Subcontractors News

Today, more and more buildings are being designed and constructed as “green projects”. In the United States (and in other countries around the world) LEED certification is the recognized standard for measuring building sustainability. The LEED green building rating system is designed to promote design and construction practices that increase profitability while reducing the negative environmental impacts of buildings and improving occupant health and wellbeing. LEED certification includes a rigorous thirdparty commissioning process and a rating system offers four certification levels for new construction—Certified, Silver, Gold and Platinum which correspond to the number of credits accrued in five green design categories: (a) sustainable sites, (b) water efficiency, (c) energy and atmosphere, (d) materials and resources and (e) indoor environmental quality. There are other third-party certifications for green projects such as The Green Globes System. In addition, Energy Star for energy efficiency programs requires third-party certification. These certifications provide market recognition of a building’s environmental attributes and are being required of more projects, not only the high profile projects of the past.

In response to this market trend, in 2011, the American Institute of Architects (“AIA”) released its AIA D503- 2011 Guide for Sustainable Projects to assist owners, contractors, and architects with drafting contracts for projects seeking some form of sustainable project goal. The D503-2011 contains an overview of legal and practical issues arising on green building projects and model contract language that can be added to the standard AIA contract forms to address sustainable project goals.

However, as a follow-up to the D503-2011 Guide for Sustainable Projects, the AIA released new contract forms in May 2012 to address these same issues. These new contract forms include the A101- 2007 SP (Owner-Architect Agreement); A201-2007 SP (General Conditions); A401-2007 SP (ContractorSubcontractor Agreement); B101-2007 SP (OwnerArchitect Agreement); C401-2007 SP (ArchitectConsultant Agreement); and B214-2012 (Scope of LEED Certification Services for Architect). All of these forms with the exception of the B214-2012are generally modified versions of the conventional 2007 AIA contract forms with additions relating specifically to sustainable project goals. The new AIA contract forms contain several new defined terms that project participants will need to learn and become familiar.The “Sustainability Objective” is the defined sustainable goal for the project, which could include third-party certification or other sustainable goals not involving project certification or registration. Once the “Sustainability Objective” is defined, the “Sustainable Measures” are identified, including specific design elements or construction means or methods that are necessary to achieve the “Sustainability Objective”. The “Sustainability Plan” is the document that specifically identifies and describes the “Sustainability Objective” and that allocates roles and responsibilities for individual achievement of the “Sustainable Measures”.

These new AIA contract forms contain other notable provisions with which contractors must familiarize themselves. For instance, there are rigorous additional provisions for “cleaning up” the site. The Contractor may be required to recycle, reuse, remove or otherwise dispose of materials in accordance with the projects “green requirements”. The Contractor must also prepare and submit to the Architect and Owner a construction waste management and disposal plan setting forth the procedures and processes for salvaging, recycling or disposing of construction waste generated from the project.

Another crucial provision for a Contractor has been added to the standard A201 form mutual waiver of consequential damages in which the Owner and Contractor waive indirect damages against each other should there be a breach of contract. For example, in the A201, the Owner waives the indirect damages of loss of use, rent and the Contractor waives indirect damages for loss of bonding and indirect delay damages such as additional home office overhead. The new AIA A201-SP form adds the provision that the Owner waives “damage resulting from failure of the Project to achieve the Sustainable Objective or one or more of the Sustainable Measures including unachieved energy savings, unintended operational expenses, lost financial or tax incentives, or unachieved gains in worker productivity.” This provision is extremely important to the Contractor since those damages to the Owner could be substantial and in excess of the Contractor’s contract price for the project.

The new sustainable project versions of the A101, A201, A401, B101, and C401 conventional contract documents relate only to projects utilizing a designbid-build project delivery method. Projects utilizing other delivery methods, such as design/build, do not yet have AIA contract forms addressing these issues. Contractors involved in any aspect of green building or sustainability should familiarize themselves with these new contract forms and evaluate whether these contracts are right for their particular projects. Contractors not currently involved in green building projects should also familiarize themselves because increasing new work will involve green projects. Even if you choose not to use the new contract documents, these new forms should nonetheless serve as a good excuse to review (and perhaps to modify) existing contract forms to ascertain whether those forms effectively address the unique aspects of projects incorporating sustainability goals.

