Sometimes construction projects go sideways and there is nothing that can be done to salvage the relationship between the contractor and the property owner. Whether the issues arise from defective work, a failure to make payment, a lien, or some other dispute, many times the end result is a settlement agreement where the parties agree to release each other from liability, sometimes in exchange for resolution of some or all of the outstanding issues. But what happens when someone else acquires the property after this settlement?
Just a few days ago, the Second District Court of Appeal addressed this issue in a case that, in addition to providing legal insight, also provides a great example how to draft a release (or not draft a release, depending on your perspective) relating to construction defects. But before jumping into that, it’s helpful to provide some background.
In MBlock Investors, LLC v. Bovis Lend Lease, Inc. the litigation arises from allegedly hidden construction defects. The original construction contract was between a developer, EB DEvelopment (“EBD”), and Bovis Lend Lease (“Bovis”). At the end of construction, EBD transferred the property to D/M Midtown Miami Owner, LLC (“DMM”) and Bovis sued EBD and DMM for failing to pay $3 million in outstanding invoices. EBD countersued, claiming defective work by Bovis. Ultimately the parties settled the claims and as part of that EBD released Bovis and others from liability.
The settlement contained the following language relevant to the court’s decision:
[EBD] for themselves, their employees, agents, managers, members, and their respective successors and assigns, hereby release, acquit, and forever discharge [Bovis], Surety (As to performance bond only), and all of their employees, servants, agents, representatives, successors, and assigns from any and all claims, actions, causes of action, legal, equitable, or administrative proceedings, demands, rights, damages, losses, relief, remedies, costs, expenses, fees, and compensation of whatsoever kind or nature which [EBD] may have against of the of released parties on account of any and all acts or omissions from the beginning of the worl through the date of this Agreement which are known to [EBD], its employees, agents, partners, managers, members, consultants, representatives, predecessors, attorneys, and their respective successors and assigned as of the Effective Date, arising from the construction of the Project, the Construction Contract, or the Performance Bond, including but not limited to the alleged claims set forth in the attached schedule . . .
Two years after the settlement, DMM defaulted under the terms of its loan and MBlock acquired the property. Four years later, MBlock sued Bovis alleging negligent construction and violations of the Florida Building Code.
Now that we’re caught up to the present day, we can turn to the court’s decision in this case. First, the court determined that MBlock was a successor to EBD such that that settlement agreement, which was binding on EBD’s successors and assigns, applied to MBlock. The court also determined that the claims being brought by MBlock for defective work and building code violations were covered by the release due to its reference to the construction of the project.
Notwithstanding this, the court ultimately determined that because the language of the settlement release only covered known claims, latent or unknown defects were not released. Thus, the court remanded the case to the trial court to determine whether MBlock’s claims were based on unknown or known defects because, under the wording of the release, Bovis could still be liable for for defects that were unknown at the time of the release.
There are two critical takeaways from this case. First, the court, at least impliedly, approves of a prior owner of a property binding a future owner to a comprehensive release. Second, it is very important to include known and unknown construction defects in a release if the contractor never wants to be called back out to a project again or face liability for it.