Review of the Owner/Design Professional Agreement from The Design Professional's Perspective

ProNetwork News - December 2013 - Volume III - Issue 12

This article reviews some of the issues addressed in a standard Owner/Design Professional Agreement, outlines concerns from the Design Professional’s perspective, and discusses how the Design Professional can reduce liability on a project and ensure equitable adjustments to the contract price and schedule for changed or additional design services. The agreement contemplated by this article is one to be used as part of a traditional design-bid-build approach.

Standard of Care

When trying to hold a Design Professional liable for negligence, one of the first legal considerations is the standard of care owed. Absent an express contractual warranty, the law does not require the Design Professional to guarantee that the design will be perfect. Rather, the standard of care that the courts will typically apply is that degree of care which a reasonably careful architect/ engineer would use under like circumstances. However, nothing prevents an Owner from seeking contractual language that increases the typical standard of care owed by the Design Professional to the level of an express warranty of the design; in fact, Owners frequently attempt to do so in their proposed agreements – and courts will enforce such language. This is a danger to the Design Professional, as it is possible that the increased standard of care could go beyond professional liability insurance coverage available to the Design Professional. Thus, the Design Professional should insist on the deletion of any such guarantee as unreasonable.

Similarly, a Design Professional should insist on the deletion of any proposed language that attempts to establish a fiduciary duty between the Design Professional and the Owner, as such language also results in an increased standard of care owed on the Project.

Owner’s Project Criteria

Before commencing with design services, the Design Professional should insist upon a well-defined project criteria from the Owner, upon which it may rely for establishing the overall parameters of the project. The agreement should expressly state that the project criteria furnished by the Owner describes all of its program requirements and objectives for the project, including use, space, budget, time, site, maintenance requirements, and expandability requirements, as well as submittal requirements and other requirements governing the Design Professional’s performance of the work on the project. Ideally, the Owner’s project criteria includes conceptual documents, design criteria, performance requirements and all other Project-specific technical materials and requirements needed by the Design Professional to commence work without further information gathering after the contract is executed.

Any language that requires the design documents to reflect the Owner’s “intent” or other such wording should be deleted (as mind reading should not be a contractual requirement). The Design Professional should insist on express contractual language that states that if the Owner seeks to supplement or change the project criteria after the contract price is established or after the Design Professional commences work, then the Design Professional is entitled to an equitable adjustment to the contract price and schedule as a condition precedent to performing any such additional work.

Similarly, to the extent that the Owner changes the project budget, there should be contract language entitling the Design Professional to an equitable adjustment in the contract price and schedule, to be reflected in an executed change order, for all resulting value-engineering needed to reach the revised budget. However, if value engineering is needed because the bids from all contractors exceed the project criteria’s budget (possibly resulting from inaccurate pricing estimates by the Design Professional), then the contract should include language that states whether a Design Professional must perform that value engineering work without additional compensation. Perhaps the contract states that the Design Professional is only required to do so if the lowest responsive and responsible bid exceeds the budget by some threshold percentage. Regardless, the Design Professional should expressly limit any liability for any claims or damages sought by the Owner arising from the cost of the work exceeding the project criteria’s budget.

Equitable Schedule of Values

Owners may seek to establish a draw schedule that withholds most of the contract price until after the construction documents are 100% complete and approved and permitted by the governing building authorities, i.e. when the Owner has a work product in hand that would allow construction to commence. However, the Design Professional should insist on a payment draw schedule that equitably reflects the value and time required at all preliminary stages: schematic phase, design development phase, the staged percentage completion milestones of the construction documents, negotiation/bid review phase and contract administration. Moreover, the contract should define the work product required at each such stage, as applicable, that would trigger entitlement to each successive draw payment.

Construction Contract Administration

While the standard AIA Documents for construction contemplate intensive contract administration services to be performed by the Architect during the construction phase, oftentimes a companion AIA design agreement is not used on the same project. Indeed, even if a percentage of the Design Professional’s contract price is dedicated to contract administration, often the design agreement does not define well the Design Professional’s contract administration duties (or may not address them at all). This disconnect creates fertile ground for conflict. It is difficult, if not impossible, to predict the amount of involvement required by the Design Professional during the construction phase for some contract administration duties, such as RFIs. Accordingly, the Owner and Design Professional should attempt to define the Design Professional’s scope of contract administration services to be performed during the construction phase and break-out and identify certain contract administration services to be performed on an hourly fee basis (with a rate schedule agreed to and incorporated into the agreement).