Michael D. Ganz is a partner at Tunstead & Schechter, a law firm concentrating in construction law. Mr. Ganz is a graduate mechanical engineer and has worked as a project engineer for both private companies and government agencies before practicing law. More information about Tunstead & Schechter is available by contacting Mr. Ganz at [email protected]. Tunstead & Schechter is located at 500 North Broadway, Suite 101, Jericho, New York 11753 (516) 822-4400

Author

Michael D. Ganz

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Real Estate Weekly

Our brokerage clients are familiar with our mantra to paper every transaction with an email trail.

This is necessary to establish, when a dispute arises, the intent of the parties.  An addendum to that rule is to be aware of the risks and rewards of electronic signatures.

Generally, brokers are looking to lock in commissions. Electronic signatures can go a long way to reaching that goal where the other party is reticent or delinquent in acknowledging a commission agreement in writing.

This area of the law has evolved with such velocity that professionals’ expectations as to what constitutes a contract may already be outdated. Any contractual relationship can now be created simply by replying to an email. You risk inadvertently entering into a contract unless your email contains an unambiguous statement such as “The sender of this email disclaims any intent to be bound hereby, except where the sender clearly and explicitly provides otherwise.”

Cases interpreting the federal E-SIGN Act and the Uniform Electronic Transactions Act, which has been enacted by 47 states and the District of Columbia, affirm that electronic communications can form the basis for a valid and enforceable contract.  And while New York State’s legislature is one of the three not to have passed the UETA, a state appellate court recently concluded that electronically executed agreements have the same effect as those signed on paper.

The law defines “electronic signature” far more broadly than the term implies. We’re not talking about a scan of your paper signature that you consciously paste into a computer document.  Instead, you can be bound by any “electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.”  This language is intentionally broad and permits email to constitute an acceptable record of a deal.

What constitutes offer and acceptance over email? Courts will analyze the same principles that apply to any other contract.

The recent New York case that declared email contracts enforceable concerned an alleged breach of contract to purchase two buildings in Manhattan. The prospective purchaser’s broker emailed a $50 million offer. The seller’s broker responded by email with a counteroffer for $52 million and a 30-day diligence period during which the prospective purchaser would have a right of first refusal on any higher offer.

While the prospective purchaser was conducting diligence, the owner sold the properties to another buyer without giving effect to the right of first refusal, and a lawsuit ensued.  The seller moved to dismiss the action based on several theories, including that no contract existed because the deal was only set forth in an email.

New York’s appellate court agreed that the case should be thrown out, but not because the agreement was memorialized electronically. In fact, the court explained at length that pursuant to New York’s Electronic Records and Signatures Act, electronic communications can bind parties to a contract. Instead, the court found that the parties had never agreed in the first place.

Like any other real estate negotiation, a counteroffer is not just a request for different terms. It also serves as a rejection of the original offer.  So when the building’s owner responded to the prospective purchaser’s email offer for $50 million with an email counteroffer for $52 million and a right of first refusal, the onus was on the prospective purchaser to reply that he accepted the counteroffer.  Because he failed to do so, there was never the “meeting of the minds” necessary for the parties to be bound.

Essentially, then, parties wishing to contract over email should be sure that the acceptance complies with the terms of the offer.  An email that specifies the precise terms of the offer that one is accepting is the best bet to ensure a meeting of the minds.

Many real estate professionals eschew contracts, whether executed on paper or over email.  These brokers rely on the exemption from the Statue of Frauds that allows oral brokerage agreements to be enforced.  Even if one is not a Realtor – whose organizational code of ethics requires written agreements – signing a formal contract for commissions is the best practice.

This is because brokers who agree to represent a party without entering into an agreement do so at their peril. Not only have these brokers agreed to take on fiduciary responsibilities, but the potential for the client to renege on the commitment places the receipt of compensation in jeopardy.  Oral agreements of any kind are difficult to prove.  Without witnesses to the discussion giving rise to the contract, or a prior course of dealing between the parties, brokers may be unable to prove what they believe to be a firm contract.

But brokers need not insist that their clients execute lengthy agreements or have a notary witness a contract’s execution: Email is a perfectly legitimate way to memorialize a real estate deal.

Of course, deeds and mortgages still require handwritten and notarized signature pages to be enforceable.  Moreover, the law does not require parties to use electronic signatures.  Companies can set up outgoing email message footers with a statement disclaiming any intent to be contractually bound by electronic signatures.

In light of these developments, companies should ensure that they have an email policy and that policy is designed to facilitate the company’s goals as to e-signatures.  It is good practice to have a real estate attorney review those practices to ensure compliance with current law.

Howard Rubin is a partner and Scott Simon is an associate at Goetz Fitzpatrick LLP in the real estate practice group.

