Construction & Design Agreements

The New York City Building Code, Chapter 33, requires a developer to safeguard adjoining property during the conduct of all construction and demolition operations. Accordingly, a developer and an adjoining property owner may enter into a license agreement, whereby the adjoining property owner provides the developer with access to its property to install Code-required protections.  In return, oftentimes the developer, among other things, pays compensation to the adjoining property owner for such access.  If the parties cannot reach an agreement, the developer may seek to compel such access through the courts pursuant to Section 881 of the Real Property Actions and Proceedings Law.

While the Building Code does not explicitly provide a right to compensation, when these issues have been brought before them, New York courts have awarded compensation to adjoining property owners.  However, whether compensation is mandated and the amount of compensation is within the courts’ discretion.  Courts often consider the length of time for which access is necessary and the intrusiveness of the developer’s work on the use and enjoyment of the adjoining property by its owner and occupants.  Without clear guidance from the courts, a developer and an adjoining property owner need to give due consideration to the issue of compensation as illustrated below.

In her ruling released late last month, Manhattan Judge Arlene Bluth denied any license fee to the Condominium Board of the Fifth Avenue Tower, an adjoining property owner to the New York Public Library.  The Library will conduct a $200 million overhaul of its main Fifth Avenue branch.  In her decision, Judge Bluth specifically rejected the Condominium Board’s request for a $15,000 / month license fee.  It has been separately reported that the Condominium Board rejected the Library’s offer of a $3,500 / month license fee.  It appears that Judge Bluth may have denied any license fee to the Condominium Board based, at least in part, on the excessiveness of its demands.

In view of the lack of clear guidelines, developers and adjoining property owners should consult with their legal counsel and should be sure not to overplay their hands when negotiating license fees.

Last week, New Jersey’s Appellate Division re-affirmed the principle that a court must strictly apply the terms of a construction contract when determining a dispute between contracting parties.  Where the contract terms speak directly to the issue in dispute, a court may not employ equitable considerations to determine the dispute even if the court believes that strictly applying the contract terms would be unfair to one of the parties under the circumstances.

While this is not a novel legal principle, the Appellate Division, in its unpublished opinion, Wallace Bros, Inc. v. East Brunswick Board of Education, Docket No. A-1432-15T3 (N.J. App. Div.  Nov. 9, 2017), reiterated this tenet in reversing a trial court that granted summary judgment to a general contractor that claimed it was owed final payment on a school construction project because the school board had waited too long to object to the contractor’s work.  The Appellate Division found that there were numerous material factual disputes between the parties when examining their allegations and the language in the parties’ contract.  It, therefore, reversed the trial court’s judgment, and remanded the case back to the trial court for further proceedings.  Critically, it appeared from the facts proffered by the school board that the contractor had not yet complied with the contract’s provisions regarding the right to receive final payment, such as the contractor’s obligations to provide standard close-out documentation and its failure to complete punch-list work.

Wallace Bros. serves as a reminder of how important it is for a contractor to review and, where possible, negotiate the terms of a contract before signing it, and then strictly comply with all contract provisions during the course of the project through completion.  In the public contracting context, as in Wallace Bros., the contractor generally must accept the terms of the contract on which it bids.  It then must strictly follow the procedures set forth in that contract when seeking payment for its work, particularly those provisions which explicitly set forth prerequisites to payment.  For example, change order provisions will typically require written documentation signed by the owner setting forth the additions or changes to the specified contract work, along with the price to be paid for that work, before such work is even performed, and therefore before payment is required to be made by the owner for any such work.

Also, as illustrated in Wallace Bros., contractors must be sure to compile and maintain their close-out documentation throughout the project, so that when it is time to submit their close-out packages in connection with final payment, they are not delayed tracking down or locating items such as subcontractor lien waivers, as-built drawings, and manufacturer warranties.  Note that in the private contracting context, a contractor may attempt to negotiate all contract provisions to try to ease the burdens of onerous payment and close-out requirements, as well as other critical terms, such as dispute resolution provisions and requirements relating to the performance and inspection of the work itself.

In sum, contractors must stay on top of their administrative duties and responsibilities in connection with their contracts.  No contracting party wants a construction dispute to end up in litigation, but if it does, the contractor will want to ensure that it has done everything by the book (or by the contract) to avoid getting tripped up by a technical contract prerequisite with which it failed to comply.

Until 1990, federal law extended copyright protection to original architectural drawings, but generally did not extend such protection to actual buildings, even buildings constructed from protected drawings.  The drawings were protected from copying as “pictorial” or “graphic” works, just like any sketch or painting.  The drawings only had to have a minimal degree of originality to enjoy protection.

Except for purely ornamental features separable from the structure, buildings did not enjoy the same protection.   Buildings were considered functional works excluded from protection under the Copyright Act.  In 1990, Congress passed the Architectural Works Copyright Protection Act of 1990 (“AWCPA”), amending the Copyright Act to fill that gap.  The AWCPA explicitly extended copyright protection to “architectural works,” so as to include completed buildings themselves registered with the Copyright Office.

