifically, Petitioner states: “Regarding share allocation for roof building, would the co-op be open to me purchasing additional share units in exchange for the right to build? I understand this would be a process, but I believe the co-op has done a share sale to Craig Samuelson for his usage for the roof on the 220 side in the past few years, so procedure should be in place already.”[.]

Petitioner claims that in 2014, the board “improperly attempting to shift all repair costs for the roof, structural and otherwise, to the two shareholders occupying the two (2) top floor apartments, respectively” and attaches “HOUSE RULES FOR GRAMERCY RUTHERFORD TOWNHOUSES CORPORATION” as an exhibit to the Petition…In December 2016, Petitioner alleges that the cooperative’s board engaged an engineer who recommended a full replacement of the Building’s roof, and the board engaged a contractor to make the structural repairs for approximately $84,00[.]

On December 13, 2016, the board’s treasurer, Mr. Crowe, sent an email to Petitioner and the other shareholder whose apartment was directly below the roof, summarizing the costs of the roof repair and indicating the board’s preference “to proceed with the $84,000 bid, which would result in a $42,000 allocation to each of you.”…Contrary to Petitioner’s allegations, there is no “demand” for payment expressed in the email, but rather a stated preference on how the board would like to proceed with the roof repairs. Indeed, at the end of the email, Mr. Crowe invites any questions and offers to go over the bids for the roof repair in detail…On January 11, 2017, the other shareholder responded to Mr. Crowe indicating that he agreed with the board’s preference…On July 6, 2017, Petitioner’s counsel, notified the board of her objection to the $42,000 chargeback for the roof replacement project, and asserted her rights under the Lease and the law[.]

Thereafter, in September, 2017 Petitioner advised the board that she wanted to sublet her Apartment beginning in either November 2017 or December 2017, subject to the Coop’s rules and regulations…On November 21, 2017 Respondent, through its attorney, approved Petitioner’s request to sublet her apartment…In that same letter, Respondent indicating that the board would be restricting access to the roof and that the board reserves all rights pursuant to contract and at law and equity relating to the roof and access to same as well as to, in the board’s sole discretion, limiting alterations to the building[.]

The standard of review:

An Article 78 proceeding may only be brought in certain circumstances, as prescribed by the statute…Specifically, here, Petitioner seeks to compel mandamus and direct the cooperative to restore Petitioner’s right of possession and/or access to the roof by immediately delivering to her all keys necessary to access the roof space, and declare that Petitioner has the right to improve the subject roof amenity by building decking and/or installing other lawful materials on the portion of the roof directly above the Petitioner’s apartment[.]

Mandamus to compel is “an extraordinary remedy that lies only to compel the performance of acts which are mandatory, not discretionary, and only when there is a clear legal right to the relief sought”…Accordingly, a writ of mandamus is not an appropriate remedy to compel performance of an act or duty for “which an officer may exercise judgment or discretion.”…Thus, “the petitioner must have a clear legal right to the relief demanded and there must exist a corresponding nondiscretionary duty on the part of the administrative agency to grant that relief”[.]

Because each of Petitioner’s causes of action set forth CPLR Article 78 mandamus to compel claims, CPLR § 217(1)’s four-month statute of limitations applies. As such, before commencing this mandamus to compel proceeding, Petitioner was required to make a demand and await refusal[.]

Dismissing the petition and concluding that:

Here, Petitioner filed this Article 78 petition alleging that Respondent had failed to deliver keys to access the roof directly above Petitioner’s apartment and to seek a declaration that Petitioner has the right to improve the roof amenity. Petitioner, however, has put the proverbial cart before the horse in that she has never made a formal demand upon Respondent to improve the roof amenity, nor has she demonstrated that she has any legal right of ownership in the roof amenity that forms the basis of her Petition. In fact, the documents submitted in support of the Petition, demonstrate quite clearly that Petitioner does not have any legal right of ownership to the roof amenity because she has not signed the Roof Access Agreement…Moreover, her own email correspondence with Mr. Crowe, makes very clear the fact that Petitioner knew she did not have ownership rights to the roof amenity because she clearly asks Mr. Crowe; “Regarding share allocation for roof building, would the co-op be open to me purchasing additional share units in exchange for the right to build? I understand this would be a process, but I believe the co-op has done a share sale to Craig Samuelson for his usage for the roof on the 220 side in the past few years, so procedure should be in place already.”[.]

