Whether it is redesigning light fixtures in a common space or replacing a roof, repair jobs and capital improvement projects are like death and taxes, they are inevitable. Whereas a building administrator or a managing agent most often handles the hiring of contractors and oversees the execution of the job, problems and issues often arise which makes it important for board members to understand licensing, documentation and accepted protocols.
Every co-op or condo community has to hire contractors and deal with contracts at one time or another. If you have a reliable contractor with whom you’ve done business for years and years, all well and good. But if you're starting from scratch and happen to hire an unlicensed, uninsured (or improperly insured) or inexperienced contractor, then you may be courting disaster.
Know the Facts
Time and time again, we read of the tragic consequences of hiring improperly licensed or inexperienced contractors and workers. Even something seemingly harmless, like hiring a friend to paint your lobby ceilings, could result in serious problems. Fairly recently, this reporter visited a friend in a co-op in Queens. While exiting the building, he saw two gardeners working and almost tripped on their equipment. “Careful,” one of them said, “we don’t have insurance!” Needless to say, this situation may not be all that uncommon.
While most of the time it’s the managing agent or manager who deals with these transactions directly, it’s also important for board members to know the fundamentals and to have a basic knowledge of what licensing and documentation is needed for any contractor who performs work for their building.
We should begin with the documentation that a board or manager must demand from a contractor before work on a project begins. The most important documents, says attorney Marcie Waterman Murray, of the Manhattan law firm of Tane Waterman & Wurtzel, P.C., are a signed contract drafted by the building’s attorney and original evidence of insurance, (i.e., a certificate of insurance) that conforms to the requirements of the job that’s going to be done.
While licensing is only required for certain professions, Murray says, “The contract should require the contractor to represent that it conforms to all applicable laws and regulations applicable to the conduct of the work. That includes licensing and getting permits.”
From the Contractor’s Desk
According to one Manhattan-based exterior contractor and co-op board member, references aren’t always legitimate. “Most of us could hustle up a few friends and family members to cover us.” Instead, he says, it’s a good idea to go to the contractor’s office personally to see their operation or get multiple references that prove that they are indeed legitimate.
C. Jaye Berger, a Manhattan-based attorney who handles many construction-based issues for clients recommends that potential contractors be interviewed by a group of people, “not just Bob the property manager, but board members, a committee of people checking things out, even other projects that the contractor has done. Even a contractor who is very well-qualified could do a bad job.”
From the management side, Dan Wurtzel, president of Cooper Square Realty in Manhattan, says his company has three different classifications for alterations: 1) Painting, floor refinishing and third-party cleaning 2) Alterations/renovations that do not require a building permit, and 3) Alterations/renovations, including combination of apartments that do require a work permit.
“Under all of these scenarios,” Wurtzel says, “once the scope of work is approved by the board, the contractor must provide evidence of liability insurance (at the limits established by the building) naming the co-op, its board of directors and the management company as additional insured, as well as evidence of workers compensation and disability coverage.
“Additionally, the contractor must provide evidence of any licenses required to perform the work (including, but not limited to plumbing and electrical). A shareholder's contractor, architect or engineer is required to provide plans approved by the Department of Buildings (DOB) and copies of all permits issued by the DOB in connection with the work.”
The DOB oversees licensing and requirements for general contractors as well as many trades, including plumbers, electricians, welders, riggers (a contractor who builds scaffolds and hoists heavy equipment) and others. For this information, access the DOB’s website to see the list of licensed professionals: http://www.nyc.gov/html/dob/html/licenses/lic_faq.shtml.
In addition, a home improvement contractor’s license is required from the New York City Department of Consumer Affairs. According to DCA, a license is needed “in the construction, repair, remodeling, or addition to any land or building used as a residence. This includes, but is not limited to, the construction, replacement, or improvement of basements, driveways, fences, garages, landscaping, patios, porches, sidewalks, swimming pools, terraces, and other improvements to structures or upon land that is adjacent to a home or apartment building.”
