assignment of construction contract to lender

The Contractor’s Consent – A Trap for the Unwary

On private construction projects, the lender often requires that the owner/borrower obtain the written consent of the contractor to the collateral assignment of the construction contract by the owner to the lender. This permits the lender to step into the owner’s shoes with respect to the construction contract in the event of the owner’s default under the project loan documents. Unfortunately, the Consent forms developed by most lenders these days have many more serious implications for contractors.

Although the general form of the Consent is similar among lenders, the forms are becoming increasingly customized and include many terms other than just the consent to assignment. Whenever faced with such a document, a contractor must be alert and should watch for the following:

Notice of Default/Termination The Consent may require that the contractor provide written notice to the lender if there has been any default by the owner under the construction contract or if the contractor wishes to terminate the construction contract. If the contractor forgets (in the heat of the battle) to provide notice to the lender, it may render the declaration of default or termination ineffective. Failure to provide notice would also certainly impair any rights the contractor may wish to assert against the lender.

Change Order Approval Most lenders’ Consent forms require the contractor to obtain prior written approval of the lender to any change orders between the contractor and the owner. Given the lender’s responsiveness, at the very least this is an administrative annoyance, but at its worst, this is a detail that could impact the Project schedule or disrupt the contractor’s negotiations with the owner. Contractors should seek to eliminate this requirement in its entirety, but failing that, should limit its applicability to only change orders over a stated dollar amount.

Assignment Once a lender takes over a project from a defaulting owner, it may seek to assign the lender’s rights in the construction contract to a new entity. It will want to make that assignment without the contractor’s consent and will typically include a provision in the Consent form allowing it to do so. Contractors should be wary of these clauses and insist that no assignment can be made without the contractor’s prior written consent.

Mechanics’ Lien Rights Most lenders include in their Consent forms a provision in which the contractor either waives its mechanics’ lien rights on the Project or subordinates its mechanics’ lien rights to the lender’s mortgage rights. In Minnesota, we have a statute (Minn. Stat. § 337.10, Subd. 2) that may make a prepayment lien waiver unenforceable, but it is not settled whether it makes a lien subordination unenforceable. Although such subordination clauses seem unfair, especially considering that the lender likely has a title insurer insuring its priority, lenders will resist the well-advised efforts by contractors to remove the subordination provision.

Payment Upon Takeover One of the primary purposes of the Contractor’s Consent is to ensure that, if there is a default and the lender must take over an uncompleted Project, the contractor will complete the Project for the lender according to the terms of the construction contract. The typical form logically requires the lender to pay the contractor going forward from the time of lender takeover. Most forms, however, do not obligate the lender to pay the contractor any amounts unpaid at the time of takeover. This should not be acceptable to any contractor – especially one that has been required to subordinate its mechanics’ lien rights to the lender’s mortgage.

Lenders have lately been more sensitive to contractors’ concerns and have been willing to agree to cure pre-takeover defaults (including payment defaults) in addition to paying post-takeover costs. This is certainly something to be negotiated by the contractor at the time it is being asked to sign a consent form.

Conclusion Do not take the Contractor’s Consent lightly. Rarely should you accept the standard form you receive from the lender. Make it fair and protect your rights.

The Business of Construction

Understanding the Contractor’s Consent: The Hidden Dangers in a Common Form

The “Contractor’s Consent to Assignment” or “Contractor’s Consent” is a common form requested at the start of a commercial construction project and required by the lender. Many times, owners will wait until the prime contract is signed to present contractors with this document, which they present as a matter of housekeeping.

The purpose of the Contractor’s Consent is to allow the owner’s bank to assume ownership in the event that the owner defaults on its loan in order to allow the bank to compel the contractor complete the project. These documents serve a legitimate purpose in ensuring that the bank will not be left with a hole in the ground; however, the contracts have significant legal consequences and often include substantial waivers and promises that contractors would never accept during negotiation of the prime contract.

When reviewing these documents, contractors should keep an eye out for the following clauses, which can drastically affect their rights regardless of whether the owner actually comes to default on their loan.

Limitation on Change Orders

Most Contractor’s Consent forms include provisions barring a contractor from entering into an agreement with the owner to amend the Construction Contract without the written approval of the lender. These provisions ensure that the business terms of a deal the bank is financing don’t change without the bank’s express consent.

While reasonable in purpose, these provisions can present a problematic roadblock as project schedules rarely allow for the additional time needed to obtain these approvals, and the stated obligation means that even legitimate change orders signed by the owner for work already performed may be deemed invalid if the contractor did not wait for the bank’s approval.

To correct this provision, contractors should request that approvals either be limited to change orders exceeding a certain threshold amount for individual change orders or exceeding a total amount for all changes. This not only allows the project to keep moving without unnecessary delays, but also ensures that significant changes won’t be made without the bank’s knowledge.

Limitation on Termination Right

Many forms also include language that restricts the contractor’s right to suspend or terminate the contract without the bank’s approval. Contractors should strongly resist such provisions, as they need the ability to stop work (and to stop incurring obligations to their subcontractors) in the instance they are not being paid—regardless of whether the owner is making its loan payments.

To address this concern, most banks will allow contractors to amend these provisions to suspend or terminate, but only after they have given the bank advance notice. This adjustment helps both the contractor and the bank, giving the contractor the ability to put more pressure on the owner by notifying the bank of any default and to stop work if needed, while simultaneously allowing the bank to receive earlier notice of problems on the project.

Waiver or Subrogation of Mechanics’ Lien Rights

Many banks ask the contractor to waive their mechanics’ lien rights (or allow the bank to step in front of the lien) as part of the Contractor’s Consent. Contractors should push back strongly on such provisions as liens are powerful and are often the only way to receive payment if the owner becomes bankrupt. In many instances, banks will agree—albeit reluctantly—to accept this change, but contractors should expect some pushback, and this may be a sticking point.

Waiver of Unpaid Amounts

Nearly all Contractor’s Consent forms include language that requires the contractor to continue performance once the bank takes place of an owner, as long as the bank pays all bills from that point forward. While this may seem reasonable on the surface, this provision leaves the contractor unpaid for all amounts owed at the time of the default, and these amounts almost always remain unsatisfied.

Instead, contractors should insist that if the bank assumes the contract, then the bank must also assume the owner’s obligations—including payment of outstanding amounts. Again, banks will push back on this modification to the terms but, in the end, most will accept some version of this provision.

