Owner and Developer Implied Duties in Construction Projects

by Sherman & Howard L.L.C.

Increasing construction activity and the general improvement in the real estate market means that more owners and developers will be starting new construction projects, and it is important to review some of the obligations placed on the owner or developer in the typical ‘three-corner' structure of a construction project - the owner, the architect, and the general contractor.  Frequently these obligations are defined in the owner's contracts but, even where they are not, they may be implied and equally binding.

The active involvement of the owner and developer in site selection, site analysis, the selection of consultants as well as making decisions in a timely manner can mean success or failure for a project.  Fundamentally, it is the owner's project and, accordingly, the owner is ultimately responsible for building a project that is safe and in compliance with applicable building and zoning requirements. 

Surveys, Geotechnical and Environmental Reports.
The owner or developer is responsible for providing surveys, identifying setbacks, securing easements, having the site tested for environmental contamination, and providing geotechnical reports evaluating the structural and drainage capabilities of the soils.  Design professionals are entitled to rely on the accuracy and completeness of the information supplied by the owner.  In western Colorado, where many sites have unstable soils, adequate and comprehensive soils testing is critically important, particularly since the owner or developer owes duties to purchasers and the general public.

Implied Warranty of the Plans and Specifications.
An owner or developer also has an implied obligation (and may also have an express obligation under the construction contract) to provide adequate plans and specifications for the project.  The owner makes an implied warranty to the contractor that the plans and specifications, if followed, will produce the intended result. If the plans are inadequate,  the contractor may be entitled to additional compensation or costs.  Courts have held that contractors are not responsible for defects in the design documents not known to the contractor.

Off Site Easements.
Construction on steep slopes may require soil retention systems that dictate subsurface stabilization systems be installed, frequently with tiebacks or soil nailing that extend under adjacent properties.  Substantial vertical construction frequently requires aerial cranes that may swing over adjacent properties. Both of these situations dictate the owner or developer obtain the necessary easements from adjacent property owners, insofar as the construction contract does not require the general contractor to do so. Failure to do so could result in the contractor filing a claim for extension of time and associated general conditions costs or other delay damages.

Excavation or modification of the natural state of land may subject an owner to liability for loss of lateral and subjacent support if the work causes subsidence and damages adjacent land or buildings. Under Colorado law, an owner removing naturally occurring lateral support of land is strictly liable for subsidence.  Under certain circumstances, a current owner may be responsible for acts of a prior owner who removed lateral support.

An owner is responsible for project financing and insurance.  Insurance coverage generally includes commercial general liability, professional liability, automobile liability and Worker's Compensation, as well as builders risk. Typical homeowners policies do not provide coverage for construction, so private property owners are cautioned to make sure that builders risk coverage is in place before work begins. Likewise, occupancy of the project prior to issuance of a temporary or conditional certificate of occupancy may void or compromise the builders risk and commercial general liability insurance.

Implied Duty to Coordinate Multiple Prime Contractors or Subcontractors.
Another area that requires diligence of the owner or developer is the coordination of separate contractors where, for example, the owner or developer may engage interior design professionals separate from the architect of record, custom kitchen contractors, audiovisual or low voltage contractors and the like.  Under the circumstances, it is the obligation of the owner to coordinate the separate contractors.  The owner may face liability if there is interference or delay by or between these contractors.

Other Implied Owner Duties.
Other implied obligations include the implied duty not to hinder or delay; the implied duty to provide access to the site; the implied duty to provide adequate supervision; the implied duty of good faith and fair dealing; and the implied duty to ensure a safe workplace.

Owner Decisions.
Most importantly, decisions need to be made by the owner in a timely fashion.  These decisions include items such as the construction schedule, specification of finishes and other items that are allowances, approval of design and construction change orders, decisions on colors and materials, procurement and installation of furniture, fixtures and the like.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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