Accordingly, Petitioner’s own email demonstrates the fact that Petitioner does not have a clear legal right to the relief demanded, as she has not demonstrated that she has any ownership rights to the roof amenity she is seeking to compel Respondent to grant her access to. Neither Petitioner nor Respondent provided a signed copy of the Roof Access Agreement in support of this proceeding. Moreover, Petitioner has also failed to demonstrate that the act for which she seeks the court to compel Respondent to undertake, is a “mandatory” act, and not one subject to Respondent’s discretion and judgment.

Paragraph 7 of Petitioner’s proprietary lease provides in pertinent part: “If the apartment includes…a portion of the roof…The Lessee’s use thereof shall be subject to such regulations as may from time to time, be prescribed by the Directors.”…Accordingly, the plain language of the lease demonstrates that Respondent’s Directors retain the right to promulgate regulations, from time to time, relative to the use of the roof appurtenant to Petitioner’s apartment. As such, this Lease provision aptly demonstrates that Respondent retained discretion and judgment with respect to Petitioner’s use and enjoyment of the roof amenity that is the subject of this proceeding. As such, mandamus to compel does not lie[.]

*     *     *

Here, it is clear from the Petition and the exhibits attached thereto that Petitioner has not met her burden to maintain this Article 78 proceeding. Petitioner has not established a clear legal right to access the roof directly above her apartment, nor has she established that the act she seeks to compel Respondent to perform is a ministerial duty, where the board cannot exercise judgment or discretion.

Lessons learned:

The fact that an apartment abuts the roof of a residential cooperative or condominium does not, standing alone, give the unit owner the right to use or build on, or the responsibility to maintain and repair, the roof.  The governing documents (i.e. the declaration, by-laws, etc.) control.

*  The Drifters (1963)

Dispute Resolution: Arbitration – A Better Option for Resolving Construction Disputes

Kent B. Scott | Babcock Scott & Babcock

This is the third installment in the series of articles on Dispute Resolution.

Arbitration has long been favored as a means of resolving construction disputes.  Many standard construction contract documents provide for a mandatory binding arbitration of all disputes arising under or related to the contract.

Arbitration Statutes

Both Federal and Utah law, like virtually every other state, favor arbitration as a cost-effective and timely means of resolving disputes.  Consistent with these policy considerations, both statutory law and case law support judicial orders compelling arbitration when required by statute or contract. The current Utah law is most commonly referred to as the Revised Utah Uniform Arbitration Act as set out in Utah Code Ann. §78-31a-101 through 131 (“RUAA”).  Utah’s RUAA is patterned after the Revised Uniform Arbitration Act that was approved by the National Conference of Commissioners of Uniform State Laws.  The Federal law is found in Title 9 U.S.C. §1 et seq.  This statute is known as the Federal Arbitration Act.

Commencement of Arbitration and Selection of Arbitrator(s)

Arbitration is initiated by a demand for arbitration.  The most common arbitration clause found in construction contract documents requires arbitration to proceed in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association (“AAA”).  A demand for arbitration pursuant to the AAA’s rules in a very simple document, requiring only a general and brief statement outlining the nature of the claim and a sum representing the damages sought.

The method for the selection of arbitrators is found in the AAA’s Construction Industry Rule or the Federal and Utah state statutes.  The method of selection can also be defined in the parties’ Agreement.

Case Management

The arbitrator will generally schedule, through the AAA, a preliminary hearing wherein the arbitrator and parties’ council will discuss the parties’ claims, scheduling, discovery, motions, witnesses, exhibits, the evidentiary hearing and form of award.

Discovery and Motions

In most instances, the type, amount and time frame for discovery is left to the arbitrator’s discretion.  Most arbitrators try to get the parties to agree on reasonable limits on discovery, especially depositions, but will impose such limits where the parties fail to agree.  Within this same authority, the arbitrator usually has the authority to issue subpoenas and subpoenas duces tecum upon third parties as allowed by the Rules of Civil Procedure.