Additional Services

The agreement should expressly state that the Design Professional is entitled to an equitable adjustment in the contract price and schedule for the following items:

• as previously discussed, any change in the project criteria;
• change in the instructions or approvals given by the Owner that necessitate revisions in the design documents;
• enactment or revision of codes, laws or regulations or official interpretations which necessitate changes to previously prepared design documents;
• decisions of the Owner not rendered in a timely manner;
• failure of performance on the part of the Owner or its agents;
• preparation for an attendance at a any deposition, dispute resolution proceeding or other legal proceeding.

 Reimbursable Expenses

Briefly, as the amount of Reimbursable Expenses will necessarily remain an unknown contingency, they should not be limited to a Reimbursable Expense Allowance (as is sometimes requested by the Owner), but rather should be additional compensation over and above the contract price.

Insurance

The Design Professional is strongly advised to consult with its insurance broker to review the contract’s insurance requirements to determine whether its current policies comply and whether additional coverage is required. If so, the Design Professional will need to ensure that any additional premium to be paid is included in the contract price or otherwise covered as a reimbursable expense.

Limitation of Liability

As it relates to the Owner, the Design Professional should seek to limit its total liability for any and all claims or injuries arising from the project to the amount paid on behalf of or to the Design Professional by its insurer in settlement or satisfaction of such claims. If no such insurance coverage is provided with respect to the Owner’s claims, then the Design Professional’s total liability to the Owner for any and all such uninsured Owner claims should nonetheless be capped at some dollar amount, such as some percentage of the contract price that reflects the Design Professional’s profit on the Project. Such limitation of liability provisions are generally enforceable (although the Design Professional should confirm with an attorney licensed in the state whose laws govern the contract).

Instruments of Service

The contract should expressly state that all drawings, specifications and other documents and electronic data furnished by the Design Professional per that same contract are deemed to be instruments of service, and that Design Professional shall retain the ownership and property interests in them, including the copyrights. Only upon the Owner’s payment in full for all amounts due under the agreement should the Owner be granted a limited license to use the Instruments of Service in connection with the Owner’s occupancy or use of the project.

The contract must also address what happens if the design contract is terminated at any point prior to completion of the design documents. What rights, if any, does the owner have to the Design Professional’s work product under that scenario? Since the Design Professional is no longer involved in the design, if the Owner is granted license to still use the work product to complete the project, then the Owner should be required to indemnify and defend the Design Professional as a result of any claims arising from such use.

The issues outlined herein are not intended to be exhaustive. Design Professionals are strongly advised to have each design agreement separately reviewed by their construction attorney and insurance broker.
__________________________

Frank L. Pohl, Esq. and James C. Washburn, Esq. are partners in the law firm of Pohl & Short, P.A. in Winter Park, Florida. Pohl & Short, P.A. represents architects, engineers and other participants in the construction industry throughout Florida. Mr. Pohl has been advising clients involved in all aspects of real estate development for over 30 years. Mr. Washburn has focused his practice in construction law for over 15 years and is Board Certified in Construction Law by The Florida Bar. Additionally, the law firm’s attorneys practice in the following four main areas of business law: commercial litigation, real estate law, corporate law and trusts and estates. Further information about the law firm can be obtained by visiting its website at www.pohlshort.com, by calling the office at (407) 647-7645 or via e-mail at pohl@pohlshort.com.

Vesting Property Title 2: The Sequel

John Smith and Michael Jones are two friends who enjoy fixing and remodeling homes. They decide to go into business together, to buy distressed properties through foreclosure sales, to repair and remodel them, and then to sell the remodeled homes for a profit. They shake hands and agree to proceed, with each contributing one half of all expenses, and with each sharing one half of the profits. John Smith then comes to me for advice.

I advise John that he and Michael have effectively entered into a general partnership agreement, and that Florida law does not require their agreement be in writing. I advise John, however, that their agreement needs to be in writing, to more completely set forth the parameters of their understanding, thereby avoiding many of those disputes which occur with oral agreements. I also advise John that all property acquired by the partnership should be vested solely in the partnership’s name, in order to avoid any claims of creditors against either of the partners in their individual capacities. I told John to consider the following scenario.

Two partners buy a parcel of land. Immediately after closing, one of the partners unexpectedly has to leave the state to deal with a family emergency. The second partner undertakes all the necessary improvements to the property in partner one’s absence, and upon his return the two partners sign a contract to sell the property. At closing, Second Partner insists that he be paid a greater share of the profits since he had been the only partner to work on the house. He also “reminds” his partner that they once had a phone discussion in which they had both agreed that there may be circumstances in which one partner may provide more services than the other, and that the profits would need to be adjusted accordingly. Partner One says he does not remember that conversation, and that if Partner Two refuses to split the profits evenly that he will file a lawsuit to “clear up the record.” Unless the partners can come to an amicable resolution, not only will this matter end up in court, but realistically the partnership agreement will come to an end. A properly drafted written partnership agreement could have addressed this situation, and the partners could then have looked to the partnership agreement to address their differences.

