Renovation/Construction Contract

RENOVATION/CONSTRUCTION CONTRACT

Alessandro Clemente

Entering into a real estate renovation/construction agreement might be an unpleasant experience for those who are not properly informed about the legal implications (Rights and Obligations) referable to each contractual part.

Whether there are issues with incorrect execution of works, deviations from the agreed project or presence of defective materials, a professionally drafted contract represents the best protection and will keep the Investor out of lot of problems, reduce stress and often save you a considerable amount of money; and this is particular when the renovation/construction project is about a medium large size property which would take months to come to the completion.

Legal overview:

The Contractor is responsible for defects and unauthorised variation of construction works; If there are visible defects, the Investor should not accept the works otherwise will lose the right to claim on the guarantee.

On the other hand, the acceptance of work does not compromise the guarantee if there are hidden defects. Such defects can be contested once they are discovered. In order to make a claim on the guarantee the client, through his lawyer, should do the following:

• Reporting the hidden defects within 60 days of their discovery
• Trying (if possible) to find a friendly agreement with the Contractor (ADR)
• Taking legal action within 2 years from the end of works

In case the Investor fails complying with these duties, then will lose the guarantee cover. In cases where the contractor would not point out the defects and behaves in bad faith, the term for the legal action is extended to 5 years.

Once the defects and/or the unauthorised variations have been proven, the fault of the Contractor is considered as presumed and it becomes his responsibility to prove absence of negligence.

According to article 1668 of the Italian civil code, in the case of visible or hidden defects the client is entitled to take 4 possible legal courses of action:

• Request correction of the defects and/or variations, the total cost to be borne by the contractor
• Request a reduction in price
• If the variations or the defaults are very serious, request the resolution of the contract
• Request compensation for damage.

Article 1669 of the Italian civil code provides particular regulations for new buildings. In these cases, the contractor will be held liable for collapse (total or partial), evident danger of collapse or serious defects in the construction for a period of 10 years starting from the completion of the works.

Contestation should be formally done with a letter drafted by your lawyer and addressed to the contractor within 1 year of discovering the defect.

Article 1665 of the Italian civil code provides the client with the option to inspect works before the completion. This right of inspection is also present during the execution of the work.

According to art 1665 par. 4, if the client accepts the works at the point of signing-off without requesting an inspection or without contesting the works, the works are considered to be accepted. Works are also presumed as implicitly accepted if the client accepts them without making any type of formal objection. The direct consequence of this is the loss of guarantee cover for visible defects or unauthorised variations, (an exception is made for maliciously undeclared works). At this stage, the contractor will be entitled to final payment for works.

Before entering any renovation/construction agreement it is highly recommended to involve your lawyer and an independent surveyor in this process  so to avoid mistake and have a tight contract protecting your own interest.