Ability to Sell and Assign

Many forms include language allowing the bank to sell or assign the project to a third party in the event of an owner default. Because most banks are not in the business of owning and operating projects, this can leave the contractor at significant risk if the bank selects either a disreputable owner for the new assignment or an entity presenting a payment risk.

To avoid this risk, contractors should insist that they must be allowed to accept or reject the bank’s chosen assignee, with the caveat that approval will not unreasonably be withheld.

Contractors should be aware that some banks will balk at some of these positions, and negotiation may be tense at a time when all parties are anxious for the project to start. Nonetheless, contractors that insist on fair contracts will have greater protections and will be in better position to avoid the significant pitfalls that could otherwise result.

Top reads today

Related stories

• Business Development
• Business Risk
• Productivity
• Project Delivery
• Award Winners
• Executive Profiles
• Human Resources
• Recruitment
• Young Professionals
• Organization Culture
• Total Human Health
• Risk Management
• Surety Bonding
• Dispute Resolution
• Legislation
• Regulations
• Artificial Intelligence
• Cybersecurity
• Data Analytics
• Drones / UAV’s
• Jobsite Monitoring
• Project Management
• Workforce Management
• Fleet Management
• Fuel Tracking
• Heavy Equipment
• Infrastructure
• Institutional
• Manufacturing
• Multifamily
• Residential
• Sponsored Content
• Nuts + Bolts

top 50 lists

• Construction Law Firms™
• Construction Accounting Firms™
• Construction Technology Firms™
• Latest Issue
• Magazine Archive
• Resource Center

construction executive

• Contact and Support
• Advertising
• Editorial Submission

Subscribe to Our Newsletter

Pitfalls of Contractor’s Consents

by Michael Lilly

October 23, 2020

You’ve negotiated your Agreement with the Owner and you’ve started to mobilize.  The Owner is still trying to close on its construction financing – but they are “close.”  You receive a call from the Owner’s representative, the representative says “closing is scheduled for tomorrow, the lender just needs you to sign a document before they will fund, it’s no big deal, I’ll send it over to you right now – just sign it and get it to me as soon as possible.”  Finally!  The project is about to start!  You receive the document, a Contractor’s Consent, and you are inclined to just sign it and get to work. Should you?

What Is It Really?

In virtually every construction loan transaction with a commercial lender, the lender will require the borrower (owner) to assign the borrower’s interest in its construction contract with the general contractor, to the lender as additional collateral. This document is generally referred to simply as an Assignment of Construction Contract or Collateral Assignment of Construction Contract.  In connection with the borrower’s delivery of the Assignment of the Construction Contract, the lender will generally require that the borrower’s general contractor consent in writing to such assignment.  Thus, a Contractor’s Consent is first and foremost the general contractor’s written consent to the borrower’s collateral assignment of the construction contract.  However, lenders will ordinarily include multiple additional terms and concepts that the contractor should consider.

THE MAJOR ISSUES

If the Lender elects to assume the Construction Contract, when will it happen?

In the event of a borrower default under the loan documents, nearly every Contractor’s Consent sets forth a procedure allowing for the lender to either (i) terminate the project, or (ii) to assume the construction contract and take-over the project. Often, however, the consent will not require that the lender makes its choice, to either terminate or assume the construction contract, within a specific period of time.  Thus, should the lender declare the borrower in default, what is the general contractor to do?  The short answer is – the general contractor must stop work and wait on the lender to make a decision.  This will, in the very least, result in additional de-mobilization costs and potentially significant re-mobilization costs (should the lender elect to proceed with the contract).

What can the general contractor do?  Negotiate a specific time frame for the lender to make its election to terminate or assume the construction contract.

Lender consent to Change Orders.

Often Contractor’s Consents will include a specific obligation that the borrower and contractor obtain the Lender’s prior consent to any Change Orders.  The result – an already time consuming and often difficult change order process become infinitely more time consuming and difficult, as lenders are typically reluctant to agree to changes in cost and scope for a project.

• For Advertisers
• For Authors

An Overview of Consent to Assignment Agreements

Design agreements often stipulate that neither the owner nor the engineer can assign the agreement without the consent of the other party. As a result, the engineer may be asked to sign a “ Consent to Assignment ” (sometimes referred to as an “ Acknowledgement and Consent ”) from the bank providing the construction loan. A typical consent form requires the engineer to agree that the design agreement can be assigned to the lender. The assignment will actually occur at the time the loan is closed; however, the assignment is conditional in the sense that the lender can only assume the design agreement if the owner defaults on the loan.

If the owner defaults and the lender takes over, the lender’s chances of finding a buyer for the project are significantly better if the buyer has the option of assuming all of the key contracts for the project. Thus the lender may ask the contractor, the engineer, and the other key design consultants to consent to an assignment of their contracts.

While Consent to Assignment requests are common, particularly on large projects, there is no standard form. The consent should be read carefully and preferably reviewed by the engineer’s legal counsel. Although the lender cannot assume the design agreement unless the owner defaults, the forms used by many banks contain provisions completely unrelated to the design agreement. Engineers who are not careful may find that they have given up valuable rights or agreed to unreasonable obligations even if there is no default by the owner.

General Structure of a Consent to Assignment

There are several different ways to structure a consent agreement. Sometimes it is structured as an agreement between the owner (the borrower), the engineer, and the lender, with all three parties signing. For example:

This CONSENT TO ASSIGNMENT (this “Agreement”), dated as of _____, by and among _____, (the “Borrower”), _____ (the “Engineer”), and _____ as agent for the Lenders (together with its successors in such capacity, the “Agent”).

Alternatively, it may be structured as an agreement between the owner and the engineer, with the lender as a third-party beneficiary.

This CONSENT TO ASSIGNMENT of Engineer’s Contract (this “Agreement”) is made as of _____ by and between _____ (“Borrower”) and _____ (“Engineer”) for the benefit of _____ (“Lender”).

It may also be structured as an agreement between the engineer and the lender:

This CONSENT TO ASSIGNMENT (this “Consent”) is dated as of _____ by _____ (“Engineer”) to _____ (“Lender”).

Finally, although less commonly, it may simply be written as what it is, which is a one-sided agreement under which the engineer agrees to do, or not do, certain things:

The undersigned, as Engineer under the Design Agreement dated as of _____ (the “Design Agreement”) between _____ (“Borrower”) and the undersigned, which is one of the contracts referred to in the Assignment of Agreements (“Assignment”) between Borrower and _____(the “Lender”), agrees that upon receipt of notice from Lender that a Default has occurred under the Assignment, it will perform all of its obligations under the Design Agreement for the benefit of Lender.

