Traps for the Unwary in Texas Construction Law

AAP partner Matt Ryan co-presented Traps for the Unwary in Texas Construction Law at the State Bar of Texas Paralegal Division’s Texas Advanced Paralegal Seminar conference this year.

Below are a few tips from his presentation:

• The statutory and common law framework makes Construction Law a very hazardous field for those who don’t practice it regularly. Construction Law contains so many traps for the unwary that it’s a minefield of potential malpractice for new and experienced practitioners alike.

• When it comes to damages and attorneys’ fees in construction litigation, it’s reasonable and necessary to say ‘reasonable and necessary.’ If you fail to introduce evidence with this wording, your entire claim might be sunk.

• A Certificate of Merit must accompany any original claim against an architect or engineer—and the affidavit must be from a like professional, for example, an architect vs. architect.

• Mechanics’ and materialmen’s liens must be secured by a lien affidavit filed in the same county as the project’s location.

• Liens against residential homesteads in Texas have shortened time periods, and a host of other requirements that make this type of lien the most difficult of all to secure and enforce.

• A constitutional lien is only available to parties in direct contractual privity with the owner. It also only applies to vertical (that is, above-ground) improvements.

• A bona fide purchaser without notice of a constitutional lien is not bound by it; therefore, a careful claimant should strongly consider filing a written notice with the project’s local country property records.

• Fraudulent liens no longer pose as much of a danger if your lien is simply wrong. The Texas Legislature added terms that require an intent to defraud before a claimant will be punished.

• Beware of contracts that alter the standard of care from ordinary care to the “highest standard of care,” and those that create a fiduciary duty. Agreeing to this type of relationship could wipe out insurance coverage and open the door to massively amplified risk of exposure.

• A statute of repose categorically bars suits brought more than 10 years after substantial completion. Don’t mix this up with the statute of limitations, which operates within the repose period.

• The Texas Supreme Court recently held that architects do not owe a duty to contractors if they are not in contractual privity, when the contractor claims that it suffered economic loss after relying on the plans and specifications.

• The Prompt Pay Act states that the owner must pay the contractor within 35 days after the lender funds the project.

• The Trust Fund Statute enacts criminal sanctions for misappropriation of trust funds.

• Public bond claims are a potential remedy for unpaid subcontractors and suppliers. As with mechanics’ liens on private projects, the notice periods are critical: and with bonded jobs, there is a one-year statute of limitations to file suit.

• The first material breach is a key issue on contract disputes. It releases the non-breaching party from its contractual obligations—but the breach can be waived if the non-breaching party takes no action and allows the project to continue.

• AIA contracts impose short timelines on limitations on time for claims – sometimes as short as 21 days. However, the Texas Civil Practice & Remedies Code 16.071 says that deadlines shorter than 90 days are void.

• The Deceptive Trade Practices Act is not applicable to a transaction, project or set of transactions relating to the same project of more than $500,000.

• The Residential Construction Liability Act applies to residential claims against contractors, and a failure to provide a contractor with an opportunity to inspect the alleged problem and offer repairs can be fatal to the owner’s claims.

• Contingent payment clauses involve “magic language” used to build a wall against liability for payment if no money has been received for the work in question. This is a complicated process, with statutorily-mandated procedures to enforce such clauses, and requires careful attention to the specific steps involved in enforcing or avoiding contingent payment obligations.

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