In theory, arbitrators have always had authority to summarily dispose of all or portions of the claims submitted for arbitration.  Because of the limited avenues of appeal available in arbitration organizations like the AAA have discouraged summary disposition of claims except in the clearest cut of cases.

The Arbitration Hearing

At the evidentiary hearing, the procedure is in form very similar to that encountered in litigation.  It is, however, considerably less formal, particularly as to evidentiary matters.  Simply stated, the rules of evidence do not apply in arbitration.  In fact, both the AAA’s rules and most arbitration acts require the arbitrator to receive and consider evidence material to the dispute.  In short, the test by which evidence is judged in arbitration is materiality, not admissibility.

The Award

Once the arbitrator is satisfied that all other evidence is in, he or she will close the hearing and begin deliberations to the end of making an award.  Historically, arbitration awards have been extremely brief, consisting essentially of a net award of damages in favor of one of the disputants and perhaps an award of attorney’s fees and/or arbitration costs.  Currently, many arbitrators, as well as organizations such as the AAA will provide either a detailed or reasoned award upon request by the parties.

A detailed award must specifically list the arbitrator’s award as to each component of each party’s claims and culminate in a net award as to damages, attorney’s fees, arbitration costs and interest. If a contractor’s claim is comprised of a changed conditions claim, a constructive change order claim and an acceleration claim, the arbitrator must make a specific award as to each claim.  A reasoned award takes the process one step further, requiring the arbitrator to provide at least a minimal written explanation for each component of their award.

Under the AAA rules, an arbitrator must issue their award within 30 days from the date they closed the hearing.  Neither the Utah Arbitration Act nor the United States Arbitration Act has established any such time frame.

Modification of Award

Under the Utah Arbitration Act and the AAA rules, a party has twenty days from the date the AAA transmits the arbitrator’s award to the parties to seek modification of the award to correct any clerical, typographical, technical or computational errors.  The arbitrator has no authority to re-determine the merits of the award but may correct calculations or descriptions of persons or property in the award. Under the Federal Arbitration Act a motion to modify may be filed at any time within three months after the award has been filed or delivered.

Motion to Vacate Award

A motion to vacate the award under the AAA rules or the RUAA must be filed within twenty days from the receipt of the award. Under the Federal Arbitration Act, a motion to vacate may be filed at any time within three months after the award has been filed or delivered.

Once an award has been issued, it may become subject to efforts to vacate by a dissatisfied party. Reversal of an arbitrator’s award can only be done by a court.  Under both the Federal and Utah Arbitration Statutes, an arbitrator’s award will be vacated if it appears that:

  1. The award was procured by corruption, fraud.
  2. The arbitrator is guilty of misconduct.
  3. The arbitrator exceeded its powers.
  4. There was no arbitration agreement.

Again, courts have traditionally deferred to arbitrator’s awards and have been reluctant to revisit them when challenged by a dissatisfied party.  However, the Buzas decision seems to indicate that given improper circumstances, a Utah court may explore further propriety and basis for an arbitrator’s award, then one might expect by simply reading the terms of the RUAA.


The construction industry has used arbitration as an alternate form of dispute resolution for several years. Arbitration as a method of dispute resolution will continue to grow.

Thinking Beyond the Dispute Resolution Provision in Construction Disputes

Benjamin Pollock | King & Spalding | June 5, 2017

When parties cannot resolve a claim during a major construction project, the contracts dispute resolution provisions do not always need to read as step-by-step instructions. To the contrary, the situation may warrant a different approach that can be negotiated after the dispute arises. While agreement certainly is required to deviate from the contractual obligations which themselves reflect the parties prior and current agreement other options can be considered and proposed whenever they would be beneficial to the Project or parties needs. This article discusses alternative methods by which a resolution to a construction dispute concerning costs or delays can be found in ways not necessarily proscribed by the contracts dispute resolution provisions.

Contracts Do Not Predict Every Situation

As an initial point, by no means is this article suggesting that the contract should be ignored or disregarded. Indeed, the contract provisions should be the embodiment of the good faith negotiations of the parties, often hard-won through sophisticated bargaining. But this does not mean that one size fits all, and the individual situation and claims should be considered when an actual dispute must be managed.

