Construction Law

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Tennessee Laws Impacting Construction Companies

An important part of the construction business is knowing the law in the states where you work. Construction laws change almost every year, and not knowing the changes can leave you in a bad position at the end of a project. In this brief article, we’ll discuss the Tennessee laws impacting construction companies. For a legal expert who can provide you with invaluable counsel at every stage of the construction project from concept to completion, contact a Nashville construction attorney

Tennessee Prompt Payers Act

The Tennessee Prompt Payers Act (PPA) changed how subcontractors can be paid at the end of a project. Many contracts make use of retainage, a process where up to 5 percent of the total cost of the project can be retained until the project is completed. This is an effective way of making sure that subcontractors complete the work to a satisfactory level. The PPA ensures that the retainage from contracts is placed in an escrow account with a third party. That escrow account must also generate interest over time.

The reason for this change comes from cases where disputes over retainage have caused significant problems in projects. Perhaps the most prominent problem is that construction companies were considering these holdbacks as retainage, which can cause problems with payments and invoices. The PPA ensures that the holdback is not considered retainage and is placed in an account where the contractor cannot directly control or withdraw the funds. In short, it ensures that the subcontractor can be paid the full amount that was agreed upon for the project without worrying about the contractor trying to withhold the money. If there is any question as to whether a payment can be considered retainage or not, ask a Chattanooga construction law attorney about the applicable regulations. 

Related: Examining the Penalties for Withholding Retainage in Tennessee

Substantial Completion Dates

In the case of Palazzo v. Harvey (2019), Tennessee changed how it handles substantial completion dates. The substantial completion date is the date agreed to in the contract upon which the majority of the work on a project should be done. The case argued that the project in question had two separate projects with two separate completion dates. However, Tennessee ruled against this because of issues in the contract.

Essentially, the ruling said that separate projects in separate completion dates must be made explicit in contracts. Although the contractor assumed that the other parties would think that there were multiple projects within the same contract, the contract did not explicitly state that the process would be considered separate and have separate completion dates. 

Going forward, any separation between projects or subprojects and their completion dates should be spelled out in the contract so that there is no confusion. If it is not made clear in the contract, enforcing issues with substantial completion dates will be difficult. In most cases, the contract will assume that the project is one single large project with one substantial completion date. Have Chattanooga construction lawyers review your contracts to help you avoid potential problems.

Defects Are Not Subject to the Statute of Repose

The statute of repose is often enforced very strictly as a means of protecting construction companies and contractors from having permanent liability for projects. In many cases, the statute of repose starts on the date of substantial completion. Unlike other statutes, it is rarely ever changed or extended to serve as a hard deadline for taking legal action. However, the definition of what is covered under the statute of repose may have changed.

In 2019, a case where a homeowner sued a contractor for defects in the foundation of the house may have changed what is covered under the statute of repose. Although the statute’s four-year period had lapsed, the contractor was still held liable for the defects in the foundation. Normally, this would not be the case. However, the judge ruled in favor of the homeowner because defects in a foundation are not considered home improvements. 

The foundation is essential, and the contractor cannot rely on the statute of repose to remove his liability for construction defects. Going forward, this means that contractors must ensure that all defects in construction are handled before the completion of the project. Otherwise, there may not be a limit to their liability for those defects.

Related: Tennessee Statute of Repose

Non-Monetary Trades and Disputes

The question of non-monetary trades and compensation for completed work can be confusing. In the case of TWB Architects, Inc. v. Braxton, LLC (2019), an architect sued the contractor for breach of contract by failing to pay for his services. Instead, the contractor offered one of the condo units that the developer designed as payment. This raises the question of whether or not non-monetary payments can be used to settle disputes.

This question became more difficult to answer when the condo building was foreclosed on. The architect lawsuits compensation for the work that he did in the foreclosure. However, accepting the condo can be considered payment for their services. When determining if he could sue the contractor again, there was a notable question as to whether he was truly paid or not.

This case highlights the potential problem with accepting non-monetary payments. On one hand, it could be an effective way of negotiating services. On the other hand, situations like this may create strange loopholes in the law. Going forward, it may be best to stick to payment methods as outlined in the contract that there is no question as to whether or not someone was paid for their services.

The laws that impact contractors in Tennessee change nearly every year, and can make negotiating contracts and handling projects more complicated. Having legal guidance can help you avoid possible problems in your construction work. If you have questions about the laws affecting contractors in Tennessee, contact one of our Nashville construction attorneys for legal help.

If you would like to speak with a Nashville construction attorney, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.