CONSIDERATIONS FOR REPAIR CONTRACTS

By

Shawn M. Smith

Recently I had the opportunity to prepare a paper for presentation at the Pacific Condominium Association’s seminar on repair and maintenance issues. This article will be a slightly condensed version of that paper. The primary focus of the both the paper and this article is the terms which should appear in major contracts (such as those for roof replacement, siding replacement, painting, etc) entered into by the strata corporation.

The more specific the terms of the contract, the better. Ambiguities often give rise to expensive disputes between the parties. Preprinted or standard form contracts are generally fine for smaller matters. Larger or more complex matters may require a contract drafted (or at least modified) specifically for the situation at hand. (This is best done by a lawyer with experience in drafting contracts). Either way, the form of contract should be carefully reviewed before it is signed to ensure that it contains the appropriate terms and that none are onerous to the strata corporation.

The following are some of the major items that should be addressed in a contract. By no means is this an exhaustive list. Each situation may require slightly different provisions to be included into the contract.

A. A Description of the Scope of Work

The contract should include (either in the body or as a schedule) a description of what is to be done. The more detail it contains, the better. Disputes often arise over whether something was included in the price or not. Make sure the contract clearly includes everything that you want and expect to be done. Where there are technical details or specifications to the work to be done, these should be included as well. It is easier to ensure that work is done as part of the contract price if the contract clearly specifies it is to be done.

There should also be a provision that any changes or extra work should be approved by the strata corporation in writing. This will avoid extra work being requested by an owner and the strata corporation having to pay for it.

B. Price/Compensation Formula

It may seem obvious, but make sure to specify how much the work will cost. Either in a total sum or a clear formula as to how the end price will be arrived at. This is critically important where the person doing the work is being paid “by the piece” or there are unknown components that may or may not have to be done. This will help avoid an unexpectedly large bill at the end.

The contract should also include when the work is to be paid for. Is it at the end? Is it at various stages? If so, who determines when that stage has been satisfactorily completed.

Is G.S.T. included in the price or is it extra? (If the contract does not specify, it is extra).

C. Time to Complete the Work

For larger projects, which may take a considerable amount of time to complete, such as roofs and painting, a date when the work is to be completed is important. This will help prevent contractors from taking on more work than they can handle and not completing any of it in a timely fashion. Although having such a term may not make the contractor complete the work on time, it will give the strata corporation the ability to terminate the contract should it wish to do so as a result of unreasonable delays.

Also consider whether there will be any penalties (i.e. a reduction in the price) for not completing on time? Such penalties give an extra incentive to the contractor to finish on time.

D. Warranty

Will the contractor stand behind the work done? If so, on what terms will it do so? The contract should specify what is covered and under what conditions and for how long. Remember that the warranty is also only as good as the company that gives it. If that company goes out of business then the warranty is unenforceable.

It should also be determined whether suppliers or sub-trades are providing warranties. If so, the terms and conditions of the same should be identified and any necessary documentation evidencing those warranties should be obtained.

E. Holdbacks for Builders Liens and Deficiencies

The most common holdback is that which arises under the Builders Lien Act (the “BLA”). Anytime that work is done to a building, the provisions of the BLA apply. That act requires that ten percent (10%) of the total contract amount be held back by the “owner” (in this case the strata corporation) for 55 days from completion of the work. If no liens are filed within that time period, the holdback is then released to the contractor. If, however, there are liens then the holdback is used to clear those from title to the strata lots. A failure to retain the holdback in the event that liens are filed would make the strata corporation liable for an additional ten percent (10%) of the contract price in order to clear those liens from title.

If the value of the work is in excess of $100,000.00, a separate bank account must be opened in the name of the strata corporation and the contractor and into which the holdback (being 10% of each draw) is deposited.

Holdbacks are sometimes also retained for deficiencies. In such a case the contract should specify the amount or percentage to be retained and then on what terms and for how long. Absent a contractual right to impose such a holdback, there is not ability to unilaterally do so.

F. Indemnity Clauses

On occasion (particularly where the project is a lengthy one) the strata corporation might wish to obtain an indemnity from the contractor. An indemnity is a contractual promise that the contractor will indemnify (or compensate) the strata corporation and it owners for any losses or damage they may suffer as a result of the actions of the contractor.

G. Performance Bonds

On large projects it is not uncommon for contractors to be required to post what is commonly referred to as a “performance bond”. In the event that the contractor fails to complete the work, the insurer who issued the bond will pay (to the maximum value of the bond) to have the work completed.

Before entering into a contract, the council should undertake some “due diligence”, which is simply the process of investigating who it is you are dealing with. Some of the more common due diligence steps are:

· Have you spoken to the contractor’s references?

· Have you seen other work they have done?

· Do they have a license and proper qualifications?

· Do they have insurance? Is it adequate?

· Do they have Worksafe coverage?

· Are their employees bonded?

· Have you done a court search to see if the contractor has been sued and why?

Taking time to deal with these issues in advance and to have contracts properly drafted or reviewed can save a lot more time and money later on if a dispute arises. It will also reduce the exposure and risk to the owners.

This article is intended for information purposes only and should not be taken as the provision of legal advice. Shawn M. Smith is Honourary Legal Counsel for the Pacific Condominium Association and is a partner with the law firm Cleveland Doan LLP and can be reached at (604)536-5002 or shawn@cleveland-doan.com.