General Contractor Contract Review; Amendment to Mechanic’s Lien Act; Zoning in a Home Rule Municipality – Rules and Procedures Need Not be Followed
General Contractor Contract Review
In the last issue of this newsletter I provided comments concerning issues that arise when I am asked to review for subcontractor clients a general contractor’s form contract. When doing this work for a general contractor in regard to an owner agreement many of the same issues arise. Provisions that deal with notice, consequential damages for breach, permits, hazardous materials, retainage (amount and reduction), indemnity and insurance are for the most part the same. However, there are certain issues that those of you who are general contractors confront when negotiating a contract with an owner that are different from those a sub encounters when dealing with you. The following are some of the owner/contractor issues I have seen and the advice I give when reviewing a contract or rider to a contract between the owner and general contractor
- What is the effective date of the contract and how does this effect commencement of performance? Beginning construction should be related to when the building permit is issued and not just the signing of the contract.
- When is substantial completion accomplished? It should not be dependent upon a final certificate of occupancy?. A temporary occupancy certificate should be sufficient along with minor punchlist items to complete. Also important is how long do you have to obtain substantial completion. This should be so many days from the effective date of the contract which again should be related to when the building permit is issued.
- Is there a liquidated damages provision for not achieving substantial completion by the required date? If the owner wants this he should agree that if the project is completed early a bonus of a set amount per day is paid to you. A cap on these sums is something that is usually requested and is subject to negotiation.
- Is there a limitation on the amount you are entitled to recover should you default on the contract? Are there any special requirements to obtain payment based upon the owner’s agreement with his lender? If the owner terminates the contract for no reason what are you entitled to recover? Payment only for work done and retention or also for loss of profit on the remainder of the work.
- If a default occurs either by you or the owner is mediation and arbitration the required means of dispute resolution or is litigation permitted? In any event is the prevailing party entitled to recover attorney fees and costs. Any such provisions should be reciprocal.
- Is there any special representations or warranty required regarding the work complying with local laws and ordinances? I have seen very broad provisions to this effect which need to be curtailed.
- How are your subcontractors to be paid? Some contract provisions provide for direct payment by the owner which limits your control of the subcontractors.
- Is there a provision that defines abandonment of the project on your part? I have encountered a provision that if work was not performed for ten consecutive days this constituted abandonment. In my opinion this was too short a period and I recommended it be changed to thirty days.
- Is there a limitation on the amount you can charge for overhead and profit on extras? If so make sure the amount is sufficient to justify doing the work. Is there a provision for the owner’s architect to review and provide comments/approval of product data, samples and shop drawings within a reasonable time i.e. five to seven days from receipt.
These are some of the issues I have encountered in reviewing an owner/general contractor agreement. Resolving these types of issues at the beginning is important to a successful project. As I mentioned in last month’s issue when I review contracts for both subcontractor’s and general contractor’s I do not nitpick the contract or rider. I address the significant issues that can affect job performance and try to recommend language that is fair to both sides. If you encounter a particular problem I suggest that having me review the contract or particular provision at issue may be worth the cost to avoid future conflict.
Amendment to Mechanic’s Lien Act
Effective as of January 1, 2010 an amendment to the Illinois Mechanic’s Lien Act went into effect that pertains to an original contractor who works on an owner occupied single family residence. You are an original contractor if you contract with the owner of the property or one who the owner has authorized or knowingly permitted to contract for the improvement of the property. If you are going to work on an owner occupied single family residence then if you lien the property you now have to give written notice of the lien to the owner within 10 days after recording of the lien claim. If you do not give notice and as a result the owner is damaged before notice is given your lien is extinguished to the extent of the damages. This new provision now requires a second step that you did not have to do before if you fall into the category of an original contractor working on an owner occupied single family residence. The amendment does not apply to subcontractors and only applies to contracts that are made on or after its effective date, January 1, 2010.
Zoning in a Home Rule Municipality-Rules and Procedures Need Not Be Followed
A line of cases has developed that gives me concern as an attorney who does zoning and land development work. When I am representing a developer who seeks a zoning approval or someone who wants to challenge a municipal zoning decision, I look to the City’s or Village’s zoning ordinance to see what rules and provisions apply and what they state. However, if the City or Village is a home rule municipality, Illinois Supreme Court and Appellate Court decisions have held that a failure of the home rule City or Village to comply with its own self imposed regulations is insufficient to challenge the municipality’s zoning decision. A home rule municipality is any City or Village with a population over 25,000 or one that by referendum has chosen to be home rule. A County is home rule if its chief executive officer is elected by the electors of the County. The reason these decisions raise concern for me is if I am dealing with a home rule municipality what are the rules that apply?
In making these decisions the Illinois Supreme Court and Appellate Courts have emphasized that a municipal zoning decision is a legislative function. As such a home rule municipality has broad powers under the home rule provisions of the Illinois Constitution. Only when the zoning decision of a home rule municipality violates a provision of the Federal or State constitutions or violates the mandates of an applicable Federal or State statute will the courts intervene.
These decisions emanate from what I believe is a somewhat circumspect decision from a case that challenged a City of Chicago fuel tax ordinance. In that case the fuel tax ordinance was challenged on the grounds that it had been improperly removed from committee and therefore improperly adopted. The Appellate Court declined to review this assertion since there was no claim that the failure of the City Council to follow one of its own rules amounted to a violation of any constitutional or statutory provision. In my opinion this is far different than a home rule City or Village failing to follow the criteria or standards set forth in its own zoning ordinance.
The difficulty with these cases is clearly shown in an Appellate Court decision that dealt with the grant of a variance by the Village of Schaumburg for a room addition that was beyond the applicable rear yard setback. An abutting property owner challenged the grant of the variance. As is the case with almost all municipalities the Village’s ordinance set forth criteria for granting a variance. The Village’s zoning code provided that an applicant had to show there are practical difficulties or particular hardship in the way of carrying out the strict letter of the regulations of the ordinance. The Appellate Court held that since the granting of a variance was a legislative decision the Village did not have to follow its own standards as set forth in its zoning code and as long as the ordinance granting the variance was a rational means to accomplish a legitimate purpose it would be upheld. Failure to show what the Village’s zoning code provided as required for obtaining a variance was of no consequence.
Based on this line of cases, what they mean to me as a zoning attorney is that when dealing with a home rule municipality I do not need to be concerned with what the municipal zoning code provides with regard to standards for zoning relief. The mere failure of a home rule municipality to follow its own self imposed regulations in making a zoning decision is not in and of itself a constitutional violation. In order to challenge a home rule municipality’s zoning decision you need to make an independent claim of a constitutional violation such as procedural or substantive due process.
Procedural would be lack of notice or an opportunity to be heard. In order to claim a substantive due process violation it needs to be shown that the ordinance fails to pass a rational basis review under which legislative action will be upheld as long as it bears a rational relationship to a legitimate legislative purpose and is not arbitrary or unreasonable.
Dealing with a home rule municipality versus a non-home rule city or village with regard to zoning issues is different. The same rules do not apply.