Private clients that know best and Construction Contracts

We are a commercial firm that uses our experience to inform the private client transactional work which we do to support our commercial clients.

 

Private clients and construction produce a steady supply of legal work which could be avoided. Let me mention three examples where advice from us before the clients committed to their projects would have saved them considerable amounts not to mention the heartache and anxiety that goes with making a claim. Unfortunately, they chose to go at it alone.



Three cases, three nightmares which could have been avoided if the clients had taken advice.

Case One:

Case one involves a newly retired lady with a sick husband who wants to create some income from property which she will rent out, and her daughter will manage.

​Our client picked a scenic part of the country near National Parks with an abundance of outdoor sports activities such as hiking, biking and walking, close to where her daughter works, but three hours away from her home. She buys for under £100,000.00 taken from her pension and lets her daughter and son-in-law put together a basic schedule of works. They decide to go with a local builder who professes his company knows what it's doing. They decide to have the electrical work done separately because the builder’s recommendation is unavailable. Once completed they expect the holiday house to generate £20,000.00 per annum. Between them the builder starts work based on estimates without any program, without any supervision and gradually it is apparent that the building works are not completely specified, and requests to do extra work start to come in thick and fast, taking the cost above budget.

The builder and the electrician shared their equipment but did not coordinate their work, and with the holiday house beginning to take shape and full of appliances, a fire breaks out and the house burns down. The builder blames the electrical contractor for failing to uncoil the extension lead he was borrowing.

The owner contacts her holiday home insurers only to be told that they will not accept liability because her policy contains the standard exclusion clause affecting most household policies where contractors are carrying out building works. She challenges her insurers and it is clear she did originally explain she was having works done but the policy they provided expressly stated that she would not be covered if contractors were on site. She failed to check the policy provided.

So she instructs us to bring claims against the builder and the electrical contractor. It is fairly obvious that one or other of them caused the fire, but it is extremely difficult to identify with a degree of legal certainty required (over 50% likely to have caused it), exactly what caused the fire.

The builder turns out to be a rogue and his insurers and loss adjusters attempt, through delay and obfuscation, to engage with us in negotiating a settlement.

The electrician and his insurers are more amenable, but they are focused on getting the builders insurers to make a contribution to pay for half the damage caused by the fire which is put at over £200,000.00 Because of the fire and the unsafe conditions it left the property in, the house had to be demolished.

The outcome

Eventually after pre-action correspondence with the electrician’s insurers they decided to accept the owners very low proposal to them to settle.

She could not afford to take the case to court, and she had no legal expenses insurance for her legal costs, plus there is no legal aid available to her.

The builder’s insurers continue to this day to deny any liability and are currently refusing to participate in negotiations, and/or a mediation, in the hope that the owner will grow tired of the claim and give up.

Presently we have managed to recover over 75% of what she lost.

The legal bill for sorting out this case exceeded £30,000.00 but was paid for in the settlement agreement.

The stress and anxiety and distraction from normal life and business, if valued, would be another £30,000.00.

The cost of having proper advice and having a contract administration during the program of the works would be about £10,000.00.

Our client was happy with the work we did for her and what it cost her. We did carry some of our legal costs forward to help her cash flow where we could. We provided her with discounts along the way, because we were both determined that the insurers for these incompetent builders and electricians should be forced to honour at least some of their obligations.

How to avoid this happening to you

The lessons to be learnt from this disaster are as follows:

  1. Take advice on how to procure any building works and on consumer rights.

  2. Check your household policy and have it amended so you have the “no contractor working on site” exclusions clause.

  3. Have a professional specify the works and do not rely on the builder and your own know how, unless you are an expert.

  4. Have the building works supervised by an independent building surveyor who you should pay to act as your agent to control the work, value it, ensure milestones in the program of works are met, and withhold payment in accordance with the law until the works are complete and fit for purpose.

 

Case Two:

The second case involves another vulnerable client who is a leading horse trainer, keen to develop her equine training facility so that it offers care for horses she looks after 24 hours a day.

 

To be able to do this she must provide full on-site living accommodation. Her project is to build onsite living accommodation for grooms and to offer overnight accommodation for her customers.

 

She is put in touch with a builder who comes highly recommended by a friend. She negotiates with the builder based on some drawings produced by another recommended draftsman and it goes through planning. The construction contract leaves lots in doubt. It is not clear who is the designer and the role of project manager is left with the builder. The builder is also left to certify the value of the work carried out. After having paid in excess of £150,000.00, a relative inspects the works carried out and identifies some serious structural defects. The builder provides another bill and presses for payment. The client refuses to pay, and the works come to an end.

Our strategy

We were engaged to advise on the client’s contractual position and how she should proceed. We are asked to advise on what sums if any, should be paid to the builder.

We rapidly established from an independent structural engineer the defects and what remedial work was required and the costs involved.

 

We lawfully terminated the contract, having demanded a refund of sums overpaid to the builder based on independent surveying advice as to the true worth of works.

We began to claim for design defects and a refund of money overpaid from the builder, only to be told by the builder’s solicitors that his client’s company has no professional indemnity cover and will go into liquidation.

The outcome

We were able to help the client to terminate the contract and get her full details of the defects for remedial purposes. Unfortunately we didn't get anywhere with the contractor.

How to avoid this happening to you

The key lessons in this case are:

  1. To take advice on the procurement of the works

  2. To ask for details of the builder’s professional indemnity cover before you decide on who to contract with.

  3. To have an independent building surveyor advise on the scope of works, to produce the scope and program and to administer the contract.

  4. To have legal expenses insurance to cover your legal costs of having to bring a claim. Building contractors do not have any insurance for defective works, so if the work is not fit for purpose, you need to have money in hand such as retention money and/or a bond to cover the cost on a worst-case scenario of the remedial costs. As a rule of thumb, building works that go wrong will cost three times as much to correct.

  5. When selecting, the builders’ price is obviously a factor, but you must have independent recommendations and critically complete faith in their financial standing via bonds and guarantees.

 

 

Case Three:

The third case follows a similar pattern to the first two. This is a first flat purchase in London by a young lady with help from the bank of Mum and Dad. The London property market was ‘hot’ and the property in Clapham was perfect, except a loft conversion with a study, bedroom and ensuite was required.

Once again, a faux builder managed to get our client to agree a price for works. There was no program, no contract administrator but a payment schedule which asked for high initial payments, which bore no relation to the value of the works.

 

After having obtained planning permission for the client she was presented with three bills in quick succession, which again, bore no relation to the value of the works. She paid all three, but very little work was taking place and indeed the men on site complained to her they had not been paid.

Our strategy

We examined the contract which failed to comply with the Consumer Rights Acts 2015. We were able to terminate it forthwith and under the regulations, we were able to demand repayment of all sums paid.

The builder in this case represented that all payments received would be held in a “trust account” and would not be used without the client’s authority. The payments were transferred into the “trust account”, although we are currently waiting to hear whether the bank has been prepared to freeze the account, and whether it contains our client’s payments.

How to avoid this happening to you

As before, the lessons to be learned are to take advice on construction contracts and their procurement. Resist the temptation to think you can move forward without professional, legal and other construction profession advices.

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