Author

Scott D. Simon

Scott D. Simon represents companies and individuals in bankruptcy proceedings, complex commercial and construction litigation, and general corporate matters. During law school, Scott was Associate Editor of the Fordham Law Review. He has authored multiple publications for the ABA Section of Litigation News & Developments, Real Estate Weekly, and Fordham Law Review.

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Author

Howard Rubin

Howard Rubin provides general counsel for his clients, representing startups and closely held companies in the real estate, commercial, and construction areas.

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Real Estate Weekly

In the arena of commercial real estate, transactions are becoming increasingly complex and very often brokers find themselves faced with licensing issues because out-of-state properties present opportunities for commissions.

New York, like most states, zealously guards against out-of-state brokers, as well as unlicensed brokers, in order to protect the general public from unqualified or unscrupulous individuals seeking to become involved in real estate transactions.

As anyone even remotely involved in the real industry knows, in order to earn a commission from a client in New York, a person must be either a licensed real estate broker or a licensed salesperson. New York Real Property Law § 442-d carefully defines who is a real estate broker.

However, in large real estate transactions, brokers increasingly wish to get involved in transactions involving property outside of New York, or out-of-state brokers wish to become involved in properties located in New York. Such services provided by unlicensed individuals are not permitted unless specific guidelines are followed that permit the representation because the individual or company providing the service is not acting as a broker.

Finder’s Fees

The concept of a finder’s fee comes out of the banking industry, but has been accepted as having applicability in the real estate industry.

A finder does not have to be licensed and, therefore, gets around the real estate brokerage prohibition. However, in order to qualify as a finder, strict guidelines must be followed.

The finder must have a written agreement with the party who is paying the fee, identifying him as a finder and setting forth very limited duties that do not permit the finder to advertise the property, act as a fiduciary or be involved in the negotiations for the sale of the property in question. The finder’s fee can only be earned when the transaction is closed.

This is very different from the rights and duties of a real estate broker. There is no requirement that a broker have a written agreement, and there is no restriction on their ability to advertise the property, negotiate terms and have their fee payable upon producing a ready, willing and able buyer, regardless of whether the transaction actually closes.

Consulting Agreement

Entering into a consulting agreement is another method for a broker not licensed in the state in which the property is located to avoid the prohibition imposed by every State on unlicensed brokers.

In this instance, the services rendered must clearly set forth that the fee basis is hourly and payable, regardless of whether the transaction closes. It can be capped at a certain percentage of the value of the transaction, but cannot be based solely on the purchase price.

This type of agreement, like the finder’s fee agreement, is required to be in writing or it will be rendered unenforceable by the Statute of Frauds of the applicable State.

Changing Jurisdiction

Attempts have been made, generally unsuccessfully, to get around the licensing requirements to act as a real estate broker by inserting in the agreement that the applicable law is in a state in which the broker is licensed, although the property that is the subject of the transaction is in a different state.

New York, and any other state of which I am aware, would apply the law of the state in which the property is located. Attempts to shift jurisdiction in this manner have not been successful in most states, including New York, New Jersey and Connecticut.

Indirect Real Estate Sales

Another situation in which the issue of unlicensed brokerage comes up is where the sale does not directly involve real property. Examples of this would be an interest in a partnership whose sole asset is real property, or an interest in a business whose major asset is real estate.

In these instances, most courts have permitted the broker to enforce a written agreement for commissions so long as it did not violate any licensing requirements of business brokers or require another qualification, such as a securities license.

This area of the law is fraught with traps for the careless or uninformed broker. Before anyone ventures into the area of out-ofstate transactions, it is essential that written agreements be carefully drafted by an attorney knowledgeable in the area and that the rules required for a finder, consultant or business broker be carefully adhered to by all parties.

The failure to do so, places the broker’s right to his commission at risk and, in the State of New York and other jurisdictions, could result in criminal culpability because the statutes governing real estate brokerage contain criminal penalties.

Author

Howard Rubin

Howard Rubin provides general counsel for his clients, representing startups and closely held companies in the real estate, commercial, and construction areas.

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Subcontractors News

One of the most common questions asked by contractors is whether or not they may recover their attorney’s fees in connection with litigation. Unfortunately for the contractor, generally the answer is no.

