Top 10 Legal Concerns for Builders and Contractors

Cranfill Sumner & Hartzog LLP
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Cranfill Sumner & Hartzog LLP

Builders and contractors often come to me with the same questions and concerns related to legal issues. Over the years I’ve noticed the following common legal questions from construction professionals.  

1. Forming a business entity, regardless of business size.  

It is important to form a legal business entity regardless of the size of the business.  Even if there’s only one person, forming a legal business entity, such as a corporation or LLC, will help protect the owner and the owner’s assets. Failing to form a business entity can result in an owner being held personally liable for business debts, which can result in creditors taking an owner’s personal assets, such as their home.  

2. Protecting your personal assets.

While it’s important to form a legal business entity (i.e. a corporation or LLC), it’s not a guarantee that your personal assets will be protected. It’s important to follow specific legal corporate formalities to help protect the owner’s personal property from creditors. 

3. When to hire an attorney. (Hint: The sooner the better.)

It’s never a good idea to wait until you’re sued to hire an attorney. By then it’s often too late. Rather, it’s a good idea to have an attorney help you from the beginning as you set up your business, plan the structure of your business and help prevent future problems before they arise.

4. Planning for and preventing potential lawsuits.

Many people think you can only be sued if you do something wrong, and unfortunately, that is just not true. If a builder or contractor is sued, it can be a very expensive and time-consuming process. An attorney can help plan for such a possibility and can help businesses prevent certain legal issues with the appropriate contracts. 

5. Going beyond the Building Codes and inspections.

Yes, it is important to follow all Building Codes and inspection requirements. But you must do more than that in order to be successful and protect your business from legal harm. Businesses must also follow applicable industry standards, manufacturer’s instructions, plans, and specifications.  

6. Put all changes in writing.  

I recommend that you get any changes and modifications in writing, especially if it involves changes to your scope of work or if you feel that certain instructions that you receive are questionable.  Failure get to written confirmation could lead to disputes at a later time.  

7. Have a written contract…at all times.

Having a written contract with property owners, subcontractors and vendors is essential. It protects both parties by clearly stating the scope of work, cost of materials and more. Properly written contracts can also help protect a business from future disputes.

8. Subcontractors and the importance of an “indemnity” provision.

A contract must include a written “indemnity” provision to help protect a contractor from its subcontractor’s errors. Without this provision, your business could be held liable for mistakes that your subcontractors made. However, if the indemnity provision is not drafted properly, it can violate North Carolina’s anti-indemnity statute and will not be legally enforceable.

9. Keeping project files.

I always recommend to keep the entire job file on record for at least eight years after a project is completed. Under North Carolina law, you can still be sued for up to six years following the completion of a project even if the Builder’s warranty has expired. A complete project file will help protect the business in the event of a dispute several years later.  If document storage is an issue, scan all files electronically before disposing of documents.

10. Who pays the legal bills?

It is a common misconception that if you win in Court, the losing party must pay for the winning party’s attorney’s fees. That’s not true. Every party is responsible for paying its own attorney’s fees regardless of who wins . There are some exceptions to this, but those exceptions generally do not apply in most legal situations.

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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