{"id":899274,"date":"2021-10-26T14:59:38","date_gmt":"2021-10-26T20:59:38","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=899274"},"modified":"2021-10-26T14:59:41","modified_gmt":"2021-10-26T20:59:41","slug":"notice-to-cure-construction-contract-provision","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/notice-to-cure-construction-contract-provision\/","title":{"rendered":"Project Owners and General Contractors Take Note: Notice-to-Cure Provisions for Termination of Construction Contracts Cannot Be Disregarded Except in \u201cVery Limited and Rare\u201d Circumstances"},"content":{"rendered":"\n

Bradley P. Pollina | Cole Schotz<\/a><\/p>\n\n\n\n

Construction contracts<\/a> generally outline various scenarios in which a party can terminate the contract. In one common scenario, a contractor is permitted to terminate its subcontractor \u201cfor cause\u201d if the subcontractor provides deficient work or fails to meet the project schedule. Contracts often describe this type of deficiency as a \u201cfailure or neglect to carry out the work in accordance with the subcontract.\u201d Similar provisions are found in contracts between owners and general contractors.<\/p>\n\n\n\n

Importantly, most contracts require that, before terminating a subcontractor for deficient work, a general contractor must first provide the subcontractor with notice of the default and an opportunity to cure the deficiency (for example, seven days). Only after providing notice and an opportunity to cure can the contract be terminated, and only if the default remains uncured. This kind of termination \u201cfor cause\u201d is significant because most construction contracts provide that the subcontractor will not be entitled to receive any further payment for work performed until the project is finished. Even then, the subcontractor will usually be backcharged for the cost of completing and\/or remediating its work, and in some cases, the subcontractor may actually owe money back to the general contractor if such costs exceed the balance unpaid to the subcontractor.<\/p>\n\n\n\n

The New York Supreme Court, Appellate Division, First Department, recently issued a decision addressing certain key issues surrounding contractual notice-to-cure provisions and what happens when they are not strictly observed in connection with terminations. See<\/em> East Empire Construction Inc. v. Borough Construction Group LLC<\/em>, 2021 NY Slip Op 05455 (Oct. 12, 2021). There, the First Department held that notice-to-cure provisions for termination of construction contracts can only be ignored in \u201cvery limited and rare circumstances,\u201d and that noncompliance can eliminate the general contractor\u2019s right to setoffs for completion and remediation costs arising out of a subcontractor\u2019s nonconforming work.<\/p>\n\n\n\n

In East Empire Construction<\/em>, a general contractor terminated a steel work subcontractor based upon the claim that the subcontractor provided faulty work and had a poor safety record. The contract required the general contractor to provide a 10-day cure period before terminating the contract for \u201cfailure or neglect to carry out the Work.\u201d The general contractor, however, terminated the subcontractor after providing only a 72-hour cure notice. The parties\u2019 subcontract permitted the general contractor to backcharge the subcontractor for costs and fees incurred in connection with the subcontractor\u2019s failure to perform and, on that basis, the general contractor withheld payment on certain of the subcontractor\u2019s outstanding invoices.<\/p>\n\n\n\n

The terminated subcontractor thereafter sued the general contractor for breach of contract and sought recovery on its outstanding invoices, alleging that it was terminated without appropriate notice and opportunity to cure the alleged default. The subcontractor also sought to dismiss the general contractor\u2019s claim for setoffs, which the general contractor had asserted as an affirmative defense to the subcontractor\u2019s complaint.<\/p>\n\n\n\n

The First Department held that the general contractor\u2019s termination of the subcontractor was \u201cineffective\u201d because the general contractor failed to provide the contractually required 10-day notice and cure period. The court described contractual notice-to-cure provisions as \u201cstrict\u201d and stated that there are \u201cvery rare\u201d and \u201climited circumstances\u201d where a contractually required notice to cure is not necessary. Specifically, those cases are limited to cases in which (1) \u201cthe other party expressly repudiates the contract or abandons performance\u201d or (2) \u201cthe breach is impossible to cure.\u201d<\/p>\n\n\n\n

The court found further that neither of those situations was present, and that the general contractor was required to comply with the contractual notice to cure provision. First, the court found that the subcontractor did not \u201crepudiate\u201d or \u201cabandon\u201d its work. Second, regarding whether the subcontractor\u2019s breach was \u201cimpossible to cure,\u201d the court found that the alleged faulty work constituted nothing more than \u201cdefective performance\u201d which is \u201cthe very situation to which the cure provision was intended to apply.\u201d The court also found that a \u201cpoor safety record\u201d was also not \u201cimpossible to cure.\u201d<\/p>\n\n\n\n

As a result, the termination was improper and the subcontractor was entitled to payment on its outstanding invoices. In addition, because the termination was deemed ineffective, the general contractor was not permitted to backcharge the subcontractor for costs incurred in remediating the allegedly defective work. The general contractor\u2019s failure to terminate the contract properly was particularly significant because, as noted above, the general contractor would have been permitted to backcharge the subcontractor for fixing the subcontractor\u2019s faulty work, but the general contractor lost that right when it did not comply with the contract\u2019s notice-to-cure provision.<\/p>\n\n\n\n

The decision in East Empire Construction<\/em> is a reminder that parties to construction contracts are well-advised to carefully review and comply with contractual termination provisions and associated notice-to-cure requirements. As reiterated in this case, it is well-established under New York law that termination procedures in construction contracts are strictly enforced as written. Therefore, careful adherence to a contract\u2019s termination procedures is crucial to protecting a party\u2019s rights and avoiding the negative consequences that flow from improper termination.<\/p>\n","protected":false},"excerpt":{"rendered":"

Bradley P. Pollina | Cole Schotz Construction contracts generally outline various scenarios in which a party can terminate the contract. In one common scenario, a contractor is permitted to terminate its subcontractor \u201cfor cause\u201d if the subcontractor provides deficient work or fails to meet the project schedule. Contracts often describe this type of deficiency as… Continue reading Project Owners and General Contractors Take Note: Notice-to-Cure Provisions for Termination of Construction Contracts Cannot Be Disregarded Except in \u201cVery Limited and Rare\u201d Circumstances<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9],"tags":[9895,224,11566],"class_list":["post-899274","post","type-post","status-publish","format-standard","hentry","category-construction-contracts","tag-advise-consult","tag-construction-contract","tag-notice-to-cure-provision","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nProject Owners and General Contractors Take Note: Notice-to-Cure Provisions for Termination of Construction Contracts Cannot Be Disregarded Except in \u201cVery Limited and Rare\u201d Circumstances - 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