Under the American Rule, unless there is a statute or an express contractual provision between the parties for attorney’s fees, they are ordinarily not recoverable. New York Courts follow the American Rule, and hold that because attorney’s fees are the “ordinary incidents of litigation” they may not be awarded to the “prevailing party” unless by agreement or statutory authority. The law then begs the next question—who is a prevailing party. Is a party which sues for $400,000 and is awarded $50,000 the prevailing party? Such a determination requires an initial consideration of the true scope of the dispute and what was achieved within that scope. In other words, a court may determine a party as the “prevailing party” if it recovers the majority of the damages claimed.

However, in connection with litigations involving payment bonds, New York State Law provided two statutes which have been underutilized but which, under the proper circumstances, may allow the contractor to recover its attorney’s fees. A contractor on a private improvement project may recover from an owner its attorney’s fees in connection with an action involving a payment bond. General Obligation Law § 5-322.3 entitled “Payment Bonds to be Filed” states: “A copy of any payment bond executed in connection with a contract for the improvement of real property other than a contract for a public improvement, shall be filed within thirty days of such execution by the owner of the improvement in the office of the county clerk in the county in which the improvement is to be undertaken; provided, however, that such fi ling shall be required only where the contract for the improvement of real property is for an amount in excess of one hundred thousand dollars. Any owner failing to file such payment bond as provided herein shall be liable for the reasonable attorney’s fees, as determined by the court, of any claimant successfully bringing an action or proceeding on the bond.” This statute applies to private projects in excess of $100,000.

While there is no doubt that owners routinely fail to comply with this statute by failing to file the payment bonds with the appropriate County Clerk, contractors and subcontractors are advised to ascertain prior to commencing litigation whether the owner has fi led the payment bond with the County Clerk. In addition, a subcontractor can utilize this statute to bring pressure upon a non-paying contractor by an Owner who has not filed the payment bond with the County Clerk and who may now be liable for the subcontractor’s attorney’s fees.

Prior to the summer of 2009, this law was referenced in a single case wherein the court determined that a claim for violating G.O.L. 5-322.3 was non-arbitrable. However, last summer the application of G.O.L. 5-322.3 was a central issue of a New York case. The court held that the claimant did not establish its entitlement to recover on the payment bond and was not entitled to attorney fees under G.O.L. 5-322.3 due to the failure of the owner to file the payment bond with the County Clerk. However, the holding does affirm the corollary, that a subcontractor which ultimately prevails against the payment bond should be entitled to recover attorneys fees against the owner who did not file the bond.

A contractor may recover from attorney’s fees from a payment bond surety in connection with public improvement projects. New York State Finance Law § 137(3)(c) provides: “In any action on a payment bond furnished pursuant to this section, any judgment in favor of a subcontractor or material supplier may include provision for the payment of interest upon the amount recovered from the date when demand for payment was made pursuant to the labor and material payment bond and provided further that the court may determine and award reasonable attorney’s fees to either party to such action when, upon reviewing the entire record, it appears that either the original claim or the defense interposed to such claim is without substantial basis in fact or law.” This statute applies to public payment bonds required under the New York State Finance Law.

This law, while imposing a high threshold for the recovery of attorney’s fees has similarly been underutilized. The author of this article has obtained for his client attorneys fees pursuant to N.Y.S. Finance Law § 137(3) (c) in a successful litigation against a payment bond surety. There has been scant law in connection with this matter. In one instance, the contractor was denied relief under this law because the surety properly questioned the contractor’s claim which was supported by delivery tickets appearing more than once and some tickets indicated that material was delivered to different job sites. However, a court awarded attorneys fees to a prevailing subcontractor in an action on a contractor’s payment bond where there was no plausible ground for the surety’s defense that a change order under which the subcontractor performed services fell outside the surety’s obligations under the bond.

Therefore, a contractor who familiarizes himself with these two statutes may be fortunate in being awarded attorneys fees in a successful litigation, where most other contractors would bear the cost of its litigation.

Michael is a graduate mechanical engineer who has worked as project engineer on numerous public and private construction projects over the past ten years. He is a construction attorney who has given frequent lectures to both contractors and attorneys on various construction law topics. Mr. Ganz may be reached at (516) 822-4400.

Author

Michael D. Ganz

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Fordham University Law Review

If You Can’t Beat ‘Em, Join ‘Em: Implications for New York’s Scalping Law in Light of Recent Developments in the Ticket Business

Author

Scott D. Simon

Scott D. Simon represents companies and individuals in bankruptcy proceedings, complex commercial and construction litigation, and general corporate matters. During law school, Scott was Associate Editor of the Fordham Law Review. He has authored multiple publications for the ABA Section of Litigation News & Developments, Real Estate Weekly, and Fordham Law Review.

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