Omar Bennett
Construction projects can be abandoned for a variety of reasons, and this can lead to legal claims and disputes. In Texas, the Residential Construction Liability Act (RCLA) was enacted in 1989 to provide a fair and balanced approach to resolving disputes between contractors and homeowners. RCLA imposes procedural requirements and limitations on homeowners seeking damages from contractors for construction defects or abandonment. Determining whether abandonment has occurred can be complex, as it involves legal and contractual considerations. Non-payment, safety concerns, and bankruptcy are potential reasons for abandonment, and it is crucial to document all communications and changes to protect all parties involved.
| Characteristics | Values |
|---|---|
| Definition of abandonment | Abandonment occurs when a contractor is no longer able to perform the work on a project or when a contractor stops showing up. |
| Legal excuse | Non-payment, bankruptcy, prior termination, and safety concerns may be legal excuses for abandonment. |
| Wrongful abandonment | In Texas, wrongful abandonment refers to "such an abandonment as would be had without reasonable grounds for believing the act to be lawful, and without legal justification." |
| RCLA | The Texas Residential Construction Liability Act provides defenses for contractors, limitations on damages, and procedural requirements that encourage settlements. |
| Notice | A homeowner must give the contractor 60 days' written notice before commencing litigation or arbitration. |
| Documentation | All documentation, including invoices, receipts, work estimates, and change orders, should be retained to limit litigation. |
| Photographs and videos | Taking photographs and/or videos of the job site can help to mitigate damages and substantiate claims. |
| Settlement demand | A registered letter requesting a settlement and reasonable reimbursement based on the value of the outstanding work should be sent to the contractor. |
| Licensing board | If the contractor does not respond to a settlement demand, they can be reported to their licensing board. |
| Mutual changes | Texas courts have held that a contract is not abandoned when there are mutual changes to the construction plans. |
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What You'll Learn
Non-payment to contractors
For private construction projects, the Texas Property Code Chapter 28 regulates payment practices. The property owner must pay the prime contractor within 35 days of receiving an invoice. Once paid, the prime contractor has 7 days to pay their subcontractors and suppliers. This 7-day turnaround applies to all subsequent payments. Texas law also allows for specific reasons to withhold payment, and retainage laws require the property owner to retain 10% of the contract amount.
On public construction projects, the Texas Government Code sets the rules. The government agency must pay the prime contractor within 31 days of receiving an invoice or services, whichever is later. Subcontractors are to be paid within 10 days of the hiring party receiving payment, and suppliers are also to be paid within 10 days. Interest for late payments is set at prime plus 1%, and attorney fees can be awarded in prompt payment claims.
Despite these protections, it's important to note that the Texas Prompt Payment Act does not provide blanket protection against non-payment. If a contractor or subcontractor fails to meet their contractual obligations, such as providing substandard work or missing deadlines, they may not be legally entitled to payment. In such cases, legal action may be required to resolve disputes over payment.
To mitigate the impact of non-payment, contractors can take several steps. Firstly, it is crucial to document everything and obtain written agreements, invoices, receipts, work estimates, and change orders. If issues arise, sending a registered letter requesting a settlement and reimbursement is advisable. If no response is received, reporting the contractor to their licensing board or pursuing legal action may be necessary.
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Wrongful abandonment
In Texas, wrongful abandonment refers to "such an abandonment as would be had without reasonable grounds for believing the act to be lawful, and without legal justification." This means that a contractor has left a project without a valid reason or excuse.
In the case of Karbach v. Markham, the court concluded that the contractor had wrongfully abandoned the project as they had removed their business sign from the premises, left the project unfinished, and failed to perform much of the work in a good and workmanlike manner. On the other hand, Texas courts have ruled that a contract is not abandoned when there are mutual changes to the construction plans or when the contractor faces financial difficulties and the homeowner provides financial assistance to complete the project.
If a construction project has been wrongfully abandoned, the landowner should take photographs and/or videos of the job site and preserve any leftover materials that a new contractor may be able to use. They should also gather all necessary documents, including invoices, receipts, work estimates, and change orders, and send a registered letter to the contractor requesting a settlement and reasonable reimbursement based on the value of the outstanding work. To increase the chance of receiving a timely response, it is recommended to set a firm deadline and clarify that litigation will commence if no response is received.
If the contractor does not respond to the settlement demand, the landowner can report the contractor and their businesses or locations to their licensing board to ensure that the regulatory body for the construction profession gets involved. Additionally, if the contractor has not returned any money owed, the landowner may consider filing a lawsuit for breach of contract and/or an administrative claim for abandonment, which will be investigated and enforced by the state licensing agency.
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Contract abandonment
Construction contracts vary depending on the nature of the project. Contract abandonment occurs when both parties involved in a binding contract have conducted themselves in a way that invalidates the original contract. This can be due to either party breaching the contract and violating the terms of the agreement. In the case of contract abandonment, both parties must mutually agree to abandon the contract. If both parties cannot come to a mutual agreement, it could lead to alternative dispute resolution or litigation.
The second type of contract abandonment occurs when a contractor is no longer able to perform the work on a project. This can occur when the contractor does not start on the project in a reasonable amount of time, is unable to complete the agreed-upon work, or fails to resume their work within a reasonable timeframe. Abandonment can also occur when there is a material failure to complete any construction project for the price stated in the contract.
