Developers and Builders Gain Time from Permit Expiration in California with AB 2913

After decades of dealing with a hodgepodge of local adoption (or not) of administrative codes relating to building permit extensions, California Governor Brown’s September 21, 2018 signature on AB 2913 is a welcome addition of at least six months to the existing statutory commencement of work period. AB 2913 allows a uniform 12-month period across the entire state for commencement of work after permit issuance, doubling the prior period. 

Because of the confluence of market demand and significant labor shortages in construction, the previously existing six-month expiration of building permits caused further hardship to developers and builders in their efforts to bring projects to market.  Since state law mandates that a permit require all projects to be built according to the code in existence at the time of the first permit issuance, this hardship was particularly acute where a building code change was adopted after the original permit date, and the permit then expired. In this market, the cost of code changes (and any redesign, cost of compliance, and rebidding potentially) could significantly impact the project cost and timeline. 

There is a further benefit to the amended statute: it expressly provides “good cause” for an additional six-month extension (which would be in addition to the 12 months for new permits) by local jurisdictions, something not previously adopted by all local jurisdictions or clearly available to developers and builders before. 

The amendment applies prospectively, not retroactively; only permits issued after September 21, 2018 will benefit from the new 12-month period.

Managing Risk from Gaps in Your Construction Project

Experienced project developers know that managing risk on a major project involves initial planning, design, construction, and commissioning. These tasks call for different skill sets — making it tempting to think of them as separate — but they need to be coordinated to prevent the creation of troublesome gaps in areas of responsibility. In my latest article for the Daily Journal of Commerce, I examine where these gaps may occur — in planning for code compliance, assigning scopes of work, procuring construction materials and other areas — and I look at ways to manage the risk presented by such gaps. Read the full article here.

“Teamwork is needed during each stage of a project: supply, delivery, installation, testing” was originally published by the Seattle Daily Journal of Commerce on September 6, 2018.

The Owner’s Guide to Negotiating Construction Contracts During Volatile Trade Negotiations

President Trump’s new tariffs and ongoing trade negotiations concerning building commodities like steel, aluminum, and lumber have resulted in uncertain market conditions for those in the construction industry, making it nearly impossible for owners, developers, contractors, and suppliers to accurately analyze and allocate risks during construction contract negotiations. In my latest article for the Daily Journal of Commerce, I provide owners and developers with an overview of the new tariffs on building materials and the key contract provisions they should review and revise to hedge against the risks associated with the uncertain market conditions. Read the full article here.

Originally published as “New tariffs on building materials have owners revising construction contracts” on August 23, 2018, by the Seattle Daily Journal of Commerce.

Legislative Update: House Bill 4154

In February 2018, the Oregon Legislature attempted to push through House Bill 4154, which would have made a general contractor liable for unpaid wages, including benefit payments and contributions, of an employee of a subcontractor at any tier, after that employee files a wage claim and the Commissioner of the Bureau of Labor and Industries (“BOLI”) makes a determination that the claim is valid but cannot be enforced against the subcontractor. The only way that the general contractor would not be held liable for unpaid wages was if it had paid the subcontract in full prior to the BOLI determination.

HB 4154 passed in the House 31-26 on February 26, 2018, and it was referred to the Senate on February 27, 2018. The Senate met on March 3, 2018, and HB 4154 died on the Senate floor without a vote. Although the bill did not pass, a similar bill could reappear in the coming legislative sessions.

HB 4154 was presented as a solution to a “wage theft” problem in the construction industry, and it closely modeled a recently passed California bill, Assembly Bill 1701. AB 1701, sponsored by unions that represent carpenters and other building trades, allows construction workers who have not been paid for a job to seek their back wages and benefits, with interest, from the general contractor. The general contractor’s liability does not extend to penalties or liquidated damages. AB 1701 only impacts construction contracts that are entered into after January 1, 2018.

Engineers, have you checked your insurance policy lately for pollution coverage?

Engineers working in the commercial construction industry face a myriad of challenges that can keep them up at night.  Of those many challenges, consulting on pollution issues can be one of the trickiest. As lawsuits involving pollution can be expensive to defend and bring the potential for significant judgements, engineers need to maintain a professional liability policy that contains pollution coverage. In my latest article for the Daily Journal of Commerce, I explain the basics of professional liability policies for engineers and how to tell if a policy provides the kind of pollution coverage that they need. Read the full article here.

“OP-ED: Check whether insurance policies have pollution coverage” was originally published by the Daily Journal of Commerce on August 16, 2018.

California Contractors State License Board (CSLB) Issues FAST FACTS for Contractor Referral Businesses

There is no doubt that our national economy relies heavily on e-commerce.  This is true with regard to contractors in California as well. As individuals and businesses look for quality builders, trades and services in the construction field, they look for sources of on-line information to evaluate whom to hire.  Would you think that an on-line referral service is a “contractor” under California law?  According to the CSLB, the answer may surprise you with a “maybe.”  Again, the same rules that have always applied in evaluating the question of who is a “contractor” – even if the person never lifts the proverbial hammer – still apply to those representing that they can find the best contractor resource for you.  Bottom line, if you are in the referral business (or use the services of a referral business), don’t cross that line.

It’s important to remember that a referral service cannot solicit or negotiate contracts on behalf of a contractor, or offer to undertake to, or purport to have the capacity to undertake itself or through others a construction project (BPC § 7026).

A referral service may serve as a repository for licensed contractors and provide contractor contact information to prospective customers. However, to avoid allegations of unlicensed activity, the prospective customer should enter into a contract directly with the licensed contractor and make payments directly to that licensed contractor.

For the full bulletin, see the link.