Regardless of how the consent is structured, the intent is to ensure that if the owner defaults on its loan and the lender takes over, the engineer will continue to provide the services called for under the design agreement if requested to do so. The agreement typically also gives the lender the right to use the engineer’s Instruments of Services to complete the project with another engineer.

Payment of Outstanding Obligations

If the owner has defaulted on its loan, it is likely to be behind in its payments to the engineer. Thus, a key issue is the lender’s obligation with respect to outstanding amounts due to the engineer.

It is not uncommon to see consents with the following wording:

Upon a Default under the Loan Agreement, Engineer, at Lender’s request, shall continue performance on Lender’s behalf in accordance with the terms of Engineer’s Contract, and shall be reimbursed in accordance with the Contract for all work, labor, and materials rendered on Lender’s behalf subsequent to Lender’s request .

Note that the words in bold print will almost certainly not be in bold in the actual consent. What they are saying is that if the lender exercises its rights under the Assignment and requires the engineer to continue performance, the lender has no obligation to pay outstanding amounts due to the engineer. The lender’s obligation is limited to compensation for services provided after the lender notifies the engineer that it wants the engineer to continue performance. The engineer would have to file a mechanic’s lien against the property for the outstanding amounts. Depending on the priority of its lien, it might receive only a fraction of these amounts, if anything.

The engineer should disagree with these terms and change the provision to read:

…provided that Engineer shall be reimbursed in accordance with the Contract for all work, labor, and materials including all outstanding amounts due.

The lender may object to these terms on the grounds that if it has already advanced funds to the owner for the engineer’s services, it should not have to pay the engineer for those same services. The lender may propose the following as an alternate:

…provided that Engineer shall be reimbursed in accordance with the Contract for all work, labor, and materials including all outstanding amounts due unless Lender has already advanced such funds to the Borrower.

However, the engineer has no control over the lender’s disbursements; it is the lender’s obligation to monitor the loan.

If the lender does not agree to pay all outstanding amounts due, the engineer should, at a minimum, require the following language:

…including all outstanding amounts due unless Lender had already advanced such funds to the Borrower prior to receipt of Engineer’s notice of Borrower’s default under Engineer’s contract. Lender shall not advance any funds to Borrower for Engineer’s services subsequent to receiving such notice.

This puts the burden on the engineer to pay close attention to its payments. If a payment is late and the owner does not provide adequate assurance that the payment will be made, the engineer should advise the owner that it will notify the lender of the default.

Typically, the request to sign a Consent to Assignment comes when the owner is arranging the construction financing, which may be months after the design agreement was executed. More often than not, it will indicate that the consent needs to be returned immediately because the owner is trying to close on its loan. This can put the engineer in a difficult position if there is objectionable language, particularly if the lender is not willing to negotiate. While the engineer generally has no obligation to sign a consent, refusing to do so can affect its relationship with the owner and jeopardize the prospect of future work. If the owner is already behind on payments to the engineer, it may say that it will not be able to pay until it closes on the loan.

If the lender does not negotiate the terms, the engineer must make a business decision with respect to signing the consent. As a practical matter, unless the project is fast-track, if the owner runs into financial trouble during construction and defaults on its loan, the engineer will likely have finished the plans and specifications and received payment for them. If the engineer is only doing limited construction administration, it may not have a significant risk with respect to payment. However, unless the consent indemnifies the engineer for the lender or subsequent buyer’s use of the plans and specifications, the engineer may still be at risk for claims.▪

Disclaimer: The information in this article is for educational purposes only and is not legal advice. Readers should not act or refrain from acting based on this article without seeking appropriate legal or other professional advice as to their particular circumstances.

About the author  ⁄  Gail S. Kelley, P.E., Esq.

Gail S. Kelley is licensed attorney in Massachusetts, Maryland and D.C. She is the author of “Construction Law: An Introduction for Engineers, Architects, and Contractors” ([email protected]).

• Prev Sciotoville Bridge
• Next Madison Square Park Tower

The Contractor’s Consent to Assignment of Contract to the Lender: Be Careful What You Consent To

by John J. McNamara and Mansoor Ahmed

Private construction projects often involve complicated financing and voluminous loan documents that can impact a general contractor’s rights and obligations over and above those set forth in the general contract. This article highlights issues regarding consent and assignment of contractor agreements between a general contractor, owner, and owner’s lender.

In private construction projects, in order to insure against the risk of an insolvent owner and incomplete project, lenders will require an owner to assign to the lender all rights to the contract between an owner and contractor. The contractor, in turn, must consent to this assignment between the owner and lender.

In its basic form, a consent to assignment of the contract is just that: A contractor consents to assignment of the contract to the lender in the event of owner default. Consents are often drafted by lenders to impose additional obligations upon the contractor that are not set forth in the general contract, and these provisions may cause problems to the contractor in the event of owner-default. Accordingly, a consent must be carefully examined in order to fully understand what a contractor is consenting to.

In case of an owner’s default, consents may prevent a contractor from exercising its rights or seeking remedies unless proper notice is given to the lender, and only after a significant time period has passed. Under such circumstances where a general contractor has not been paid, the contractor has no right to terminate the contract and must continue performance of its obligations. Such language must be modified to prevent the contractor from being forced to continue work without payment.

In addition, many consents state that a lender is not obligated to pay the contractor for any amounts owed by the owner if those funds have already been advanced by the lender to the owner, and the contractor must continue to perform the contract for the lender. The risk of nonpayment in these scenarios lies solely on the general contractor. Consents should be modified to require the contractor to perform work for the lender only if the contractor has been paid in full. Otherwise, it is simply not reasonable to expect a contractor to continue to perform work for the lender if the owner has not paid the contractor in full.

Consents often limit a contractor’s ability to recover for changed work. For example, a consent may require written notice to the lender and approval by the lender prior to change orders exceeding a certain amount. If prior approval was not received from the lender and the owner defaults, a consent may prevent the contractor from recovery. Oftentimes, this consent for change orders is overlooked during the project and the impact of this lack of consent may not be realized until after owner defaults.

Consents may limit the contractor’s right to recover for extended performance costs, delay claims, and other costs related to extended performance. Although such provisions are absent in the general contract, contractors may limit their rights by executing consents that preclude time-based claims. These rights are relevant to costs and time delays that occur when a lender takes over the project. Again, contractors must be aware of language that modifies the terms of the general contract and further limits the contractor’s right to recover for legitimate costs and claims.