A General Partnership is defined in chapter 620 of the Florida Statutes as “an association of two or more persons to carry on as co-owners a business for profit.” Unlike most business entities that must register with the Florida Department of State, there is no registration requirement for a General Partnership. These business entities, whether oral or written, are governed in Florida by the Revised Uniform Partnership Act (“RUPA”). Under RUPA, the general partners share both the profits and the obligations of the general partnership, and each partner is jointly and severally liable for all obligations of the partnership. A person who is later admitted as a general partner, however, will not be personally liable for any partnership obligation incurred before that person’s admission as a partner.

The manner in which title is vested in the general partnership will impact the enforceability of judgments against real property owned by the partners and the partnership. The general rule is that judgments against a person who is a partner of a partnership do not attach to property vested in the partnership. Partnership property is viewed as separate and distinct from the interests of the individual partners. As a result, if John Smith and Michael Jones create the JSMJ General Partnership (“JSMJ”), and title is vested in JSMJ, a duly perfected judgment against JSMJ will be enforceable against the real property owned by that partnership. A judgment against John Smith as one of the principals of that partnership, however, would not attach to the partnership’s property.

It is therefore important to properly vest title in the partnership name, and not in the individuals creating the partnership. Let’s assume that John Smith and Michael Jones have created the JSMJ General Partnership to buy Whiteacre. Title to Whiteacre, however, is mistakenly vested in their individual names, and not in the name of the partnership. A certified copy of a $50,000.00 judgment against Michael Smith is then recorded in the public records of the county in which Whiteacre is located. The Smith judgment will then automatically attach to Michael Smith’s one-half interest in the investment property. If title had been vested in the JSMJ General Partnership, the judgment against Michael Smith would not have attached to Whiteacre.

What if a partner does not want to be personally liable for the debts of the partnership, while sharing in the profits of the business? Florida law permits the formation of a Limited Partnership, which is a form of legal entity by which there may be one or more general partners and one or more limited partners. Unlike a general partnership, a limited partnership cannot legally exist unless it is in writing and registered with the Florida Department of State. The name of the partnership itself must also end with the words “Limited Partnership”, “L.P.”, “Ltd.” or “LP”. In a validly formed limited partnership, each of the general partners will have the same rights and obligations of general partners in a general partnership. The limited partners however are passive investors (similar to shareholders in a corporation). The limited partner has no control over the partnership business, and also has no personal liability for any of the acts of the partnership. The Limited Partnership is generally the preferred form of partnership agreement for those investors who do not want to be held liable for the debts and obligations of the partnership.

Judgments against limited partnerships attach to all real property titled in the partnership name. Judgments against a person who may be either a general or limited partner in the partnership will not attach to the property that is vested in the limited partnership’s name.

In future articles we will discuss other forms of legal entities which can acquire real property, and the impact that judgment liens may have on those particular forms of ownership and their respective principals.

This Article is not a substitute for hiring an independent attorney to assist in the determination of the appropriate legal entity by which a purchaser should acquire title to real property.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank’s legal practice has concentrated on complex real estate, tax and corporate transactions throughout Central Florida. Frank has been involved in the Central Florida community for more than thirty years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M from New York University School of Law in 1980.

How Should Property Title Be Vested?

Winter Park Home Magazine / Issue 2 / 2013

Clients frequently ask how they should take title when purchasing real property. This question encompasses a consideration of the goals of each client, and if appropriate, the client’s need for asset protection.

If property is to be used as a primary residence, I generally advise that title be vested in the individuals’ names. This provides the buyers homestead protection from judgment creditors, and also allows the buyers to take advantage of the real property tax benefits associated with the homestead. If the buyers are husband and wife, and acquire title in their individual names, I typically recommend that the title be vested as husband and wife, in order to create a tenancy by the entireties. A tenancy by the entireties is a legal fiction, by which property is treated as owned by the married couple as a unit, and not in their individual capacities.

Judgments generally do not attach to homestead property. A judgment against one spouse, but not both spouses, also will not attach to entireties property. There are limited exceptions to this rule.  For example, under recent case law a federal tax lien against one spouse attaches not only to entireties property, but also to homestead property. Generally speaking, however, judgments and liens against one spouse do not attach to property owned as tenants by the entireties.