Condominium Comeback? Bullish-Developers Must Consider the Liabilities Associated with the Resurgence of Condominium Developments

The condominium embodies a missing price point in Seattle’s real estate market. As a result, we have noticed an uptick in the number of developers seeking legal advice regarding the potential risks associated with condominiums. In my first article for the Daily Journal of Commerce, I provide an update on Washington’s condominium laws, a summary of the potential liabilities arising from the Washington Condominium Act, and a review of the risk management tools that can be implemented to mitigate them. Read the full article here.

Originally published as “OP-ED: Bullish developers must consider liabilities tied to condos” on June 14, 2018, by the Daily Journal of Commerce.

Crumbling for Coverage?: Recent Ninth Circuit Opinion Relies on Washington Supreme Court’s Definition of “Collapse” in Declaratory Coverage Action

On May 9, 2018, in an unpublished opinion, the Ninth Circuit held that the proverbial London Bridge should be near collapse for an insured owner to successfully obtain insurance coverage for same.  In American Economy Insurance Co. v. CHL LLC, No. 16-35606, an owner appealed the district court’s decision in a declaratory coverage action regarding whether the owner’s building indeed collapsed pursuant to the definition of “collapse” in the relevant insurance policies.  The Ninth Circuit relied on the Washington Supreme Court’s definition of collapse from its recent opinion, Queen Anne Park Homeowners Ass’n v. State Farm Fire & Casualty Co., 183 Wn.2d 485, 352 P.3d 790 (2015).  Nationally, courts have struggled to conform to a single definition of collapse in the context of insurance coverage.  This article briefly reviews the three main definitions of collapse, and what the Queen Anne opinion means for property owners in Washington.

In the Queen Anne dissent, Justice Fairhurst identifies the three main definitions of collapse that have been adopted by courts across the United States.  The first definition is actual collapse.  For example, in Century Mutual Insurance Co. v. Royal, 113 So. 2d 680, 683 (Ala. 1959), the court found there was no collapse coverage because there was actually no collapse or rubble on the site.  Second, the slightly more relaxed definition is imminent collapse.  In Doheny West Homeowners’ Ass’n v. American Guarantee & Liability Insurance Co., 70 Cal. Rptr. 2d 260 (Ct. App. 1997), the court opined that its slightly more lenient definition of collapse is consistent with the insureds’ reasonable expectation that they should not have to wait for their building to collapse to obtain coverage.  The third major definition, as adopted by Washington, is substantial impairment of structural integrity.  In Queen Anne, the court defined this standard for collapse as the “substantial impairment of the structural integrity of a building or part of a building that renders such building or part of a building unfit for its function or unsafe ….”  183 Wn.2d at 487.  However, the court limited this generous coverage grant by stating that collapse must be something more than “mere settling, cracking, shrinkage, bulging, or expansion.” Id.  In addition, the court emphasized that “‘substantial impairment’ of ‘structural integrity’ means an impairment so severe as to materially impair a building’s ability to remain upright.”  Id. at 492.  The courts’ adoption of these definitions has major coverage implications for property owners, because what may constitute a covered claim in one state may not be covered in the next.

Despite the Washington Supreme Court’s adoption of a more liberal collapse standard, and Washington’s reputation for being a pro-insured state, property owners are forced to speculate as to what types of property damage actually constitute collapse under the “substantial impairment of structural integrity” standard.  Under Queen Anne, we know that the damage to a building must be more than cracking, shrinkage, bulging, or expansion.  Likewise, the damage must be severe enough to materially impair the building’s ability to stay upright.  On the other hand, the building does not have to actually crumble into a pile of rubble for collapse to occur.  These guidelines are unclear and leave insured owners with damaged buildings in a precarious position regarding coverage.  Under the current legal authority, it would appear that owners do not have to wait until their buildings collapse, but they do have to wait until the structural integrity of their building is seriously in question.  So, to obtain “collapse” coverage, an informed owner should engage legal counsel and a structural engineer to determine whether the condition of the building in question satisfies the “collapse” standard.

Can a Contingent Payment Provision Affect a Construction Lien Claim in Washington?

During Seattle’s current construction boom, general contractors and subcontractors may be concentrating more on finalizing work on their projects than on worrying about the niceties of their construction contract documents. It is no less prudent now, however, for the parties to remain aware of their contractual rights and responsibilities—especially those tied to payment.  One payment term commonly contained in subcontract agreements is the contingent payment provision, which, depending on its terms, may pose an interesting challenge to construction lien rights.

Contingent payment provisions (e.g., “pay-if-paid” or “pay-when-paid” clauses) are frequently inserted in subcontract agreements. The hallmark of pay-if-paid clauses is usually “condition precedent” language, where the general contractor and subcontractor expressly agree that the general contractor’s receipt of payment from the owner is a condition precedent to payment by the general contractor to the subcontractor.  Under this clause, the subcontractor assumes the risk of non-payment by the owner.  On the other hand, pay-when-paid clauses have been interpreted to delay the subcontractor’s entitlement to payment until the owner pays, or for some reasonable time if the owner does not pay. Continue Reading

Oregon Court of Appeals Broadens “Four Corners” Rule in Construction Defect Insurance Coverage Cases

In a recent Oregon Court of Appeals decision, the court likely eased the burden for contractors seeking a defense under insurance policies in which they have been named as an additional insured. In my latest article for the Daily Journal of Commerce, I examine the decision, which expands upon a 2016 Oregon Supreme Court ruling that the duty to defend arises when the allegations contained within the four corners of a plaintiff’s complaint can be “reasonably interpreted” to fall within the coverage of the policy. Read the full article here.

Originally published as “OP-ED: Oregon Court of Appeals broadens ‘four corners’ rule” on April 19, 2018, by the Daily Journal of Commerce.