This can be particularly true when circumstances change between the parties, or when the companies develop a business relationship outside of the one specific project. To be sure, the contracts dispute resolution provisions establish the original framework by which the parties are to resolve disputes arising from construction of that individual project. But the realities can change when those companies subsequently enter into additional contracts regarding multiple projects, or agree to an Operation and Maintenance Agreement that binds them to each other at the same site for multiple years following completion. Suddenly, the prospect of filing for arbitration over the one construction dispute can become a challenging or unacceptable option. Indeed, preserving the relationship and maintaining peace may prove more valuable than escalating a dispute to a jury or an independent panel. And with arbitration or litigation seen as a last-ditch option, the parties may do well to think beyond the contracts instructions in order to get the dispute resolved.

Conditions Precedent Can Be Mutually Waived or Changed

In many ways, a contracts dispute resolution provision can be seen as the designation of the ultimate deciderarbitrator, judge, or juryand a series of conditions precedent that must be followed before reaching the final stage. These conditions serve various purposes, like promoting party communication in an attempt to avoid costly litigation, or ensuring notifications are being effected internally at appropriate levels of management. These interim steps can include formal notice, a mediation or other non-binding proceeding, various waiting periods, and/or a meeting between management personnel. When a particular dispute reaches impasse, however, these actions may not always serve their intended purpose. In such scenarios, the contract provisions do not always need to be strictly adhered to, but instead should be evaluated for their perceived effectiveness under the circumstances. When it serves both parties or the Project to take different action, consider seeking a mutual agreement to waive or adjust certain of these conditions.

Take waiting periods. It is not uncommon for a contract to mandate that arbitration cannot be filed until a certain number of days after a formal notice letter is served (or other triggering event). But what if the dispute is impacting critical path activities, and a quick resolution would allow the parties to mitigate the impact or at least would provide the parties more certainty regarding the risks of a situation already affecting cost and schedule? As an initial matter, the owner may do well to instruct the contractor to continue working, or enter into a temporary agreement that maintains Project progress while the claim is addressed. But in this scenario, both parties may wish to consider waiving the required waiting period and submitting the dispute on an expedited schedule. Similarly, both sides may benefit from adding strict time limits on the selection process of nominating one arbitrator eachwho then nominate a chairpersonor even forgoing this timely process in favor of selecting a single fact-finder.

Another example is mandatory meetings between managers. Sometimes it may be patently obvious that certain disputes will not be resolved at such meetings. Perhaps the representatives designated by the contract have personality conflicts, the parties positions are extreme and irreconcilable, or the contemplated meeting would present other challenges that may actually exacerbate the situation. If the parties are entrenched in their positions, more might be at stake than a waste of time and resources: ill will can result if one party believes the other is not participating in good faith. In certain circumstances, a discussion by the designated persons about the dispute can do more harm than good.

Agreeing not to hold such a meeting is an option, although generally speaking, parties engaging in discussion before launching litigation is a good thing. If the contract requirements do not create an environment for success, they can be tweaked. Notwithstanding contractual restrictions on attendees, the parties can agree to select personnel best suited to attend, usually so long as there is someone present with decision-making authority. The presence of a mediator, expert, or third party neutral to facilitate discussions and offer opinions can be considered, regardless of whether the contract requires such a presence. And rather than meeting to discuss the merits of the disputewhich likely is encapsulated already in opinionated change documentation and argumentative claims letterscommercial settlements can be discussed instead. Indeed, such proposalsbonus milestones, additional resources, overtime, changes to the payment schedule, etc.may resolve the dispute without having to discuss, much less decide, the contentious issues, and can also benefit project progress itself. In these ways, parties can still hold the required meeting but tailor it to best position themselves for success.


A dispute resolution provision identifies the final arbiter of a dispute and contains other requirements meant to facilitate discussion and negotiation so that litigation can be avoided. Sometimes, however, the specific provisions will not best serve those purposes. In these situations, prudent parties will study the contracts requirements but also consider options that might more effectively resolve the particular dispute at issue, get the project back on track, and improverather than harmthe business relationship. Rather than view the various required stages as items on a checklist, parties can agree to waive or alter certain provisions and thereby adopt a procedure that may better facilitate resolution the specific dispute.