Another benefit of owning property as tenants by the entireties is the survivorship feature – at the death of the first spouse the entire interest in the property passes automatically to the surviving spouse, without the expense of probate. The only requirements to clear title in the surviving spouse is the recording of the death certificate of the deceased spouse, and the execution and recording of an affidavit establishing that the husband and wife were continuously married from the date they acquired title until the death of the deceased spouse.  

If the right of survivorship is not the couple’s intention, then an alternative form of tenancy should be recited in the deed. For example, the deed could state “to Michael Smith and Mary Smith, husband and wife, as tenants in common and not as tenants by the entireties.” In this example, Michael and Mary would each own a one-half undivided interest in the property. If Michael died, his one half interest in the property would need to be probated to determine the identity of his heirs, i.e the new owners of his one-half interest. The clearer the recitation of tenancy, therefore, the better the result. In this tenancy in common example, a judgment against either one of the spouses (unless the property is homestead) will attach to that spouse’s one-half interest in the property.

If no recitation is made concerning the form of tenancy, and the parties are married, then a tenancy by the entireties is presumed. If they are not married, and no form of tenancy is recited, the property will be owned as tenants in common. Divorce automatically terminates an entireties tenancy, and creates a tenancy in common. If the parties then remarry each other, the parties will remain as tenants in common unless a new deed from the parties to themselves is executed to recreate the tenancy by the entireties status.

A third alternative is to create a joint tenancy with full rights of survivorship, and is often used when purchasers are not married (to each other), and wish to create a survivorship benefit. For example, title is placed in Mary Smith and Amanda Johnson, as joint tenants with full rights of survivorship.  Each will own a one-half undivided interest in the property. Unlike a tenancy in common, however, if Mary Smith were to die, her interest would automatically pass to Amanda – without the need nor the expense of a probate proceeding. A judgment lien against Mary Smith, during her lifetime (again, assuming that the property is not homestead) would attach to her interest while she is alive. If a judgment creditor failed to enforce its lien against Mary during her lifetime, then the lien would be extinguished at the time of her death – due to the survivorship feature of the joint tenancy. This would also be true of any voluntary lien that Mary may place on joint tenancy property. Prior federal tax liens and estate taxes, if any, are the exceptions, and will attach to the property even after the death of Mary.

When purchasing non-homestead property, buyers often should consider the benefits of placing title in a legal entity to protect their individual assets. Examples of legal entities vary, and individuals should consult with their attorneys to determine which legal entity will best serve their purposes. Corporations, for example, are one alternative form of business ownership, and consist of shareholders, a board of directors, and officers who are appointed by the board members or shareholders. The President typically is authorized to bind the corporation, and can execute documents on behalf of the corporation.

Conceptually, only the corporation is liable for its debts and obligations. In the event of a judgment against the corporation, the shareholders, officers, and directors typically do not incur any individual liability. Judgments against the shareholders, directors, or officers of the corporation, when entered in their individual capacities, also do not attach to the property owned by the corporation. There are, of course, additional costs and fees associated with the creation of a corporation (as well as any other legal entity that may be created by the purchasers). In addition, individuals should consult with their attorneys and accountants to determine any additional income tax liability that may be imposed as a result of vesting title in a corporation, or any other legal entity.

Examples of other commonly used legal entities that can own real property are general partnerships, limited partnerships, limited liability companies, and limited liability limited partnerships. Florida law sets forth the guidelines, rules and regulations for each of these entities.

In my next article, I will describe the mechanics and benefits of these additional legal entities.

This Article is not a substitute for hiring an independent attorney

to assist in the determination of the appropriate legal entity by 
which a purchaser should acquire title to real property.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank’s legal practice has concentrated on complex real estate, tax and corporate transactions throughout Central Florida.  Frank has been involved in the Central Florida community for more than thirty years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M from New York University School of Law in 1980.

Encroachments Reflected By Surveys

Winter Park Home Magazine / Issue 1 / 2013

A grant of an easement by a property owner can often resolve disputes between neighbors resulting from encroachments of fences, driveways, and roof overhangs by one property owner onto another person’s property. An easement is a formal grant of permission by an owner of land in favor of the owner of a second parcel of land, which grants the second parcel owner the legal right to cross over and/or to utilize a portion of the first parcel owner’s land. An easement, however, also limits the rights of the parties, and in certain situations a transfer by deed may be preferable. The following example depicts certain considerations in determining whether a grant of easement or a conveyance by deed is the appropriate solution, and also emphasizes the fact that a contract purchaser should always obtain a survey prior to closing.

