Contractor Mistakes: Legal Options for Virginia Homeowners Seeking Remedies

When homeowners find themselves dealing with the aftermath of a contractor's subpar or incomplete work, it can be a nerve-wracking experience, as the home is often the biggest and most significant asset that they will ever own. Be it the construction of a new home or the renovation of an older home, residential construction projects typically force homeowners to either heavily tax their bank accounts or encumber themselves with loans.

Therefore, issues on the project site can often cause a great deal of stress and anxiety for homeowners at a time when they are financially spread thin. If problems arise, it is important for a homeowner to know their rights under Virginia law and what expenses can be recouped.

Contract vs. Tort

In most cases, construction disputes are governed by contract law, making the contract a cornerstone for understanding homeowner’s rights against the contractor. Contract claims focus on the terms and conditions laid out in the agreement between the homeowner and the contractor and spell out the respective obligations of each party. If a contractor has harmed the home, the homeowner must demonstrate that the contractor breached these contractual obligations, leading to the issues the homeowner is facing.

On rare occasions, a homeowner may have a claim against their contract with a basis in Tort law. Torts are legal claims based on a wrongful act or infringement of a right. When these principles exist due to a relationship arising out of a contract, however, a homeowner is only able to prevail on a tort claim in the presence of fraud in the inducement of the contract, duress, or a mistake surrounding the creation of the contract or conduct so harmful that it falls outside of the contract. These situations allowing for a tort claim against a contractor are special circumstances that a court will only act on when the conduct of the contractor is clearly outside of the intentions of the parties.

Since it is rare to deal with a tort claim for a construction project, the rest of this article will focus on remedies for a breach of contract.

Dispute Resolution Process

It is important to understand the different options to seek resolution of a dispute. The most well-known option is the State court system, where a homeowner has well laid out rules and processes to present his or her claim. However, going to court is not the only avenue to resolve a dispute.  Alternative Dispute Resolution (ADR) is another way to seek equitable resolutions of claims.  ADR can provide a more informal, private, and cost-effective method for solving a dispute with a contractor. Examples of ADR are arbitration (a process similar to the court system where a claim is decided by a neutral third party), mediation (where a neutral third-party acts as a go between, helping the parties to reach a mutually acceptable agreement to end the dispute), or, simply, negotiation (where the parties, potentially through attorneys, try to reach an agreement by themselves).

Where a written contract is signed between a homeowner and a contractor to perform construction, it is not uncommon for a dispute resolution process to be chosen and included in the contract. If so, the parties may have agreed to resolve any dispute within a certain courthouse or through arbitration or to attempt mediation prior to a lawsuit or arbitration. Most of the time these dispute resolution clauses are binding on the parties and can affect how the parties can make a claim.

Traditional Damages

Even when the parties to a contract opt for an ADR process like mediation or negotiation, where the parties can come to any agreement as long as it is mutual, it is important to know what remedies are available to the homeowner under the law. Calculation of damages can be extraordinarily complicated where the homeowner and contractor are at odds about the quality of work performed. Over time, Virginia law has developed guidelines to determine what damages are always recoverable as the direct result of breach and what damages may be recoverable due to special circumstances. These “direct” damages can be calculated with one of three primary methods:

Cost Method

Where the defect caused by the contractor’s breach is remedial, damages are based on the costs required to complete or correct the work. Cost method damages aim to reimburse the owner for the expenses incurred in correcting the contractor's errors, including the cost of additional work and materials needed to fix the problems. The cost method is the primary method for determining direct damages of a homeowner. This method will almost always require the hiring of another contractor for the remedial work required to finish the specifications of the contract. The exception to this cost method arises when substantial demolition of the structure is required to bring the structure into compliance with the contract or where the cost to remediate is grossly disproportionate to the benefit conferred to the owner.

Value Method

If the defects are not practically remediable, either by impossibility or the circumstances described above, the resulting damage calculation would be based on the difference between the value of the defective structure and the value it would have had if it had been properly completed. Value method damages assess the difference in the property's value before and after the contractor's work. This method aims to compensate the owner for the reduced value caused by the contractor’s errors. The value method will often, it not always, require the input of an expert in real estate appraisals to determine the value of the expected work under the contract.

Specific Performance

In cases where monetary damages are insufficient to rectify the situation, a court may order specific performance. This means the court compels the contractor to fulfill their original contractual obligations, ensuring the work is done properly. Because of the nature of the construction industry, specific performance will rarely be awarded as the cost method and the value method, as explained above, are more easily applied to a construction dispute. Where the building or premises in question is so remote or the type of work being performed by the contractor is so unique, specific performance may be reasonable where the chances of finding another contractor capable of the work is near impossible.

Consequential (or “Special”) Damages

In addition to the traditional direct damages mentioned above, consequential damages may be available in certain circumstances. Consequential damages are those damages that arise from the breach due to special circumstances not directly related to the contract and are only compensable when they were within the contemplation of the parties at the time of contracting. A special circumstance is contemplated when it was either actually foreseen by both parties or would have been reasonably foreseeable by a reasonable person in the same position as the parties. Common examples are additional rent payments caused by delay or increased interest payments on a high-interest construction loan. In the context of construction, consequential damages are most often seen as the result of delays due to the fault of the contractor, where the delay caused some type of financial issue for the owner. Consequential damages are unique to each case and can cover specific financial losses or hardships suffered by the homeowner due to the contractor's errors. Just like the dispute resolution process, consequential damages can be adjusted, limited, or eliminated through specific clauses in the contract and are an area of great concern for many contractors.

Conclusion

In the labyrinth of homeowner-contractor disputes, understanding legal remedies is vital. State courts and alternative dispute resolution methods offer varied pathways for resolution, each intricately shaped by contractual agreements. To navigate this terrain effectively, seeking an attorney becomes a strategic imperative to ensure informed decisions and a fortified home against future uncertainties.

Lyons Lascara is a Pender & Coward attorney focusing his practice on construction law and civil litigation matters.