CONSTRUCTION LAW - Frequently Asked Questions
What Actions Are Filed Against Contractors?
Generally, there are a number of actions that homeowners file against contractors. Those actions include:
- Breach of Contract
- Breach of Warranty
- Misrepresentation / Fraud
- Indemnity Claims Against Materialman’s or Laborer’s Liens
What Are Materialman’s or Laborer’s Liens?
Under certain circumstances, a person or company providing labor or material during a construction job, often a subcontractor, may place a lien against the property if invoices are not paid. An unpaid materialman or laborer may foreclose such a lien, perhaps by taking the property from the owner, in a suit to foreclose a lien. The filing of a lien is not complex, but lien filing requires that a number of things are handled properly. As examples, liens may be removed from land if the lienholder did not provide sufficient notice to the landowner (often given prior to starting work), if the lienholder has failed to properly file an affidavit concerning his or her lien amount, or where the lien was not filed within the time period allowed.
Can a General Contractor be Liable for a Lien Filed By a Subcontractor?
Generally, yes. General contractors have a responsibility to ensure that invoices for labor and materials are paid when the general contractor gets paid. General Contractors may pay the claim, defend the claim, or may choose to assert claims he may have against the subcontractor who filed the lien.
What is a Breach of Warranty Claim?
Homeowners may receive from a contractor certain expressed warranties (typically a written warranty or a promise made by the contractor), or implied warranties. Expressed warranties generally occur when the Contractor promises to do something or to return to correct something done incorrectly the first time, but does not. Implied warranties are often referred to as the warranty of fitness, sound workmanship, proper construction, and habitability. Implied warranties are “implied by law” and will apply even in the absence of a written or verbal promise. Arkansas recognizes implied warranties in new home construction and the warranty may extend to subsequent purchasers under certain circumstances.
What is a Misrepresentation or Fraud Claim?
With regard to construction cases, a misrepresentation or fraud claim occurs where the following elements exist:
- A false representation of material fact;
- Knowledge that the representation is false, or that there is insufficient evidence upon which to make the representation;
- Intent to induce action or inaction in reliance on the representation;
- Justified reliance on the representation; and
- Damage suffered as a result of the reliance.
We have seen an alarming number of fraud cases against contractors in recent years. A number of these cases stem from “cost-plus” construction contracts wherein the contractor misrepresents his actual cost by inflating it so that the contractor may realize a larger profit.
What is a Cost-Plus Contract?
Generally, a Cost-Plus contract occurs where the contractor agrees to perform the work and to invoice his customer the cost of performing the work plus an agreed percentage for his contractor’s fee. This type of contract differs from a fixed-price contract, wherein the contractor agrees to perform certain work for a fixed sum.
What Statute of Limitations Applies?
A statute of limitations is a law stating that a certain type of suit must be filed within a specified time period or the case will be barred. There are different statutes for different types of cases, and a “statute of repose” which must be heeded as well.
Warranty, negligence, and fraud cases must generally be filed within three years of the event. Written contract cases must be filed within five years of the breach. These periods may be extended or “tolled” for various reasons, including a contractor’s actions in fraudulently concealing the cause of action.
What is the Statute of Repose?
A statute of repose is similar to a statute of limitations, but in some cases the statute of repose may “cut off” or extinguish a case even before it has arisen. The statute of repose states that any action arising from a deficiency in the design, planning, supervision, or observation of construction, or the construction and repair of any improvement to real property, or for injury to real or personal property caused by a deficiency, as well as damages caused by any deficiency in surveying, establishing, or making the boundaries of real property, the preparation of maps, or the performance of any other engineering or architectural work on real property or improvements to real property must be filed within five years of substantial completion of the work.
Can Homeowners Recover Damages for Emotional Distress?
Generally, no. Arkansas does not recognize emotional distress damages for harm to real property.
Can Homeowners Recover Their Attorneys’ Fees?
Many times, yes. In Arkansas, homeowners may recover their attorneys’ fees if the action is based upon a contract. Arkansas law allows an award of a reasonable attorneys’ fee to the prevailing party. Likewise, contractors may recover attorneys’ fees if they prevail in a contract action. The prevailing party may also recover attorneys’ fees in an action to enforce or contest a materialman’s lien or a laborer’s lien.