Carolina Construction Law

Liens and Atttorney Fees

Last month, in the case of Terry's Floor Covering v. Crown General, the NC Court of Appeals held that a subcontractor was entitled to an award of $17,000 from an owner who had unreasonably refused to pay the subcontractor $7,000 for work performed.  The subcontractor filed a subrogation lien under NCGS 44A-23 against the owner's property.  The owner owed the general contractor, who hired the sub, over $10,000 in retainage. 

If the property has been sold, can a subcontractor still lien it?

In North Carolina, the answer is yes.  As long as the subcontractor has filed his lien within 120 days of the last furnishing of labor or material, the subcontractor can still lien the property through NCGS 44a-23.  This statute is actually intended for contractors, but subcontractors can not use this statute by virtue of their right to subrogation to the general contractor's lien.  A contractor is supposed to provide a buyer with a lien affidavit or waiver at closing indicating that all subs have been paid.  If you are a homeowner who has received a "surprise" lien, you should contact an attorney and perhaps your title insurance company.  The issue remains as to whether the land can be sold to pay the contractor.  Many times that answer turns on what money might still be owed to the contractor.

Can a builder include subcontractors in arbitration with homeowner?

No.  If a homeowner and builder are in a construction dispute that has a binding arbitration provision, then any attempt to bring a subcontractor into the arbitration will void the arbitration agreement since the subcontractors were not a party to the original construction agreement.  This raises a number of other issues.  It apparently means that the contractor is going to be involved in both an arbitration with the owner and a civil trial with the subcontractors.  This produces twice the legal costs.  What if the contractor and the owner have one arbitration agreement, and the builder and the subcontractors have a separate arbitration contract - can you force them both to arbitrate at the same time?  I'm not sure we know the answer to that question.  Of course, the parties can always agree to arbitrate, regardless of what the contract says.  (See the recent decisions of University Heights v. Pineville Forest).

Can a contractor force a condo association to arbitrate construction claims?

Apparently not.  In a case decided just last month, the Court of Appeals in Pineville Forest v. Portrait Homes rejected both of the builder's arguments that any claim for defects alleged by a homeowners association for condominiums must be arbitrated.  At the time of the sale of the units, each owner was given a warranty on the building issued by a third party.  The third party warranty had a mandatory arbitration provision.  The Court held that since the warranty was a contract between the owners and the builder and not a contract between the association and the builder, that the arbitration provision did not apply.  Additionally the builder, (who we represented BTW), had placed a binding arbitration provision in the recorded Covenants, Conditions and Restrictions.  However, here the Court said that no contract existed - merely recorded restrictions on the property.  In other words, an arbitration provision was only enforceable if it was in a contract between the two parties to the contract.

Is an arbitration clause signed after the initial contract, enforceable?

In an unpublished opinion of the Court of Appeals in July 2007, the Court held in Hailey v. Terminix that since the initial contract between the owner and the pest control company did not contain an arbitration provision, the fact that the report given to the owner did have such a clause, did not make it enforceable.  Therefore, the matter had to proceed to trial - not arbitration.

Can you sue a county building inspector for poor inspection?

In some cases, the answer may be yes.  There are basically two legal hurdles that must be overcome.  First, as a general rule municipalities, including counties, are immune from suit under the North Carolina Constitution.  This is referred to as governmental immunity.  However, immunity is waived if the municipality has purchased liability insurance - as many counties and cities have.  Secondly, for a long time the Court protected inspectors from liability under a legal premise known as the Public Duty Doctrine. This complicated doctrine basically provides that unless the inspector has undertaken a special relationship with the homeowner, then that person is immune from suit.  If this sounds vague - it is.  Even so, very recently, our appellate court has held that safety inspectors had liability for a jail fire that killed many inmates - contending that a special relationship existed between the inspector and the incarcerated inmates.

Does a builder have a right to fix defects?

I was recently asked to speak at a national conference on construction issues.  One of the speakers on the panel discussed the fact that many states, but not North Carolina, have enacted a "Right to Cure" statute, which requires the owner to allow the builder a reasonable opportunity to try to fix any defects in the home.  As a general rule, the contractor can repair your home less expensively that you can - or less than the cost of litigation.  Even though NC does not have a Right to Cure statute, there is case law that suggests that the builder must still be afforded the right to repair.  This is called the Doctrine of Prevention.  Therefore, you should exhaust your efforts to have the builder do the repairs before you seek a judicial resolution of the problem. If the builder does not timely respond or if they refuse to do the work, the jury will at least appreciate the fact that you have the builder the opportunity to fix it before you filed suit.  Keep in mind, however, that from the first time you give notice of a defect, that the statute of limitations begins to run.  In our state, you would have three years from that date to file suit or be forever barred.

How do I enforce an arbitration award?

Once you have the decision of the arbitrator, North Carolina has adopted the Uniform Arbitration Act. This Act permits you to petition any Superior Court judge to affirm the award.  This will convert the award to a judgment on the public records just as an original jury verdict would.  From there, you can execute on the judgment through the Sherriff's department.

Can a contractor's promise to repair extend statute of limitation?

There is one case in North Carolina that seems to say that if you agree not to sue a contractor because the contractor agreed to fix the problem with the home, that the promise than extend the statute of limitations and/or repose.  However, most cases hold that once the statute of repose expires, the contractor's liability is over.

What does Builder's Risk insurance really cover?

Maybe not much.  In recent years the builder's risk insurance policy coverage has continued to shrink.  Only a few years ago, subcontractors were insured under such a policy - now it takes an entirely separate endorsement.  Policies do not cover defects in workmanship.  It may, however, in some circumstances, pay for damage caused by a defect.  For example, if a roof leaks, it will not pay to fix the roof - it may pay for the damage to the house that the leak caused.  Also, once a project is completed, many policies try to exclude coverage for "completed operations".  My opinion is that both the general contractor and the owners are being short changed when it comes to the purchase and protection of builder's risk policies.