Construction law consists of the legal rights and responsibilities created by a contract and the regulations of local, state, and federal authorities. If the two come into conflict, governmental regulations control, so they should be considered first.
Before entering into a contract, check local zoning regulations and determine the procedures for obtaining a building permit and eventually an occupancy permit. Find out whether your state requires that builders be licensed. You may also have to obtain a survey and a title opinion or title insurance to determine whether there are any easements or covenants restricting the use of the property or the location of the building.
Before you make a decision, check the references and license status of any contractor you are considering. Visit some completed projects. Make sure that the contractor has liability and workers’ compensation insurance for employees.
Larger projects often require bonds. A surety bond is a guarantee by a surety company that a contractor will perform in accordance with the construction contract. A bid bond assures the owner that the contractor bid on the project in good faith. A performance bond protects the owner if the contractor fails to perform in accordance with the contract. The surety company may arrange for completion of the project or may provide funding for the owner to arrange for completion if the original contractor fails to do so. A payment bond assures the owner that the contractor will pay the project's subcontractors and suppliers. A maintenance bond guarantees against poor workmanship or materials.
Finalize your plans before signing a contract. Be very specific about materials. The price stated in the contract will be based on the plans attached to the contract. Changes can be very expensive and delay the project.
In addition to the plans, construction contracts typically include a timeline for completion, a statement about which party will insure the property against fire and damage during construction, and a description of any penalties for failure to meet deadlines and a schedule of payments. Typically, the contractor will provide proof of its payments to subcontractors and of any required inspections at specific points in the construction, and it will be entitled to a percentage of the contract price. The contract should also describe a method of resolving disputes, such as arbitration, that will prevent unnecessary delays and that is fair to all parties.
The contract should also describe warranties. These “express” warranties set forth promises about the quality of materials and workmanship for specific time periods. The warranties should describe what will happen if the owner is dissatisfied. The law also implies certain warranties, even if they are not stated in the contract. Since those warranties vary, it is best to get as many express warranties as possible.
Before making the final payment, the owner should conduct a thorough inspection and should receive proof that the workers and suppliers have been paid to avoid future mechanics’ liens. The owner should also receive a certificate of occupancy as evidence that local authorities are satisfied.