A contractor must carefully review all contract documents at the outset of any construction project. Where a lender requires a consent, a contractor must fully ascertain its rights, obligations, and limitations in case of owner default.

John J. McNamara is partner, and Mansoor Ahmed is associate at Lane McNamara, LLP.

You may also like

Bowdoin Completes Two Facilities...

Bald Hill Builders to Host 12th...

Key Elements of Healthcare...

Fitzemeyer & Tocci Underway...

KBE Foundation Awards Scholarships...

Safeguarding Workers’ Well-being...

$24M Contract Awarded for...

BPDA Approves New Development...

• Select location
• United Kingdom
• United States
• Southampton
• Charlottesville
• Los Angeles
• San Francisco
• Silicon Valley
• Research Triangle Park
• Washington, D.C.
• Winston-Salem

• Energy & Natural Resources
• Financial Institutions
• Life Sciences & Pharmaceuticals
• Manufacturing
• Private Wealth
• Public, Government Services & Third Sector
• Real Estate
• Retail & Hospitality
• Digital: IT & Privacy
• Dispute Resolution & Litigation
• Employment & Pensions
• Finance: Banking, Restructuring, Insolvency
• Intellectual Property
• Projects, Construction & Infrastructure
• Alternative Business & Legal Solutions
• Timelines and Processes

North East business figures outline plans for UKREiiF

Wbd and aig volunteers pitch in at community-based farming charity in london, womble bond dickinson's transatlantic lawyer network: a unique platform for collaboration and growth, the pensions regulator's priorities, bng and implications for affordable housing, supreme court confirms ai cannot be an inventor under the patents act, financial crime prevention quarterly update.

05 Jun 2024 9 AM - 10 AM BST (UTC+1)

FIN. Live Focus

11 Jun 2024 10 AM - 11 AM BST (UTC+1)

Navigating sickness absence: legal insights and best practice

18 Jun 2024 10 AM - 11 AM BST (UTC+1)

Why assignment provisions in construction contracts can make all the difference to lenders

Contributors

Sarah Wales-Canning

Assignment provisions are often found in construction contracts, including collateral warranties, and they are used to transfer the benefit of a construction contract from one party to another. When providing development and real estate finance, there are a number of issues lenders need to consider in relation to assignment of construction documents as part of their overall security package.

Benefits for a lender

If the benefit of a construction contract is assigned from a borrower to a lender, the obligations of the contractor or consultant are then owed to the lender and the lender can demand performance of the contractor's or consultant's obligations under those contracts. Assignment also allows the lender to enforce the terms of the relevant contract or pursue a claim against the contractor or consultant where they are in breach.

The lender may have the benefit of collateral warranties which creates a contractual link between the lender and the contractor or consultants. However, these will not usually enable the lender to enforce the terms of the underlying contract unless the lender formally "steps-in" and uses express rights and meets express conditions in the collateral warranties.

Assignment therefore makes enforcement more streamlined.

Legal assignment versus equitable assignment

The law recognises two different types of assignment – legal or equitable.

A legal assignment must be in writing, absolute and notice must be given to the other parties. An equitable assignment is not subject to the same requirements.

The main difference between the two types of assignment is that an equitable assignee (who benefits from the assignment) must join the assignor (the person who assigns their right) in any action against the contractor or consultant. A legal assignee can bring an action themselves.

In practice, equitable assignment is often preferred by lenders as it can be achieved in the debenture or facility agreement without the need for a separate deed of assignment and notices to the contractor or consultant. It also allows the borrower to retain the benefit of the construction documents so that they can continue to have the right to enforce the terms.

Charge versus security

Where a lender takes a charge over a contract, this gives the lender a right over the benefit of the contract instead of assigning it the benefit of the contract.

If the benefit of a contract is assigned by way of security, the benefit is transferred to the lender. On redemption of the loan, the lender will need to re-assign the benefit of the contract back to the borrower. This can be problematic where there is a limit on the number of permitted assignments and no carve out for assignment in this manner.

Further considerations

Where a contract contains an express assignment provision, common issues include:

• Assignment being restricted to absolute legal assignment, which means that equitable assignments are not permitted, including granting a charge
• Limits on the number of permitted assignments, which could have been wholly or partly used up already
• No carve out for assignments by way of security and reassignment on redemption which means that both assignments will count towards the permitted number, and will often use them up entirely.

It's important for lenders to understand what assignment options are available for construction contracts and assess whether they allow for sufficient security.

Womble Bond Dickinson Insights

Sign up to receive the latest news, events and e-alerts

Recommended

Building tomorrow's lawyers as wbd supports university of greenwich mentorship scheme, projections for m&a in the north east energy sector, bank's 'retrieval duty' - is it the new duty in town, construction starts on site following wbd’s advice on devon land sale for homes england, accelerating eu mineral permitting: the critical raw materials act, the three seismic shifts shaking up the uk’s energy transition in 2024, the uk's strategy for critical minerals, cis changes bring good news for tenants, the uk's pathway to a hydrogen economy.

You are switching to the United States

This selection will switch the website from presenting information primarily about the United Kingdom to information about the United States . If you would like to switch back, you may use location selection options at the top of the page.

Although we would like to hear from you, we cannot represent you until we know that doing so will not create a conflict of interest. Also, we cannot treat unsolicited information as confidential. Accordingly, please do not send us any information about any legal matter until we authorize you to do so. To initiate a possible representation, please call one of our lawyers or staff members.

By clicking the “ACCEPT” button, you agree that we may review any information you transmit to us. You recognize that, even if you submit information that you consider confidential in an effort to retain us, our review of that information will not create an obligation on us to keep it confidential and will not preclude us from representing another client directly adverse to you, even in a matter where that information could and will be used against you.

Please click the “ACCEPT” button if you understand and accept the foregoing statement and wish to proceed.

Collateral Assignment of Contracts, Licenses, Permits, and Plans (Construction Loan) | Practical Law

Collateral Assignment of Contracts, Licenses, Permits, and Plans (Construction Loan)

Practical law standard document w-008-0125  (approx. 20 pages).

When a Construction Lender Steps into the Shoes of the Developer, the Door is Open for Claims by the General Contractor

By Kevin Brodehl , February 11, 2015

Thank  you to my partner Garret Murai for giving me the opportunity to post again on his excellent California Construction Law Blog.  I am the author/editor of the  Money and Dirt Blog , where I focus on issues relating to real estate investment, development, and secured lending.