Five years ago Robert Smith purchased his home on Lot 1 in the XYZ subdivision. He paid cash, and opted to forego the expense of a survey. The house was situated inside the fences on the property. Mr. Smith was provided a title insurance policy at closing, and the general survey exceptions were reflected as an exception on Schedule B of his title policy. This effectively excluded coverage in his policy for any encroachments onto or from his neighbor's property that may have been reflected in a survey.

Last year Mr. Smith decided to make some home improvements, and contacted ABC Bank for a loan. The Lender indicated, as part of the loan approval process, that he would have to pay for a Lender’s title insurance policy and provide a copy of his survey. Since he never obtained a survey, Mr. Smith ordered a new survey which reflected  that the entire width of his house encroached 3 feet into Lot 2, and that the fence encroached an additional 4 feet beyond the edge of the house. The Lender then indicated that Mr. Smith's loan would not be approved unless he can establish that he owned, or had the right to use, this 7 foot strip of land.

Mr. Smith contacted me for advice. I advised Mr. Smith that he would not have a claim under his title insurance policy since the policy reflected the general survey exceptions. I also advised him that the owner of Lot 2 has no obligation to convey this strip or to grant an easement. I further advised Mr. Smith that his best case scenario is to have the owner of Lot 2 convey the 7 foot strip outright to Mr. Smith, and that the worst case scenario entailed Mr. Smith physically removing the fence and demolishing the portion of his house situated on Lot 2. In the event a portion of the house was demolished, Mr. Smith would also have to obtain permits from the building department to make the necessary changes to his home.

We then obtained title searches for each of the lots, and confirmed that Mr. Smith owns Lot 1, and that J.R. Jones owns Lot 2. The search also reflected one outstanding mortgage on Lot 2. Mr. Smith then authorized me to contact Mr. Jones directly to resolve the encroachment problem. 

Mr. Jones stated he was not aware of any encroachments, and that he would be constructing a home on his lot in the near future. He stated he was willing to convey the 7 foot strip outright, for an agreed sum, provided we obtained written confirmation from the building and zoning departments that this conveyance would not adversely impact his ability to construct a home on Lot 2. He also advised me to contact his attorney directly with the results.

The building department official indicated that each of the lots in the XYZ Subdivision are substandard in size, and that any reduction in the physical size of a lot, unless a variance was first obtained by that property owner, would result in the denial of a building permit for that lot. He could not guarantee, under the circumstances, that the variance would be approved.  I then asked whether the granting of an easement under the facts presented would require an approval by either the zoning or building departments, and he confirmed that no approval would be necessary.

I then contacted Mr. Jones' attorney, gave him the contact information for the building department, and asked him, after he talked with them, to determine whether his client would grant an easement instead of requiring a deed of conveyance. I also explained that his client had a mortgage on the property, and asked whether he would also contact his lender to obtain its consent to a grant of easement.

Ultimately Mr. Jones agreed to grant the easement, and to obtain the consent of his lender, provided Mr. Smith paid all costs and expenses incurred by Mr. Jones, and also provided Mr. Smith compensated him for the reduction in valuation of Lot 2 resulting from the grant of easement. The grant of easement that was finally approved also included language that the easement would automatically terminate in the event Mr. Smith's house were destroyed by fire or natural disaster, and that any new construction by Mr. Smith, or his successors in title, would have to be located within the platted lot lines of Lot 1.

The time and expense incurred by Mr. Smith could easily have been avoided if he had obtained a survey at the time of purchase.  Mr. Smith's predecessor in title would have been obligated to resolve these issues prior to their closing, and, if the issues were not resolved by the time of closing, Mr. Smith could have elected to terminate the contract and receive a return of his earnest money deposit.  These types of encroachments occur on a somewhat regular basis, and demonstrate the need for obtaining and reviewing a survey prior to closing. 

This Article is not a substitute for hiring an independent attorney

to prepare an easement or deed across real property.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank’s legal practice has concentrated on complex real estate, tax and corporate transactions throughout Central Florida.  Frank has been involved in the Central Florida community for more than thirty years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980.

Use of Easements

Winter Park Home Magazine / Issue 3 / 2012

An easement is a grant of permission by the owner of land (known as the subservient estate) in favor of the owner of a different parcel of land (known as the dominant estate) to cross over and/or use a portion of the subservient estate. Since it transfers an interest in real property, it must be executed and recorded with the same formalities as a deed (i.e. before two witnesses and a notary public), and be signed by all parties having a record interest in the subservient estate. This article addresses the procedural steps to be undertaken when adjoining property owners have determined that an encroachment exists, and the parties have agreed overall to the terms and conditions of the easement to be granted.