In Texas, wrongful abandonment refers to "such an abandonment as would be had without reasonable grounds for believing the act to be lawful, and without legal justification." Texas courts have held that a contract is not abandoned when there are mutual changes to the construction plans or when the contractor faces financial difficulty and the homeowner provides financial assistance to complete the project.
If you are facing a potential abandonment situation, it is recommended that you take immediate preventative action. First, contact the contractor, both by phone and in writing, to inform them of the suspected abandonment. It is also important to contact the pertinent project insurance carriers, brokers, or agents and inform them of the potential abandonment situation. Additionally, it is crucial to document everything, including the condition of the site and equipment, all preventative actions taken to secure the site, and all financial impacts related to the abandonment.
If the contractor does not respond to a settlement demand, you may consider reporting the contractor and their businesses or locations to their licensing board to involve the regulatory body for the construction profession.
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RCLA and its limitations
RCLA, or the Texas Residential Construction Liability Act, was enacted in 1989 to address the increased liability of contractors for residential construction projects. The Act provides a fair and balanced approach to dispute resolution between contractors and homeowners. It offers defences for contractors, limitations on damages, and procedural requirements that encourage settlements.
However, RCLA has been criticised for imposing significant procedural challenges and limitations on homeowners seeking damages from residential contractors. It expressly excludes four categories of actions from its scope:
- An action to recover damages for personal injury, survival, or wrongful death
- An action to recover damages arising from a violation of Section 27.02 of the Business & Commerce Code
- An action to recover damages arising from a violation of Chapter 162
- An action to recover damages for a contractor’s wrongful abandonment of a project
The fourth point is particularly relevant to the discussion of abandonment. In Texas, wrongful abandonment refers to "such an abandonment as would be had without reasonable grounds for believing the act to be lawful, and without legal justification." This means that if a contractor abandons a project without a valid legal excuse, such as non-payment, bankruptcy, or safety concerns, they may face disciplinary and legal consequences.
To mitigate potential losses due to abandonment, it is essential to document everything. Homeowners should take photographs and videos of the unfinished work and preserve any leftover materials. They should also send a registered letter to the contractor, requesting a settlement and reimbursement for the outstanding work. If the contractor does not respond, homeowners can report them to their licensing board or seek legal recourse.
In conclusion, while RCLA provides a framework for resolving disputes between contractors and homeowners, it has limitations, especially regarding wrongful abandonment by contractors. Homeowners may be able to bypass RCLA restrictions by proving that the contractor abandoned the project without a reasonable excuse.
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Legal recourse
In Texas, abandonment of a construction project occurs when a contractor is no longer able to perform the work on a project or when a project site has been shut down for an extended period. Legally, abandonment requires the relinquishment of rights and interests with no intent of reclaiming them.
If you are facing a potential abandonment situation, it is important to take immediate preventative action. First, contact the contractor, both by phone and in writing, to inform them of the suspected abandonment. Document all efforts to contact them. It is also important to contact the pertinent project insurance carrier(s), broker(s), or agent(s) and inform them of the potential abandonment situation.
To mitigate damages, it is important to preserve any leftover materials that a new contractor may be able to use. Take photographs and/or videos of the job site as it appears. After gathering all necessary documents, send the contractor a registered letter requesting a settlement and reasonable reimbursement based on the value of the outstanding work. In that settlement demand, include copies of documents to substantiate claims.
If the contractor does not respond to a settlement demand, you may report the contractor and their businesses or locations to their licensing board to ensure that the regulatory body for the construction profession gets involved. You may also consider pursuing litigation if the contractor has not returned money owed and/or if the business was related to the abandonment.
It is highly recommended that contractors facing abandonment charges seek the counsel of a construction attorney. Construction attorneys can help navigate the complexities of contract delay litigation, insurance coverage disputes, and bonding issues. They can also assist in preserving claims and defenses and avoiding potential harm or disruption to existing relationships.
In Texas, homeowners may also be able to avoid the Texas Residential Construction Liability Act (RCLA) if they can prove the contractor abandoned the project. RCLA was enacted to find a fair and balanced approach to contractor and homeowner dispute resolution and provides defenses for contractors, limitations on damages, and procedural requirements that encourage settlements. However, it has resulted in significant procedural hurdles and limitations for homeowners. For example, a homeowner seeking damages from a contractor for construction defects must give the contractor 60 days' written notice before commencing any litigation or arbitration action.
Additionally, it is important to note that abandonment is not just a civil remedy for damages under the applicable construction contract. In addition to claims for breach of contract, a contractor may face an administrative claim for abandonment to be investigated and enforced by the state licensing agency.
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Frequently asked questions
Abandonment of a construction project occurs when a contractor is no longer able to perform the work or when a project site has been shut down for an extended period.
Wrongful abandonment in Texas refers to "such an abandonment as would be had without reasonable grounds for believing the act to be lawful, and without legal justification."
Disciplinary and other legal actions may be taken against the contractor. The owner of the project may also seek reimbursement for the value of the outstanding work.
It is recommended to take photographs and/or videos of the job site and preserve any leftover materials. You should also gather all necessary documents and send a registered letter to the contractor requesting a settlement and reimbursement.
It is important to document everything and obtain written agreements signed by the contractor. All documentation provided by the contractor, including invoices, receipts, work estimates, and change orders, should be retained.