On the Money and Dirt Blog, I recently posted an article on an interesting new secured lending opinion from the California Court of Appeal (Fourth District in Riverside),  California Bank & Trust v. Del Ponti .   That blog post focused on guaranty liability, and the court’s holding that there are limits to the defenses that a guarantor can lawfully waive.

But that same decision also highlights valuable lessons regarding the relationship between construction lenders and general contractors in distressed projects, which I’ll cover here.  In short, the court held that when a construction lender “steps into the shoes” of the developer to manage a distressed project, the lender might open the door to liability to the general contractor under theories of breach of contract and promissory estoppel.

First, the factual background ….

The Construction Loan

In 2006, the bank made a $22.5 million construction loan for a 70-unit townhome project in Rialto, California. The developer contracted with a general contractor (Advent) to build the project in two phases for $14 million.  Each month, Advent submitted payment applications to the developer on behalf of subcontractors based on percentage of completion.  The developer would then sign off on the applications and forward them to the bank for final approval.

Under the construction loan agreement between the bank and the developer, the bank was obligated to provide the requested incremental funding as long as the developer was not in default.

All went well — at first.

By early 2008, serious problems emerged.  With work nearly complete on the first phase of the project, the bank withheld payments on several timely draw requests.  The bank did NOT declare the loan in default or issue a notice to cure, but nonetheless continued to withhold funds.  Due to the bank’s failure to pay on the outstanding payment applications, Advent did not have money to pay subcontractors to complete the construction.

The Failed Workout: Lender Steps Into the Developer’s Shoes and Breaks Promises

During an attempted workout, the bank took an active role in the development, relying on a provision in the loan agreement allowing the assignment of the construction agreement to the bank.  The bank made adjustments to the scope of work established by the construction contract.

The bank and the developer agreed on a “global strategy” — the developers would have Advent finish the remaining construction for the first phase (for which the bank would pay advances), market and sell the units quickly, negotiate discounts with the unpaid subcontractors (who would be paid by the bank), and continue working on the project with the understanding that the bank would modify the loan.

Advent accomplished the remaining work and successfully negotiated discounts from most of the subcontractors.  Advent paid the subcontractors itself.  The bank never paid Advent, leaving almost $1 million due.  The bank continued to withhold payments, and eventually declared the loan in default and foreclosed on the property via trustee’s sale.

Court Confirms that Lender is Liable to Contractor on Claims of Breach of Contract and Promissory Estoppel

Advent initially pursued “traditional” claims against the bank based on its unbonded stop notice and for foreclosure of mechanic’s lien.  But at trial, Advent added the claims that would eventually succeed: breach of contract (the construction agreement) and promissory estoppel.

The trial court found that the bank had taken over the construction contract between the developer and Advent, and that the bank wrongfully withheld funds to pay approved fund requests, which doomed the project.  The court  awarded Advent damages, interest, attorney fees, and costs totaling over $1.25 million.

The court of appeal affirmed.  The court first rejected the bank’s argument that it couldn’t be liable to Advent under the assignment of the construction contract because the assignment was for “security only” (transferring the rights but not the obligations under the contract).  The court noted that the language of the assignment was broad, and pointed to testimony by bank representatives confirming that the bank essentially “had stepped into the developer’s shoes.”  The court concluded that the bank had effectively exercised the assignment by demanding further performance by Advent.

The court of appeal also confirmed that “abundant evidence” supported Advent’s claim of promissory estoppel — an equitable doctrine allowing enforcement of promises that induce detrimental reliance.  The court found that the “global strategy” workout arrangement between the bank and the developer required Advent to complete additional work beyond the scope of the construction contract with the expectation of getting paid for that work.

The court rejected the bank’s attempt to “backpedal” with testimony that no one had promised to pay Advent for the additional work.  The court observed that while the bank communicated directly with only the developer’s representatives regarding the  workout “global strategy,” the bank clearly understood that the developers would, in turn, induce Advent to perform the required work with the clear expectation of payment.  The court also held that since the bank stepped into the shoes of the developer, the bank and Advent had contractual privity, and the bank’s workout promises to the developer included Advent.

This case highlights the thinking behind some lenders’ refusal to touch construction loans.  When a construction lender steps outside the conventional role of lender, and “steps into the shoes of the developer,” many things can go wrong.  One potential pitfall highlighted here is contractual and equitable liability to the general contractor.  Lenders should approach distressed construction loans with caution and a carefully crafted plan.

General contractors should also heed the lessons from this case.  In appropriate circumstances, contractors who are left unpaid for their work should think outside of the “stop notice/mechanic’s lien” box, and evaluate whether they have remedies based on the lender’s promises and assumed contractual obligations during the workout.

Share this:

• Share on Tumblr

3 Responses to “When a Construction Lender Steps into the Shoes of the Developer, the Door is Open for Claims by the General Contractor”

Inside the top five of the favorite articles, thanks!

It seems mechanical lien, the usual last resort for the contractors is not sufficient and effective enough to get back their payment, as evident from this case. You are right that lender should continue to remain lender and never don the hat of a developer with out a proper plan.

[…] link to my post: “When a Construction Lender Steps into the Shoes of the Developer, the Door is Open for Claims by the…” is here.  […]

Leave a comment Cancel reply

Basic HTML is allowed. Your email address will not be published.

Subscribe to this comment feed via RSS

• Already have a WordPress.com account? Log in now.
• Subscribe Subscribed
• Copy shortlink
• Report this content
• View post in Reader
• Manage subscriptions
• Collapse this bar

• Received a document?

What Contractors Need to Know About Working with Construction Lenders

166 articles

Pay Applications Lien Waivers Joint Checks Notice of Completion

Most construction projects are expensive. While a home remodel project might be as little as a few thousand dollars, a commercial project can stretch into the billions of dollars. Unless the project owner has the cash on hand, they’ll need to borrow money to make them happen. While often the key to making the owners’ dreams come true, lenders can cause headaches for contractors. Lenders bring loan draws, lien waivers, and extra scrutiny to a project. But when contractors and suppliers understand how the process works, and follow the lender’s requirements, they can finish the work and collect their payment without a hassle. 

Table of Contents

Who are construction lenders? 

Construction lenders are usually banks or credit unions that loan money to help owners with their new construction or remodel projects. There are specialized lenders for residential projects, new homes, commercial projects, medical and dental projects, and pretty much every other type of construction project that exists. Some of them are household names, like Wells Fargo and Bank of America . Others might be little known outside of the commercial construction world, but they make enormous investments in building projects. 

