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Georgia Beatty We in the Chicago area are fortunate
to be in the epicenter of a building boom. Everybody loves new construction;
new housing is created, buyers don’t have to deal with the problems that can
plague resale properties, and its pricing reflects the desirability of our
region as a place to live. In this and subsequent articles, I would like to
explore some of the issues inherent in new construction. First of all, “new construction” is a
term that encompasses both newly-built structures, and existing structures
which have been rehabilitated through development. Examples of the second
type occurs when the newly-rehabbed property’s use differs from its previous
use (such as when an industrial parcel is converted to residential housing),
or when rental housing is converted to units for sale (as is the case with
many condominium conversions). The nature of new construction differs in some ways from resale properties, and the sales agreement between a buyer and seller should reflect this. The Chicago residential new construction market is driven by sellers who are often also developers of the realty. These seller/developers, especially larger concerns, tend to create their own contract forms; some, however, especially smaller concerns, use standardized contract forms from local real estate boards. The difference between these two is crucial. Board forms are meant to address the concerns of an existing property, whereas the seller-drafted form addresses not only the issues of wholly-new |
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construction/gut rehabs, but also
acts as a statement of what the consumer can expect of that developer.
Completion dates, and thereby closing times, for example, are two items which
the seller/developer would be in a better position to know than would their
buyers. These are, in turn, affected by issues best known by the seller, such
as the status of issues preliminary to the commencement of work, the
requirements for permitting, and the availability and terms of construction
financing. One key issue always addressed by
developer-drafted contract forms is that of “New Construction”. More than a
description of the ultimate product to be built, it is a term of art in title
insurance that reminds the parties that the labor and materials furnished to
a project must be paid to those who furnished them. This issue must be
raised, and waived, as an exception on any title insurance commitment for
newly-built structures. This exception is waived when statements, called
“lien waivers”, which verify that all contractors, subcontractors, laborers
and materiel suppliers have been paid, signed by those responsible for such
payment, are furnished to the title company.
Standard board-form agreements rarely contain this provision, however.
The lack of this term in a contract for new construction could result in the
title company failing to collect the necessary lien waivers. Since those who
furnish labor and/or materials for construction purposes are entitled by law
to file mechanics’ liens for nonpayment for the same, a purchaser of new
construction could, under these circumstances, end up paying items for which
developer should be responsible. |