First, the parties need to determine whether there is a need for an easement. For example, John Smith and Mary Smith own Parcel A, and Michael Jones owns the adjoining Parcel B. Mr. Jones' concrete driveway encroaches two feet in width into the Smiths' property. There is no prior grant of easement of record authorizing this encroachment. Previously the Smiths verbally consented to Mr. Jones' use of the encroaching driveway area. Mr. Jones, however, is concerned whether he will be able to continue to use this encroachment area, especially if the Smiths were to later sell their property.

The Smiths can withdraw their verbal permission at any time, and under the facts presented, the Smiths have no obligation to continue to grant him permission to use the encroaching portion of the driveway. Absent a written grant of easement, the Smiths could bring a judicial action to make Mr. Jones remove the encroaching portion of the driveway. The Smiths are willing to execute and record a written grant of easement.

First, a title search of the Smiths' property should be performed and reviewed in order to confirm that the Smiths are in fact the owners of Parcel A, and also to determine whether there are any mortgages or other liens against the Smiths' property. In the event there are any mortgages or liens existing against the Smiths' property, those lenders or lien holders will need to provide their consent and subordinate their interests to the grant of easement. Otherwise, for example, if there is a prior mortgage on the Smiths' property and the lender’s consent is not obtained, a subsequent foreclosure of that mortgage would extinguish the grant of easement by the Smiths.

After review, the title search report confirms that the Smiths own Parcel A. The title report also reflects one mortgage on the property. Mr. Smith has spoken with his mortgage loan officer, and he does not anticipate any problem in obtaining the requisite consent.

The parameters and scope of the easement need to be determined. It is not sufficient to merely recite that there is an encroachment – its exact location must be established on the public record. A complete legal description of the easement area should be provided by a licensed surveyor – to be included in the grant of easement. A survey of Mr. Jones’ property was obtained at the time of purchase. Mr. Jones will need to contact his surveyor and obtain the appropriate legal description of the encroachment area.

The Smiths intend to impose limitations on the grant of easement. They not only want Mr. Jones, and his successors in interest, to maintain the driveway at all times in its current condition, but also the Smiths want the right to use this 2-foot strip in conjunction with their own abutting driveway. This is a reasonable request, especially in light of the fact that Mr. Jones property is the one encroaching on the Smiths’ property. This might create some logistical problems when, and if, it becomes necessary for Mr. Jones to resurface his driveway. Language will need to be included in the easement document describing all of the conditions requested by the Smiths.

In conjunction with this maintenance requirement, the Smiths also want the easement to automatically terminate if Mr. Jones fails to properly maintain his portion of the driveway. The better practice would be to provide specific language by which an examiner on the public record can determine whether the easement remains in full force and effect. Although various options are available, it is determined that the easement will provide that the parties must execute and record a formal termination of the easement if the easement is no longer needed by Mr. Jones, or if the driveway is not properly maintained.

It is readily apparent there are many factors to consider in preparing and recording an easement across real property. All interested parties should consult with a qualified real estate attorney to protect their interests before executing any document which impacts their respective interests in land that they own.

This Article is not a substitute for hiring an independent attorney to prepare an easement across real property.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

Minors and Conveyances

Winter Park Home Magazine - Issue 2 - 2012

Mary Smith contacted me to assist her in the sale of a vacant lot owned by both Mary and her son, Michael. Mary originally went to a local title agency and was advised that she cannot complete the sale because her son is a minor – i.e., under the age of 18 years. Mary owns a 50% interest in the property, and her 17 year old son, Michael, owns the remaining 50% interest. They have a Buyer ready to purchase the lot for $25,000.00.

Initially, I explained that minors do not have certain contractual legal rights. Florida law provides that only individuals 18 years of age or older are deemed “sui juris,” which means that only those individuals 18 years of age or older have the full ability (i.e., are not under any legal disability) to execute contracts or to sign a deed conveying real property. Property can be transferred to and owned by a minor. The problem is that a conveyance executed by Michael, as a minor child, could subsequently be set aside by Michael after he turns 18. Existing case law would allow a minor to set the deed aside as long as seven years after the minor reaches his eighteenth birthday, unless that individual ratified the deed once he turned 18. Additionally, if he has already spent the money from the sale, there would be no obligation for the “minor” to pay the money back.