They’re not the enemy: Lenders want contractors to get paid

Lenders always control the purse strings, and they want to make sure that they are getting the best return on their money. As a result, they do everything they can to avoid a mechanics lien or foreclosure on their property. They have a clear interest in making sure that everyone on the project gets paid.

For a contractor, working on a project that has a lender involved is more complicated than when the project owner provides the cash and controls the payments. Lenders are often quite hands-on during the project, sometimes even sending inspectors out to see the progress of the work.

Lenders aren’t all bad though, and a few of them are even a joy to work with – if you know what to expect, and follow their rules. 

Lender requirements for GCs and subs

Contractors on a financed project should expect to submit a lot of paperwork throughout the job. You will need to turn in documents during all phases of the project: Before it starts, while construction is happening, and after the project is complete. Payments will be directly tied to this paperwork, so it’s important to set aside time to complete it and keep it organized.

Before the construction project

In order to choose a General Contractor for the project, the lender will usually ask for a resume of past work. Some will have a specific form they want you to fill out, while others will be less formal. Basically, the lender wants to make sure that the GC will complete the project and do a good job. 

The lender may also request financial records to ensure that the contractor they hire is financially stable. In some cases, lenders may require a payment bond on the project. Provide all the documents they request the first time, as it saves time in closing the loan, which means the project can get started sooner and you can get paid quicker.

Lenders have the right to approve subcontractors as well. Most banks will ask for a list of subcontractors before the project starts and will let the GC or the owner know if they have an issue with any of them. The Lender may require the GC to change subs if they uncover past problems, they are unlicensed, or uninsured. 

Assignment of Contract

Before closing on the loan, the construction lender will ask the GC and the owner to sign a document that entitles the bank to act as the owner during the project. The lender takes on all the rights of the owner, as spelled out in the contract. This document also gives the bank the right to take over the contract if the owner defaults. The lender can then force the contractor to finish the project if it thinks it is in its best interest to do so. Read this document carefully so you know your rights and responsibilities if this happens.

During the construction project

Pay apps and loan draws.

If required by the contract, GCs and subcontractors will need to fill out a pay app , short for “payment application.” It is basically what it sounds like: An application to get paid. And similar to filling out a job application, you’ll need to include evidence that shows why you deserve payment. The pay app will typically ask for:

• A Schedule of Values or Continuation Sheet that lists the work you completed and/or materials delivered during the pay period
• Evidence that supports the list. This may include photographs , statements, daily reports , material delivery confirmations or invoices , etc.
• Lien waivers 
• Certified payroll records (if a prevailing wage job)

Submitting loan draws , or draw requests, can add a layer of difficulty when working with a lender. Contractors should read the lender’s draw requirements and procedures carefully, and collect any forms the lender requires. Read the instructions carefully and don’t try to cut corners. Trying to save time may only delay your payment. Subcontractors should ask the GC for any forms they may need to complete ahead of time. Most lenders will send an inspector out to verify the work has been done.

Joint checks

Some lenders will require the use of joint checks . A joint check is made out to two (or more) parties, and requires both of their signatures. They are used to ensure that lower tier subs and suppliers get paid. Joint checks require the hiring party (often the GC) to endorse them before the check can go to the sub for cashing. They are effective, but can be a n accounting challenge for a GC . They can require that you set up fake clearing accounts in your accounting software, so you can deposit and write checks out of the fake account for that job. 

Lien waivers

Construction lenders will often require contractors to sign lien waivers each month; every time they get paid. While there are 4 different types of lien waivers , they basically ensure that the GC or hiring party is paying their subcontractors and suppliers. Lenders want to protect their investment, and do not want a lien to tarnish the project. Contractors should use the form the lender supplies or a form tailored to your state. Follow any additional bank requirements and laws regarding notarizing, etc. 

If you are a sub, sign the lien waivers and return them to the GC as soon as possible. Often the next draw can’t be turned in until all the waivers from the last one are gathered. One sub can hold up everyone else’s payment, and you don’t want to be that person .

After the Project

All parties on a project should keep a record of important documents and dates on the project, even after it’s finished. This practice will help protect your right to file a mechanics lien, in the event that you weren’t paid what you were owed. In most states, the deadline to file a lien is calculated from the “date of last furnishing,” or the last day you were on the job. But in some cases, the deadline can be shortened once the GC or prime contractor files a Notice of Completion.

Notice of Completion

The GC or prime contractor will generally need to file a Notice of Completion once the project is finished. Even in states where this is not required by law, the lender may require it. This is a formal notice that construction is complete. The Notice of Completion is filed in the county recorder’s office as a public record. 

Mechanics Lien (if necessary)

If a contractor or supplier isn’t paid, they generally have the right to file a mechanics lien . Before filing a lien, it’s a good idea to talk to the parties at the top of the payment chain. The lender may not be aware that you haven’t been paid; they can put pressure on the GC to resolve any payment problems. 

If talking to the lender doesn’t help, filing a lien may be the best course of action. Some states require that you file a Notice of Intent to Lien (NOI) before filing the lien itself. Even on its own, an NOI can be a very effective tool to get paid. 

Managing cash flow when a lender’s involved

Because of the layers of approval and the document requirements, getting paid on a financed project can take longer than on other projects. This is especially true when it comes to the first draw on the project. GCs may want to submit this draw early, so if it drags out a bit it won’t be so noticeable. 

If the GC can’t submit early, you may want to get a backup plan in place so you can pay everyone in a timely manner. Contractors often use business savings or a credit line, credit cards, or a short-term loan to make up for a short-term gap in payment.

Remember, construction lenders aren’t the enemy. After all, everyone on a project shares the same goal: To finish the job successfully, and to get paid what they deserve.

Read more : Contractor Loans & Financing Options: The Pros & Cons for Construction Businesses

Ask an expert for free

Hello, I completed a job for a client who used a 203k loan through Loan Depot. I was paid half upfront. After we finished bathroom the client signed a certificate of completion. As a condition of getting the rest of my money I had to sign a lien...

I am a subcontractor who worked on a project doing some cleaning work for a general contractor that never paid me and they won't answer their phone or respond to any communication. I've filed liens and still no response. I'm looking to escalate the case now, am I...

I had a furnace replaced. It was like pulling teeth to get them to pull a permit but they finally did. They are now pressuring me to sign the certificate of completion without the final inspection signed out. What am I to do?

