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Where project owner chose not to terminate contractor for failing to substantially complete project by contractually established deadline, but permitted late completion, this did not waive entitlement to recover delay damages. McPherson Builders, Inc. v. Performance Premises, LLC, 171 A.D.3d 1270 (NY 2019).

The contract in question contained a time of the essence clause for completing work on what was to be a performing arts and events building. When the contractor failed to complete by the date required by contract, the owner didn’t terminate the contract but instead permitted the contractor to continue with its work, which was completed about five months late. The owner did not, however, pay for any of the contractor’s work that was performed after the contractually specified substantial completion date.

The contractor filed a notice of mechanic’s lien and then a suit to foreclose on the lien. Owner asserted an affirmative defense, (i.e., breach of contract by the contractor based on the delay), and also asserted a counterclaim for consequential damages caused by the delay (e.g. lost profits and rents). The contractor filed a motion for summary judgment that was denied by the trial judge and this was affirmed on appeal. Allowing late completion did not constitute a waiver of a claim to damages caused by the delay.

“In this regard,” said the court, “once substantial completion of the work by plaintiff was not completed by December 30, 2016, nothing plaintiff could possibly do would wipe out the damage suffered by defendant.” But the contractor is entitled to recover for its work performed after December 2016 with any recovery to be offset by any damages sustained by the owner due to the contractor’s failure to meet the required deadline.

Termination of the contract was not the sole remedy available for the delay. The contract stated that if contractor was “guilty of substantial breach of a provision of the contract documents,” the defendant “may terminate the contract.” The court concluded that this was permissive language and “defendant had the option to terminate the contract, but was not required to do so.” Termination of the contract was not the sole remedy available for the delay.

The appellate court held that the lower court also correctly denied that part of the contractor’s motion that sought dismissal of the owner’s counterclaim for lost profits.   It will be for a jury to determine whether damages for lost profits were within the contemplation of the parties (i.e., foreseeable) at the time the contract was entered into and are capable of measurement with reasonable certainty.

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 21, No. 7 (Aug 2019).

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