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Jon Rossall, Partner
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McLennan Ross
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Failure to "get it in writing" lands builder and buyer in court |
| 09-Nov-06 |
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A Construction Law Update
In our current construction boom, builders and contractors are under pressure to get work started and finished on schedule. The formalities of contract are often overlooked in favour of a verbal or handshake agreement. The initial agreement is in many cases modified as building schedules are adjusted and change orders approved. However, a recent British Columbia case underlines the importance of ensuring that formal agreement on basic terms such as price, timelines, and payment is reached and put in writing.
In Wolski v. Puckett, the plaintiff asked the defendant to build him a house. Building plans were prepared and the builder provided a written cost estimate of $370,000. The buyer told the builder that this was more than he could afford, and the parties discussed removing items from the scope of work, but nothing was put in writing.
Several months into construction, the builder provided Wolski with a written agreement indicating the price of the home as "cost plus 8% (to a maximum of $24,000)." This agreement was never signed, but the builder went ahead and completed construction, providing regular invoices that the buyer paid without delay.
However, when the total of the invoices paid reached $345,000, the buyer sued for $45,000 on the basis that the agreement was for a house to be built at a fixed price of $300,000. In his defence, the builder asserted that the agreed price was "cost plus 8%" as indicated in the unsigned agreement, and that there was no fixed limit on the cost of construction.
The Court found that there was an agreement, but that it was neither a "fixed-price" nor a "cost-plus" agreement. The buyer's claim that he had agreed to pay $300,000 was undermined by the fact that he had paid all but the last of the builder's invoices without complaint, totalling $345,000. The builder's claim was undermined by applications he had submitted for a building permit and homeowner protection indicating the price and value of the home at $300,000.
The Court determined that certain items had been removed from the scope of work and that, taking these items into account, the agreed price for the house was $300,000. The Court found that the builder's cost estimate did not accurately reflect the reduced scope of work, and awarded the buyer $20,000.
Builders and contractors are advised to take the time to put agreements in writing. In the event of a misunderstanding or dispute, you will be glad you did.
This update is a general overview of the subject matter and cannot be regarded as legal advice. Please contact Corbin Devlin in Edmonton at cdevlin@mross.com, Jim Lebo in Calgary at jlebo@mross.com, or any member of our Construction Law Practice Group for advice on this or any other construction law topic.
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