Dawn Killough

View Profile

About the author

Recommended for you

What is a work in progress schedule | construction accounting.

The Work In Progress (WIP) schedule is an accounting schedule that's a component of a company's balance sheet. It's calculated...

Construction Contracts: What Does “Workmanlike Manner” Mean?

Just about every construction contract will require that work be done in a "workmanlike manner." But what exactly does that...

Do I Have to Sign a Lien Waiver to Get Paid?

Lien waivers are an important part of optimizing construction payment. Property owners and GCs rely on waivers to manage the...

6 Construction Project Delivery Methods Compared

The steps required in a project’s journey to completion are importation to how successful the project will be. That’s why...

The Ultimate Guide to Lien Waivers in Construction

What are lien waivers in construction? This article is the ultimate guide for construction lien waivers including essential information and...

What are the Certified Payroll Requirements for Federal Construction Jobs?

What does Certified Payroll mean? This post covers the certified payroll requirements for contractors working on federal construction projects.

Lien Waiver vs. Lien Release: What’s the Difference?

Lien waivers and lien releases are completely different documents (even though they are often confused by the construction industry). Read...

How to Protect Your Payments When Dealing with a Construction Bankruptcy

Bankruptcies in the construction industry are unfortunately very common. Learn how a mechanics lien can help make sure your company...

Construction Loan Agreement

Jump to section, what is a construction loan agreement.

A construction loan agreement is a legal contract between the lender and borrower that outlines how much money will be lent to the borrower, for what purpose, when the funds will be repaid and any other stipulations. The agreements are typically drawn up before work begins on a project to protect both parties interests.

Construction loans are often used during new home building projects where there is not enough value in an existing property to secure financing. If a borrower is considering requesting this type of loan, it's vital to learn more about what goes into one so the borrower can make sure their needs align with those of their lender.

Common Sections in Construction Loan Agreements

Below is a list of common sections included in Construction Loan Agreements. These sections are linked to the below sample agreement for you to explore.

Construction Loan Agreement Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.1 2 dex101.htm CONSTRUCTION LOAN AGREEMENT , Viewed December 13, 2021, View Source on SEC .

Who Helps With Construction Loan Agreements?

Lawyers with backgrounds working on construction loan agreements work with clients to help. Do you need help with a construction loan agreement?

Post a project  in ContractsCounsel's marketplace to get free bids from lawyers to draft, review, or negotiate construction loan agreements. All lawyers are vetted by our team and peer reviewed by our customers for you to explore before hiring.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Meet some of our Construction Loan Agreement Lawyers

I opened Hestia Legal when I was 6 months pregnant with the focus on educating and assisting families in my community. While the majority of my practice revolves around Estate Planning, I have a history of experience with contract and general business agreement drafting, discovery drafting, and general litigation document drafting.

I am a licensed attorney in Illinois, I am currently a Regulatory Compliance Analyst.

Torrey Livenick, Esq. is a fourth generation Colorado lawyer. Although she was born in California and raised in Nevada, she spent every summer in Colorado and knew she planned to make Denver her home. After graduating from Bryn Mawr College with a degree in Classical Culture and Society, she returned to Las Vegas to work as a paralegal. Once she spent five years building her skills and confirming her interest, she attended Emory University School of Law. Torrey’s interests include trivia (she even was a contestant on Jeopardy! during her law school days), video games, playing with her cats, and the arts. She is active in pro bono organizations including Metro Volunteer Lawyers.

Haber Law Firm, APC, is a transactional business law firm with a focus on small/mid-market business purchases and sales, outside general counsel, and start-up assistance for businesses in their early stages. Peter Haber started Haber Law Firm, APC after several years as a legal executive at Popcornopolis, a gourmet popcorn brand sold at groceries and stadiums nationwide. In this role, Peter served as the company’s sole in-house legal advisor as it related to all functions of the company’s operations, including dispute resolution, compliance, and employment law, to name a few. With his help and guidance, the company relocated its entire corporate and manufacturing operation, developed a new factory and warehouse, and was successfully acquired by private equity. Prior to this, Peter was a litigator and business attorney with distinguished Los Angeles litigation boutiques. Such matters included the representation of numerous businesses in litigation and in the resolution of pre-litigation disputes as well as the representation of professionals in liability defense matters, including hospitals, physicians, and brokers.

Obtained J.D. in December 2021, admitted to the Indiana Bar in November 2022. Began working as a clerk for civil defense firm in March 2022 and have been the same firm to the present, currently working as an Associate Attorney.

Credible history in navigating complex legal landscapes to deliver strategic solutions that optimize employee benefits programs and healthcare compliance. Demonstrated mastery in interpreting and applying ERISA, HIPAA, and ACA regulations, safeguarding client interests, and minimizing legal risks. Remarkable background in advising diverse clientele, ranging from corporations to healthcare providers, on intricate regulatory frameworks, compliance strategies, and litigation support. Adept at crafting innovative strategies, providing expert guidance, and driving compliance with unwavering precision. Skilled in leveraging unique skill set that combines medical knowledge and technological proficiency to address multifaceted challenges at intersection of healthcare and technology. Exceptional project management skills with track record of contributing to high-impact initiatives. Accomplished in drafting and negotiating contracts, mitigating legal risks, and streamlining processes.

Attorney admitted to the New York State Bar. Hispanic. Eager to meet client's needs and provide legal assistance.

Find the best lawyer for your project

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Financial lawyers by top cities

• Austin Financial Lawyers
• Boston Financial Lawyers
• Chicago Financial Lawyers
• Dallas Financial Lawyers
• Denver Financial Lawyers
• Houston Financial Lawyers
• Los Angeles Financial Lawyers
• New York Financial Lawyers
• Phoenix Financial Lawyers
• San Diego Financial Lawyers
• Tampa Financial Lawyers

Construction Loan Agreement lawyers by city

• Austin Construction Loan Agreement Lawyers
• Boston Construction Loan Agreement Lawyers
• Chicago Construction Loan Agreement Lawyers
• Dallas Construction Loan Agreement Lawyers
• Denver Construction Loan Agreement Lawyers
• Houston Construction Loan Agreement Lawyers
• Los Angeles Construction Loan Agreement Lawyers
• New York Construction Loan Agreement Lawyers
• Phoenix Construction Loan Agreement Lawyers
• San Diego Construction Loan Agreement Lawyers
• Tampa Construction Loan Agreement Lawyers

ContractsCounsel User

Home Equity Invoice Agreement Template

Location: north carolina, turnaround: less than a week, service: drafting, doc type: construction loan agreement, number of bids: 1, bid range: $750, want to speak to someone.

