By Eric L. Singer and Steven L. Jones
Halloween is upon us. Our neighborhood yards have been transformed into graveyards, giant spider webs and unspeakable horrors. In a few weeks, we will be overcome with monsters, ghouls, goblins and, inevitably, zombies. The zombies will be all around, coming for us, just like in the movies – walking bodies with no soul or life inside. In the movies, we are frightened while the battles between humanity and death play out. In the end, movie zombies are either saved and humanized or destroyed in gruesome battles.
In real estate and construction, zombies really are all around us. Structures with no life inside scar the real estate landscape in every major city – the abandoned automobile-parts manufacturing facility; the half-completed condo building; the vacant video store with its giant, empty parking lot; the literal hole in the ground surrounded by rusted construction fencing and graffiti – all threatening the health and safety of the structures and inhabitants around them. Then there are foreclosures, receivers and bankruptcies. Scary stuff.
Lenders and developers have been wrestling with zombies for some time, but there are signs of daylight and new life for the adventuresome. With changed plans and reworked intended uses, dormant projects are emerging as the next big risky thing. The projects are infected with expired entitlements and permits, disputed copyrights in plans and specifications, and concealed construction conditions that may not be compatible with the new intended use. Strategies and risk management are crucial for developers, lenders, designers, contractors and their attorneys, lest the zombies get the better of you and your clients. Here are some survival tips in the new zombie economy.
Zombie survival guide for developers
Sometimes land is less valuable with a partially completed construction project on its site. It can be cheaper to level the site than to complete the original project. If the original project was a bad idea or has other demons haunting the site, the developer should consider demolition and use of salvage contractors. If the project has copper or other valuable components available (and it has not already been looted or vandalized), the developer may find a salvage contractor willing to help absorb the demolition cost.
Lenders don’t like it when you demolish their collateral, so keep lenders in the loop and get appropriate (written) consents before you demolish anything. If you have outdated environmental information, don’t assume that the site has been untouched in the interim. Get reliable information before you dig, move or emit anything into the environment. Use qualified environmental consultants, contractors and haulers. The fines and penalties for doing it wrong can be crippling.
If the zombie project is worth picking up without demolition, the developer will need some basic information on the project – original and, if available, record drawings; detailed professional inspection by forensic design professionals; an assessment of the current state of zoning, permits and entitlements; and whether there are any disputed copyrights lurking in the existing plans. Have the original permits expired? Will the developer need the cooperation or copyrights of the original design team to proceed? Better to know those answers before the developer starts making any plans for the zombie project.
Zombie survival guide for designers
An architect, engineer or other design professional retained by the developer to complete the design of a partially completed construction project needs to be aware of the many potential zombies hiding in the shadows. These pitfalls include building codes and permitting requirements that may have changed since the original design. The designer also needs to be wary of a developer looking to the designer to “get the project back on track,” even though the plans were prepared by predecessors.
The new designer needs to be careful not to assume the risk of errors or omissions contained in the original design documents. Later-discovered errors or omissions will invariably become the new designer’s problem because the developer will likely claim that he or she should have discovered and corrected the original design. As a result, the designer firm and its attorneys will want to clearly identify the designer’s scope of services as it relates to any investigation and review of the prior design documents. The new designer will want a right to rely on the existing design documents as well as address the new designer’s lack of responsibility for past and future issues arising from the original design.
It is important to note that the designer also shares the same risk as the developer regarding copyright claims by the original designer should the new designer reuse, continue or modify the previous design work. To address this risk, the developer should warrant its ownership of the plans and specifications and should indemnify the new design professional from copyright or unfair competition claims by the previous design team. As an indemnity only has the same worth as those who sign them, the designer may also want to consider seeking an independent release, license or some form of written acknowledgement from the original designer to avoid a later claim. Given the increased risks of defects and claims in continuing a design for a partially completed project, the designer should also consider including a limitation of liability provision within its contract with the developer.
Zombie survival guide for contractors
For contractors taking on the responsibility of completing a partially completed project, the newly retained contractor should clearly define responsibility for new work and lack of responsibility for work that was already installed. A standard form of agreement or proposal will need to be carefully revised to do so – a precise scope of new work as well as specific exclusions for “old” work. In addition, the new contractor will want to adequately document the existing conditions prior to commencing its work – both in words and in photographs or video. Finally, allocation of risk for existing conditions and warranties on new work need to be carefully crafted so that old zombie work does not infect new, healthy installations.
The final act
Zombie movies usually end with hope of a new day or renewed human race. Construction projects can be revived with the same hope and renewal, though proper preparation needs to be taken by the project participants in order to prevent a zombie sequel.•
Eric Singer and Steven Jones are partners with Ice Miller LLP. They assist clients in the construction industry including developers, contractors and design professionals. Singer can be reached at [email protected] and Jones can be reached at [email protected]. The opinions expressed are those of the authors.