Last week, the Second Circuit Court of Appeals clarified that the pre-existing protection of architectural drawings as “pictorial” works survived enactment of AWCPA.  In Scholz Design, Inc. v. Sard Custom Homes, LLC, Docket No. 11-3298 (2d Cir. August 15, 2012), the court considered a design firm’s claim for infringement of front elevation drawings showing the appearance of the front of three houses, surrounded by lawn, bushes and trees.  There was no dispute the defendants had published exact copies of the drawings.  The lower court had held, however, that these drawings were not protected under the Copyright Act, as amended by AWCPA.  The court interpreted previous decisions as holding that architectural drawings only could be protected if they contained sufficient detail from which a building could be constructed.  That interpretation sought to reconcile the extension of copyright protection to architectural works, through AWCPA, with the long-established principle that copyright law does not protect ideas, only the particular expression of ideas.

The Second Circuit disagreed.  The court held that regardless of whether the drawings were protectable as “architectural works” under AWCPA, they remained protectable as “pictorial” works under pre-existing law.

Scholz Design confirmed that AWCPA’s extension of copyright protection to buildings did not result in a contraction of protection for the underlying drawings.  Thus, according to the Second Circuit, the unauthorized publication or reproduction of original architectural drawings, even where lacking in detail needed for actual construction, has been and remains unlawful.

The U.S. Green Building Council, on April 27, 2009, implemented changes to Leadership in Energy and Environmental Design or LEED, the country’s most popular and recognizable green building rating system. The revised rating system, known as LEED 2009, contains several significant changes affecting developers who previously operated under the old system. LEED 2009 also features many positive improvements to the LEED rating system.

One of the most significant changes in attaining LEED certification now requires newly built, LEED certified buildings to submit electricity bills for at least one year following the building’s completion. The U.S. Green Building Council is attempting to move beyond certifying buildings based solely on their design and projected energy use and only certify buildings that demonstrate actual energy savings. However, buildings that have already been certified under the old system will continue to retain their existing LEED certification and will not have to reapply. 

Under the old system, buildings could attain a maximum of 69 possible points across 5 Classification Categories (i.e., Sustainable Sites, Water Efficiency, Energy and Atmosphere, Materials and Resources and Indoor Environmental Quality) and are ranked from “certified” to “platinum” based on the number of points earned. LEED 2009 enables developers to target a total of 110 possible points across 6 Classification Categories, including a new Classification Category known as Innovation in Design. 

The increase in the total number of possible points is based in part upon re-weighting of credits within the LEED Classification Categories to reward the most important green building goals, namely, energy efficiency and the reduction of carbon dioxide. For example, under the old system, the installation of a bike rack and the implementation of water efficient landscaping with a 50% reduction based on the average size and vegetation were each worth 1 point. Under LEED 2009, water efficient landscaping with a 50% reduction based on the average size and vegetation is now worth 2 points. 

LEED 2009 projects will also be able to earn “bonus points” for implementing green building strategies that address the most important environmental issues facing their region. A project can now be awarded as many as 4 extra points for achieving these regional environmental priorities. In Northern New Jersey, bonus points are awarded for the preservation and restoration of damaged habitats, limiting the harmful effects of stormwater and wastewater and reusing existing building structures. 

The green building process is highly technical and complicated, and simple misunderstandings or lack of green building experience can lead to missed opportunities or failure to achieve the desired rating altogether. Consultation with an experienced attorney will result in more informed decisions in navigating the green building process. 

Watch this blog for updates on green building and green technology.

A widely held assumption among project owners and construction contractors is that private arbitration is faster and more cost effective than litigation of a dispute in the courts. The inclusion of mandatory arbitration of disputes in all AIA construction contracts since their inception in 1888 was premised on this assumption. Unfortunately, as many owners and contractors have discovered, arbitration is rarely fast or inexpensive. In complex disputes arbitration often proves as costly and time consuming as resolution through the court system. In addition, many consider arbitration inferior to the court system in maximizing the chances of a just outcome. In response to widespread demand within the construction industry, the AIA revised its 2007 form construction contracts, deleting mandatory arbitration and permitting parties to choose arbitration or litigation through the courts.

Arbitration certainly has some distinct advantages over litigation. For example, there is a very limited right to appeal an arbitrator’s decision, thereby reducing the cost of potential appeals and expediting the process of obtaining an earlier binding decision. In addition, arbitration allows the parties to select a decision-maker with considerable expertise in construction matters, eliminating the need to “educate” a judge or jury about construction issues.

The arbitration process, however, has some significant drawbacks. Unlike most trials, arbitrations are not necessarily held on consecutive days until concluded and may be scheduled over several months, particularly when several parties are involved. This requires the parties and their respective attorneys and experts to spend additional time getting up to speed on the case before each arbitration session. Moreover, previously scheduled arbitration hearings are disregarded by most judges if a judge’s schedule for a trial or hearing requires the attendance of one of the attorneys involved in the arbitration. Many arbitrators also permit extensive document production, depositions and other methods of “discovery” similar to those available in the court system, increasing the cost and duration of the arbitration. The parties are responsible for paying the arbitrators their hourly rate for all time spent in the hearings and related study and communications, a potentially substantial cost especially where multiple arbitrators are mandated. Finally, the legal standards governing arbitration strongly favor an arbitrator’s consideration of all evidence offered by a party, even if it is developed during or after the arbitration hearings. This can result in a set of facts and issues that evolves during the course of an arbitration and extends its duration.

Participants in the construction process should carefully consider the pros and cons of arbitration or litigation of their construction disputes, rather then reflexively choosing arbitration. Consultation with an experienced construction attorney will result in an informed choice.