Get in touch below and we will schedule a time to connect!

Find lawyers and attorneys by city

Small Project Design

• Community Home
• Discussion 3.7K
• Our Events 1
• Members 13.4K

Assignment of 'Plans & Specifications' to Lender

Scott A. Rappe AIA 12-21-2020 03:18 PM

Robert sussna aia member emeritus 12-22-2020 05:34 pm, donald f. sopranzi aia 12-22-2020 05:35 pm.

Scott A. Rappe AIA 12-22-2020 07:28 PM

David E. Cameron AIA 12-23-2020 05:33 PM

John a. feick aia 12-22-2020 09:02 pm, christopher p. kennedy aia 12-23-2020 05:34 pm, michael bengis aia member emeritus 12-23-2020 01:38 pm, ralph c. fey aia 01-05-2021 11:15 am, scott a. rappe aia 01-05-2021 11:15 am, 1.  assignment of 'plans & specifications' to lender.

A residential client's lender is requiring that we sign a document called "Assignment of Plans and Specifications with Joinder and Consent of Architect".  The document appears to be yet another form in that pile of a thousand that gets signed at loan closing.

It has provisions that are odious (pre-emptive forfieture of lien rights), untrue (assert approval by code authorities before permit submission) and impractical (architect will not permit any change orders that increase cost).

I'd be open to assigning the entire B105 owner/architect agreement to the Lender but am leary of just handing over "plans & specs".

Anyone have any experience with this? 

Anyone had any luck negotiating the terms of the assigment document to be less odious?

------------------------------ Scott Rappe AIA, LEED AP Principal Kuklinski + Rappe Architects Chicago IL ------------------------------

2.  RE: Assignment of 'Plans & Specifications' to Lender

3.  re: assignment of 'plans & specifications' to lender.

I am asked to sign a similar document for all the shopping center projects our firm designs.  The Lender makes the loan to my Client contingent upon my agreeing to the terms. I obviously want my Client's loan approved so he can pay my Invoices.  

I have had success having my liability insurance broker's attorney review and mark up the document (this is a service that your premiums pay for) and have had it accepted by the Lender's attorney.  If you carry professional liability insurance you should always have these documents reviewed by your insurer.  If you agree to terms that commit you to provide service beyond the accepted standard of care it can void your coverage.

I hope this is of some assistance.  Good luck.

Don Sopranzi

4.  RE: Assignment of 'Plans & Specifications' to Lender

Thanks Don,

I actually posted in this forum because I had our liability carrier review it and was disappointed in their reply:

"You should be prepared, these assignment agreements are becoming more the rule than the exception.   It should be understood that the loan to your client may be conditioned on the execution of this Assignment Agreement.  It is doubtful that many of your changes will be acceptable."

I am hoping to at least get an indemnification if they use the drawings without our services during construction.

------------------------------ Scott Rappe AIA, LEED AP Principal Kuklinski + Rappe Architects Chicago IL ------------------------------ Original Message Original Message: Sent: 12-22-2020 05:35 PM From: Donald Sopranzi Subject: Assignment of 'Plans & Specifications' to Lender

5.  RE: Assignment of 'Plans & Specifications' to Lender

This is not that uncommon anymore. Keep in mind that the owner and finance agents are not the only ones who can apply contingencies to contractual agreements.

Understand that the lender wants to protect their investment and have the ability to complete a project if needed in case project conditions fall apart. They don't want a half finished project they cannot recover investment from if they don't have rights to the plans if unforeseen conditions occur.  That said, if they want to apply a contingency to the owner that they have rights to the plans, then counter with a contingency in the agreement that this transfer will occur once the lender has paid any outstanding funds due the architect prior to transfer of documents AND that the copyrights protecting the architect still apply, AND finally that the documents cannot be used in construction activities without retaining the architect to complete his role as the Supervising Professional.

If they don't agree to your contingencies, back away. Keep in mind that if the funding agency does inherit the plans and does not retain the Architect to complete their work the Architect can withdraw as supervising professional. You may not recover any lost fees, but you will also not be held liable for work completed that you are not bound to as the Supervising Professional if you have gone through the proper channels to withdraw from the project.

6.  RE: Assignment of 'Plans & Specifications' to Lender

7.  re: assignment of 'plans & specifications' to lender.

Over the years we have had these assignment documents tossed at us in the last few days before the closing for the client's financing and pressured to sign the documents in order to keep from delaying the closing.  We have held firm every time and negotiated away all the ridiculously onerous clauses.  Most of the proposed clauses in these documents are meant to protect the lender from obligations of any kind if the client defaults. If your insurance agents cannot provide you with assistance, you need to go up their food chain until you get the assistance you need or switch providers.  Our agent always gives us detailed changes to the wording and is available to discuss the wording with the lender's lawyers.

8.  RE: Assignment of 'Plans & Specifications' to Lender

I've been an architect for 44 years; you can't guarantee code acceptance.  Even after you secure a building permit you'll find you, and the construction official might have missed something in the code.  And the idea that you won't allow any c/o that increases costs?  What world are they living in?  There are lots of good clients out there who don't want to rip your skin off.  Walk away from this is my advice.

9.  RE: Assignment of 'Plans & Specifications' to Lender

We have been successful in requiring the lender or any future owner fulfill our contract including CA services. Any revisions or value engineering will be invoiced at standard hourly rates / per contract.

We have note been denied. Ralph 

10.  RE: Assignment of 'Plans & Specifications' to Lender

Bringing closure to this thread:

I was able to make some some edits to the document, which the bank has accepted.  The most significant was to assign the entire B105 agreement to the Lender, rather than just the "Plans and Specifications" as had been the original wording.  This should keep all the provisions and protections of the agreement intact, if the agreement is assigned to the Lender.  I also replaced all the dangerous words our insurance companies don't like with old standbys, like "to the best of my knowledge, information and belief" and referenced the 'professional standard of care' in connection to our work.  Finally, in the Exhibit where the "Plans and Specifications" were supposed to be listed, I inserted a simple reference to Article I Contract Documents , in the A105 Owner Contractor Agreement.  

Thanks everyone for responding, offering advice and sharing your experiences!

New Best Answer

Privacy Policy Terms of Use Code of Ethics Contact Us

AIA Network

AIA Conference on Architecture AIA Contract Docs AIAU AIA Foundation AIA Store AIA Trust TopicA