Most people who are going to renovate have one thing in common, they “just want to get started.” You will hear that phrase over and over again. The problems come when those people find that they have not sufficiently planned their project, but want to go ahead anyway and decide they will “figure things out as they go along.” The things that can go wrong can happen on any kind of project. The only difference is the magnitude of the problem in terms of complexity and dollars and cents. It does not matter whether it is the renovation of a condominium unit, a co-op, a townhouse, a house, an office or a store. These things usually occur after demolition when work has commenced and tend to cause delays while everyone figures out what to do next.
Clients tend to focus mainly on the amount of money they want to spend and when they want or need the project to be complete. This often causes them to cut corners and fail to have the teams, systems and contracts in place to accomplish their goal. As a lawyer who works with many individuals and companies involved in renovation projects, I see these mistakes over and over again when they come to me for advice. Here are some of the pitfalls to avoid from people who learned their lessons the hard way.
There must be a fully thought out and negotiated contract with the contractor. It should have the full scope of work, including plans and specifications, and the legal terms and conditions regarding the project. All too often people show me what they are calling the “Contract,” but it is only a list of the work they want to have done and a payment schedule. More often than not, the payment schedule requires payment at specific intervals of time, with no regard to the amount of work performed at that time. In a worst case scenario, payment could be due according to the contract, but the work is actually way behind schedule. Sometimes there are little to no plans and specifications.
There is almost always some form of agreement between the landlord or co-op corporation and the tenant, shareholder or unit owner, which must be signed before renovation work can begin. In co-ops, it is called an “Alteration Agreement.” In commercial office space, it is called a “Tenant work letter.” In a retail space, there will be a lease provision or work letter which is an exhibit to the lease. There may also be a few months of free rent while the renovations are performed. The problem that can occur is that the project is not properly organized and therefore, will most likely not be completed within the time allotted in the agreement. Some people realize before the work commences that the work cannot be completed in the designated time frame and just proceed anyway. There may be liquidated damages in the agreement for each day they are late in completing the work and they hope they can negotiate their way around it.
Even strict boards and landlords realize that not all renovations are the same. They may want to have a six-month limit on construction being completed as a general rule, but know that will not be possible if the renovation is very large. Therefore, there will need to be exception to such a strict rule, but they need to be advised before the work begins, not during or after.
Buildings and landlords may allow more time on a case-by-case basis, if the parties state what is needed in writing and show plans that illustrate the complexity and support the need for more time. The board may require a letter from the contractor stating how much time will be needed. This will be reviewed by the building architect or engineer and may be an exhibit to the Alteration Agreement. The key is being “up front” about it and not just trying to explain after everyone is angry.
Clients often make the mistake of signing the contract with the contractor and the Alteration Agreement or Work Letter with the building, without having them reviewed by a lawyer who understands construction law. There are a lot of details that need to be reviewed and addressed. Individuals and corporations also make the mistake of thinking that the building management will act as their “project managers” and tell them what is needed. The individuals and companies are required to basically do “whatever is necessary” to have a legally executed project, but they are not told specifically what needs to be done by building management.
One client told me that the contractor had failed to obtain a building permit and the property manager did not realize this until the contractor had walked off the job. The shareholder did not even know about the lack of a permit until the new property manager pointed it out. The shareholder’s reaction was “Why didn’t the building check on this and tell me there was no permit ?” There was also no electrical or plumbing inspection, which meant that the new contractors would need to open walls and perhaps re-do work in order to pass the inspections.
These are only a few of the many things that can be done with the guidance of experienced legal counsel to prevent things from going wrong on renovation projects. I will discuss more in my next article.
C. Jaye Berger, Esq., is the principal of The Law Offices C. Jaye Berger, New York, N.Y.