Checking Up on Insurance
Whose responsibility is it to check and verify a contractor’s license on a building’s behalf? Berger says that it’s the responsibility of a managing agent to do the “due diligence” in a co-op building.
In practice, however, the building manager is often “overworked and overwhelmed” and that task sometimes defaults to an architect or engineer, says one Manhattan-based contractor. As we’ve mentioned, one problem with contractors may be not lack of insurance but improper insurance. There are instances where in dangerous trades like roofing and scaffolding, contractors may have insurance but not for the particular category appropriate for the trade.
“The general contractor in turn hires subcontractors,” says Berger. “The general contractor is the one who has the direct liability. In their contract, it ensures that anyone they hire will have appropriate licenses thus putting the burden on the general contractor.”
Still, the use of subcontractors may complicate liability issues as a practical matter.
Wurtzel says that in buildings his firm manages, “It is a requirement for a contractor to list any subcontractors performing work and providing the necessary insurance and license requirements before they can enter the building.”
In general, work shouldn’t be allowed to begin without the contractor having proper documentation, licenses and insurance in order. Contracts should specify that these things be in order as a pre-condition to starting any job.
Either You Have It or You Don’t
But what happens if building manager or board, for whatever reason, does hire a contractor who doesn’t have proper documentation, license or insurance? What happens then? Are they given a grace period?
“There are two scenarios,” says Berger. “I’ve heard of situations where the contractor says some phony-baloney excuse but it’s very black and white. Either you have it, or you don’t. I’ve also heard people once or twice say, `we’re waiting for it to come through.’ That’s not a valid excuse either.”
In a worst-case scenario, where the contractor is already on the site and has work permits and a scaffold but doesn’t have the proper insurance, the owner can purchase the insurance—but then back-charge the contractor. And until the insurance goes through, work should stop.
Sometimes, an individual resident will be negatively affected by a renovation or maintenance project. Still, that shareholder won’t be able to examine the contractor’s paperwork on their own. “Pursuant to the New York State Business Corporation Law, the affairs of the corporation are managed by its board of directors. Such examination is not a proper activity for the shareholder,” says Murray. Examining the contractor’s paperwork, she says, is the responsibility of the board, which is then usually delegated to its managers, professionals or other employees.
Berger says that if a building is doing work that damages a shareholder’s apartment, then that shareholder can file a claim against the building’s insurance company and/or the contractor, depending on what happened. Many professionals recommend that individual residents be named as additional insureds, in case the contractor damages any of the resident's possessions in the course of doing the project.
Wurtzel says that in general, renovations to a particular apartment will affect the residents on the same floor as well as apartments above and below. “The criteria is to communicate information to residents that will be affected about various phases of the job (i.e. dates that demolition will take place) to manage everyone's expectations. If there is a change to the schedule, then it's important to communicate those changes,” he says.
And if the board or the manager don’t do their due diligence and hire an unlicensed, uninsured or incompetent contractor, and that contractor ends up causing damage to the building or an individual apartment?
One scenario that sometimes happens, says Murray, occurs when a contractor’s insurance expires during the project and the project manager doesn’t check to see if it has been renewed. Whether this is the case, or whether a contractor is found to be unlicensed or uninsured, she says, means that “the end result is that the building winds up having to sue a potentially judgment-proof contractor, hire a replacement to repair or complete the project, and eventually face the wrath of the electorate at the next annual meeting.”
When a job goes bad, everybody loses, including perhaps, the managing agent in charge. One possible protection for the board in problematic situations is for its insurance professionals to provide directors and officers insurance for the board. Another consideration is having a hold harmless agreement in place, which says that if any of the contractor’s employees get hurt on the job, they don’t have the ability to sue the building.
All in all, when it comes to unlicensed or uninsured contractors, no matter how small the job may seem, having them work in your building or development just isn’t worth the risk.
Raanan Geberer is a freelance writer and a frequent contributor to The Cooperator.