Florida law provides certain exceptions to this ability of a minor to subsequently set aside a conveyance. Specifically, the disability of nonage (lack of legal age) of a minor is removed if the minor is now, or ever has been married. Additionally, a circuit court has jurisdiction to remove the disabilities of nonage of a minor age 16 or older who resides in Florida based upon a petition filed by the minor’s natural or legal guardian. Alternatively, a guardianship proceeding could be filed with the circuit court, and an order authorizing the sale of the property by the guardian could be obtained, in order to transfer Michael’s interest in the property. Michael has never been married, and neither of these judicial proceedings has been undertaken to date. The cost of these proceedings might sometimes be justified, but fortunately there is a much simpler and less costly approach to remedy the absolute conveyance of Michael’s interest in this vacant lot.

Florida law provides that if the minor’s net interest in the property is less than $15,000.00, the natural guardian of the minor may execute a deed on behalf of the minor. The mother and father of the minor are the “natural guardians” of the minor. If both parents are still alive, both parents would have to sign the deed. If one of the parents dies, the surviving parent acts as the natural guardian. Mary’s husband and Michael’s dad, John Smith, is deceased. As a result, Mary has full power to execute a deed as the natural guardian for Michael – since Michael’s 50% interest in the property, $12,500.00, is less than the statutory maximum of $15,000.00. Although it will be necessary to document on the public record the fact that Mary and John are Michael’s parents, that John is now deceased, and that no guardianship or adoption proceedings have subsequently been filed, we will now be able to complete the sale of the property. The signature section on the deed for Michael’s one-half interest will read: “Michael Smith, by Mary Smith, his natural guardian.” The deed itself, for Michael’s one-half interest in the property, will be signed by Mary in her representative capacity, and not by Michael. The deed cannot be subsequently set aside by Michael.

Conveyances to minors, generally speaking, are potentially problematical when it is time to convey the property from the minor. Formal guardianships can be created on behalf of the minor, and property conveyed to the guardian on behalf of the minor. Guardianships are formal legal proceedings, and the guardian will only be able to sell the property after the court has entered an order authorizing the sale and conveyance of the minor’s interest in the property.

A minor’s interest in property can also be created under the Florida Uniform Transfers to Minors Act (“FUTMA”). Under FUTMA, property is conveyed to a natural (adult) person as a custodian of the minor child. The authority of the Custodian, unlike the “natural guardian” example above, is not subject to any monetary limitation. FUTMA, however, is extremely technical, and an attorney should always review the facts and determine the appropriate format of the deed. There may also be different time periods during which the Custodian may act on behalf of the “minor.” In certain situations, the authority of the Custodian ceases at the eighteenth birthday of the minor, and in other situations that authority will remain until the 21st birthday of the minor.

There are numerous variations to the examples that are set forth above. Any person wishing to vest title in a minor needs to be aware of the logistical problems that are created by transferring title to an individual who has not yet reached the age of 18, and should consult with his/her legal counsel to determine the appropriateness of such transfers.

This Article is not a substitute for hiring an independent attorney to determine the appropriateness of transferring property to a minor. 

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

Integrated Project Delivery: Changing the Insurance Landscape

ProNetwork News  - April 2012

With more project owners demanding the use of Building Information Modeling (BIM), project delivery is necessarily carried out through greater contributions of design input by the general contractor and the major trade subcontractors. The design professionals are no longer the sole authors of the project design. This collaborative project delivery method has been called integrated project delivery (IPD). The contribution of design input from each of the various project players using IPD is a significant break from the traditional division of responsibility recognized in the standard design-bid-build project delivery method. Players who never participated in the project design now face potential risk of professional liability. Additionally, the new, cutting-edge technologies being used for BIM expand the types of risks born by the design professional if there are errors and omissions within the computer modeling system or the improper management of the computerized data.

What is BIM?
BIM involves computerized design software tools that help create a model that reflects all of the building components' geometric and functional qualities. The general contractor and trade subcontractors provide product-specific information for building components and that data is inputted into the model, including performance specifications, connection details and cost data. However, the model is more than a mere representation of the design in a three-dimensional computer graphic. Embedded within the design programs are rules that define each of the components' relation to the other components. The model is dynamic. If there is a change to one component, then the computer program would automatically and immediately revise the design to accommodate the ripple effect caused by the change. During the pre-construction phase, the project team can input different design options to facilitate value engineering and budgetary decisions, material estimation, and even long-term maintenance costs of the facility. In theory, assuming that the information provided by the various project players is accurate and the rules embedded in the model are correct, BIM should reduce errors and omissions, resulting in an aggregate reduction in professional liability and errors & omissions claims. Additionally, it should reduce the demand for change orders during the project, as the design should have fewer ambiguities and inconsistencies. Yet, if the assumptions embedded in the computerized model prove false, then the result would be a costly problem that all concerned should hope is covered by insurance.

