High-rise construction projects present unique legal, financial and commercial risks that require careful planning and risk management. Builders can reduce exposure by understanding purchaser expectations, assessing developer relationships and financial backing, reviewing contract and insurance arrangements, and ensuring consistency between project documentation and marketing materials. Early legal advice and well-drafted construction contracts can help protect builders from disputes, insolvency risks and unfair contractual obligations.
How can builders manage the risks associated with high-rise and mixed-use developments?
Our Commercial Team explains
Summary
This article outlines practical steps high-rise builders can take to manage legal and commercial risks. It covers understanding buyers and developers, reviewing contracts and insurance arrangements, and managing risks associated with standard-form contracts and superintendent or architect relationships.
How can high-rise builders manage legal and commercial risks?
In our last article, we looked at some of the legal and commercial risks for builders, which arise out of high rise and mixed use development construction.
So now that we have identified the risks, what can you, as a reputable high-rise builder, do to manage them? The following tips are a good start, but by no means exhaustive:
Why should builders understand the buyers and their expectations?
Learn what you can about who will buy the units you build and what their expectations are – for example, will they mainly be owner-residents or investors, first home buyers seeking capital growth, high-income earners with lifestyle expectations, retirees and empty-nesters seeking to down-size, etc.?
What should builders know about the developer and its financial backing?
Learn what you can about the relationships and vested interests of those who are backing the developer financially. For example, recent events have highlighted the dangers of developers aligning themselves financially with proponents of “get-rich-quick” schemes who leave others to deliver on their promises of massive returns for very little effort.
Why should construction contracts be compared with sales and tender documents?
Before you sign the final construction contract, compare it with the tender documents and the developer’s sales contracts and brochures in order to improve consistency between technical requirements and buyer expectations.
Why is the developer’s experience important?
Make sure you know and are totally confident in the developer’s and its superintendent’s expertise and experience in high-rise residential developments.
What insurance cover should builders consider?
Examine your insurance policies carefully, and if necessary, consider taking out additional cover that goes beyond the traditional professional indemnity for negligent construction and protects you against some of the “no-fault” consequences of principals’ insolvency;
Should builders rely on standard-form construction contracts?
Standard-form contracts benefit the construction industry by ensuring consistency of interpretation and risk allocation. However, you should never just rely on the terms of a standard form “off the shelf”, amend it yourself or accept amendments proposed by the developer. Take advice first from an experienced construction lawyer about how to adapt the contract to the specific circumstances. In some cases, smaller contractors may find it easier to negotiate favourable changes now that the “unfair contract terms” in the Australian Consumer Law will apply to small businesses as well as consumers.
How can builders manage risks involving the superintendent or architect?
Be aware of the personal stake that the superintendent/architect, as designer of the works and agent of the developer – and as assessor and certifier of your payment claims, work progress and performance – will invariably have in the success of the design. Take advice from an experienced construction lawyer about how to protect yourself contractually from the risks arising from an overly close relationship between the superintendent/architect and its employer, the developer. Consider relying on the unfair contracts legislation where a standard-form contract creates that relationship.