Articles Posted in Contract Law

General Business Law § 771 provides a host of requirements for home improvement contracts, chief among them being that such contracts must be in writing and signed by all parties. Additionally, the contract must contain the name, address, telephone number, and license number of the contractor, the dates that the work is to begin and to end, a description of the work to be performed, a list of the materials to be provided by the owner, the agreed-upon compensation due to the contractor, and a schedule of any progress payments.  The contract must also provide a series of notices to the owner advising that claims for payment may be enforced against the property by lien, that the contractor is required to deposit all payments received prior to completion in accordance with Lien Law § 71-a (4) or the contractor may post a bond, contract of indemnity, or irrevocable letter of credit, and that the owner may cancel the home improvement until midnight of the third business day after the day on which the owner signs the contract.

Despite the strict requirements of General Business Law § 771, it is not uncommon that parties engage in such home improvement projects on the basis of a hand-shake deal. While it is always advisable to put any such agreements in writing, including any changes to the work along the way, a contractor who improves a home absent a written contract is not without remedy should a dispute arise.

Courts have held that the absence of a written contract prevents recovery on a breach of contract cause of action but does not prevent a remedy on a theory of quantum meruit.  Johnson v. Robertson, 131 A.D.3d 670, 672, 15 N.Y.S.3d 457 (2d Dep’t 2015); see also Home Construction Corp. v. Beaury, No. 2014-06600, 2017 WL 1240146, at *2 (2d Dep’t Apr. 5, 2017) (“Although a contractor cannot enforce a contract that fails to comply with General Business Law § 771, a contractor may seek to recover based on the equitable theory of quantum meruit…”).

Courts are increasingly being called upon to decide disputes over access to a neighboring property during construction, and their guide is RPAPL § 881, titled “Access to adjoining property to make improvements or repairs.”  However, because the statue is vague, a body of cases interpreting RPAPL § 881 has developed that has expanded on concepts only implied in the statute.  A recent Appellate Division case confirms that the application of RPAPL § 881 can only be understood in light of the cases interpreting the statute.

A property owner who is renovating or constructing a new building often needs access to its neighbor’s property for a variety of reasons, including protecting it from falling debris or strengthening its foundation, as required by the building code.  The neighbor does not always agree to allow access, sometimes because of concerns that the planned construction could harm its building or inconvenience its occupants.  RPAPL § 881 provides relief for the party performing the construction—if it can meet certain conditions—by allowing a court to order access.   The statute requires that:  

The petition and affidavits, if any, shall state the facts making such entry necessary and the date or dates on which entry is sought. Such license shall be granted by the court in an appropriate case upon such terms as justice requires.

The Second Department recently held in New York Military Academy v. NewOpen Group, 142 A.D.3d 489, 36 N.Y.S.3d 199 (2d Dep’t 2016), that a letter of intent (“LOI”) is unenforceable if it merely constitutes an agreement to agree. There is nothing especially new about that, but this decision serves as a reminder that parties must clearly and explicitly indicate the enforceability of a LOI within the instrument, if parties, in fact, intend it to be binding.

In Military Academy, the plaintiff brought an action to recover damages for breach of contract based on an LOI. The LOI in question provided that parties “shall negotiate to arrive at mutually acceptable Definitive Agreements” regarding a potential joint venture and loan, and further allowed for either party to withdraw from the negotiations at any time. Defendants moved to dismiss and the Supreme Court, Orange County denied that motion, presumably finding that there was at least a question of fact as to the LOI’s enforceability. Defendants appealed.

The Appellate Division, considering the language of the LOI, and omission of any terms specifying that any certain provisions were enforceable, reversed the lower court’s decision. The Appellate Division cited to well-settled New York precedent to reiterate that an agreement to agree, including a material term which allows for future negotiations, is unenforceable. In this case, the court explained that “in light of the language of the letter of intent, any reliance on the defendants’ alleged promises and representations would, as a matter of law, have been unreasonable.”

The sponsor of a condominium complex attempted to hold a subcontractor responsible for various construction defects in 610 West Realty, LLC v. Riverview West Contracting, LLC (N.Y. Sup. Ct. Co. Index No. 15537/2013).  The Court, in a decision dated May 24, 2016, upheld the concept of privity in granting the subcontractor’s motion for summary judgment.

The sponsor had hired BFC Construction, which in turn hired A-1 Testing Laboratories Inc., to provide fire proofing inspection for the building.  The sponsor alleged that A-1 had failed to detect and report certain defective work performed by another subcontractor and thus was liable to the sponsor in contract and for negligence.   The sponsor also made a fraudulent conveyance claim against A-1.

A-1 moved for summary judgment, arguing that it could not be liable for breach of contract to the sponsor because there was no privity between it and the sponsor, and the sponsor was not a third party beneficiary of A-1’s contract with BFC.  It also argued that it could not be liable to the sponsor for negligence because the sponsor’s claims were solely founded upon economic loss.  Lastly, A-1 alleged that the sponsor’s claims were barred by the statute of limitations.