Increasing Industry Acceptance:
IPD using BIM technology is becoming more prevalent with many predicting that it will become standard. In 2003, the U.S. General Services Administration's (GSA) Public Building Service set a goal to require BIM on FY06 projects and beyond in support of improving design quality and construction delivery. One reason for the use of BIM was a lack of GSA staffing to review design documents and to ensure conformance to building standards. Additionally, GSA was concerned with anticipated sustainability goals for federal buildings with respect to energy efficiency and long-term maintenance costs. GSA sought to rely upon the new BIM software tools to provide solutions to these problems. Since that time, GSA has employed BIM successfully on numerous projects. The GSA is not the only project owner to use IPD using BIM technology. General Motors has constructed at least six projects using this delivery method. Also, the United States Coast Guard and the United States Army Corp or Engineers has implemented BIM software in its recent projects. The expected industry trend is that this delivery method will not be reserved only for complex projects, but rather will start being used for simpler projects on a wider scale.

Evolving Contractual Relationships:
The construction industry is only beginning to catch up with the contractual liability issues that arise from the non-traditional roles played by the various project participants. For example, there has been the 2008 release of the ConsensusDOCS 300 Series for use on IPD projects using BIM technology. Also, the American Institute of Architects (AIA) has developed IPD Agreements AIA C196-2008 Standard Form of Agreement between Single Purpose Entity and Owner for Integrated Project Delivery and AIA C197-2008 Standard Form of Agreement between Single Purpose Entity and Non-Owner Member for Integrated Project Delivery. The AIA contractual agreements incorporate a separate Exhibit (AIA Document E202 – 2008) that might also be used with their other, more traditional contract documents on IPD projects using BIM technologies. The new AIA documents allow the parties to define the standard of care for BIM, as such would be difficult to define given the short history of this technology. They also attempt to allocate responsibility for managing the computer model, e.g. data storage, transferring model files, granting and withholding access to model files, validating completeness and usability of files, among other things. Also, the Exhibit provides a chart listing standard building components that is to be filled out by identifying who will author each listed element of the model design. These contractual means of defining the standard of care and allocating responsibility may impact a design professionals' liability for professional negligence.

Professional Liability Concerns for General Contractors and Trade Subcontractors:
The collaboration of general contractors and trade subcontractors in the design on IPD projects may result in liability exposure arising from errors in each parties' contribution that result in defects in the project design. Accordingly, these parties must approach the IPD similarly to a design-build project and obtain professional liability coverage and errors & omissions insurance. Moreover, the general contractor must recognize that it would face contractual liability to the owner for the errors contributed solely by its subcontractors – errors which could be very difficult to detect by the general contractor. Thus, the general contractor would be well advised to demand in its subcontracts that those subcontractors who contribute to the project design obtain coverage. Yet, the specific type of coverage that expressly contemplates the allocation of responsibility and risk inherent in IPD may not yet be on the market.

Expanded Liability Concerns for Design Professionals:
The consensus seems to be that IPD using BIM technology will result in an overall reduction in design errors. Yet, to the technophobe, an over-reliance on computer models with decreasing human over-sight could also spell disaster. What responsibility should the design professional have for errors in the data inputted by the various parties? What if there are errors in the rules embedded in the model or the internal mechanisms for transferring data or any other number of possible computer glitches? The contract with the company creating the modeling software likely limits liability for such errors to an amount far less than the damage that could be created by the error. The design professional must consider insuring that gap. To address these questions and issues, the design professional should discuss the potential IPD exposures with their broker and to what extent they are insured for same.

IPD not only requires additional contributions to design from the contractor, but may also involve greater involvement by the design professionals on the construction side. Design professionals may find themselves more active in the development in the means and methods of construction given the overall integrated approach on these types of projects. "Means and methods" are often excluded in professional liability policies. This raises the question of whether the design professional should purchase general liability insurance to cover damages resulting from negligent construction practices.

Conclusion:
IPD using BIM technology is changing the relationships between the various players on such construction projects. As a result, the standard construction contracts and their allocation of responsibility and risk may no longer be equitable or reflect reality. Accordingly, before participating in this type of project, all parties should consult with their attorney to review their contracts to address these issues. In addition to the need for revised construction contracts for these types of projects, all parties are strongly advised to meet with their insurance brokers and discuss the new risks arising from this project delivery method.

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Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.