WHAT'S NEW
Construction Law
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Owner's Failure to Purchase Builders' Risk Insurance Bars Recovery From Contractor. The Circuit
Court of Fairfax County, Virginia has held that the failure of an owner to
purchase and maintain builder's risk insurance as required by the contract
between the parties bars the owners from recovering for damages to the work,
even if the loss was caused by the general contractor's negligence. Bishop of Catholic Diocese v. Building
Management, Inc. (Law No. 2005-1097,
6/27/06)
·
Failure by General Contractor to File Certification of Mailing
Invalidates Mechanic's Lien. Virginia's
mechanic's lien statute was amended, effective July 1, 2003, to require general
contractors to file along with any mechanic's lien a certificate stating that a
copy was mailed to the owner. The
Virginia Supreme Court on January 13, 2006 held that a mechanic's lien filed by a
general contractor is invalid unless the general contractor files the required
certificate in the Circuit Court land records at the same time it files its
mechanic's lien. Britt Construction,
Inc. v. Magazzine Clean, LLC, 271 Va. 58, 623 S.E.2d 886 (2006).
·
CGL Insurance Policy Construed
to Cover Damaged Work Installed by Insured's Subcontractors. The United States Court of Appeals for the
Fourth Circuit has held that a standard commercial general liability policy
covers damage to work installed by an insured's subcontractors. The Court held that the standard CGL policy exclusion for "damages to your
work" does not eliminate coverage when the damaged work or work out of
which the damage arises was installed by the insured subcontractors, as
distinguished from the insured's own forces.
Limbach Company v. Zurich American
Insurance Company, 396 F.3d 358 (2005).
·
General Contractor Held Not Liable for
Subcontractor's Violation of VOSHA Standards. The
Virginia Court of Appeals on May 3, 2005, held that a general contractor is not liable
for its subcontractor's violation of VOSHA safety standards which created a
risk of harm only to the subcontractor's employees. The VOSHA citation involved a subcontractor's
failure to provide hardhats and fall protection to its employees. VOSHA issued citations to both the subcontractor
and general contractor under its "multi-employer" citation
policy. None of the general contractor's
employees were exposed to the hazard.
The Court held that a general contractor is not liable under VOSHA for a
subcontractor's failure to protect its own employees. Davenport
v. Summit Contractors, Inc., 45 Va.
App. 526, 612 S.E.2d 239 (2005).
·
No Damages for Delay Clause Declared Invalid. The Virginia Supreme Court on October 3, 2003
ruled that a "no damages for delay" clause in a public contract let by
the Upper Occoquan Sewage Authority violated the Virginia Public Procurement
Act and was therefore unlawful and invalid.
The Virginia Public Procurement Act states that any provision in any
public construction contract "which purports to waive, release or
extinguish the rights of a contractor to recover costs or damages for
unreasonable delay in performing such contract" is void and unenforceable
as against public policy. Blake Construction Co., Inc. v. Upper
Occoquan Sewage Authority, 266 Va.
582, 587 S.E.2d 721 (2003).
·
Arbitration Award Upheld Despite Apparent Error of Law. The Virginia Supreme Court has upheld an
arbitration award of treble damages against a general contractor,
notwithstanding apparent flaws in the arbitrators’ legal analysis. The Court reasoned that the Virginia Uniform
Arbitration Act allows an award to be overturned when “the arbitrators
exceeded their powers.” The proper
test is therefore whether the arbitrators had the power under the arbitration
provision in the contract to decide the dispute, not whether the arbitrators
misapplied the law. Signal
Corporation v. Keane Federal Systems, Inc., 574 S.E.2d 253 (Va., 1/10/03).
Zoning Law
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New Authority
to Assess and Impose Road Impact Fees Enacted.
The 2006 General Assembly enacted
legislation (§15.2 – 2317) authorizing localities to impose impact fees
for road improvements "benefiting" a new development. Previous rulings from the Virginia Supreme
Court have generally held that a locality may not condition a rezoning, special
exception, subdivision on site plan approval on the construction of roadway
improvements not substantially generated by the proposed development.
·
New State Traffic Impact Analysis Requirements Enacted. The 2006 Virginia General Assembly enacted
legislation (§15.2-2222.1) which expanded the Virginia Department of
Transportation's role in land planning and land development. Effective July 1, 2007 through December 31, 2007,
all rezoning applications and site and subdivision plans which generate more
than 500 peak hour trips will generally require the submission of a traffic
impact analysis. Effective January 1, 2008, the threshold for submitting a traffic impact
analysis will change to generally more than 100 vehicle trips per peak hour for
residential developments and 250 vehicle trips per hour or 2,500 vehicle trips
per day for non-residential developments.
·
Disapproval of Proposed Subdivision Overturned. The Virginia Supreme Court on April 20, 2007
ruled that the Alexandria Planning Commission cannot disapprove a proposed
subdivision plat based upon the proposed size and design of the homes to be
built on the property. The Planning
Commission disapproved the proposed subdivision plat based upon complaints by
neighbors that the developer planned to constrict large houses which were
incompatible with the established character of the neighborhood. Seymour v. City of Alexandria, 643 S.E.2d 198 (2007).
·
Loudoun County Comprehensive Rezoning
Invalidated. The Virginia Supreme Court on March 3, 2005
held that the County failed to comply with the statutory public notice
requirements for comprehensive amendments to its zoning ordinance and map, and
that the adopted amendments and map are therefore invalid. The Court held that the County's
advertisement of proposed "provisions to implement the Conservation Design
policies in the Revised General Plan" did not constitute a sufficient
"descriptive summary" to comply with the statutory requirements. Likewise, the Court held that the
advertisements contained an inadequate description of the areas proposed to the
rezoned to comply with the statutory requirements. Gas Mart Corporation v. Board of
Supervisors, 269 Va.
334, 611 S.E.2d 340 (2005).
·
Arlington County's Affordable Housing
Guidelines Declared Invalid. The Circuit Court of Arlington County
on December 10,
2004 ruled that the County's "Affordable Housing Guidelines
for Site Plan Projects" are invalid and illegal because they exceed the
scope of the County's authority under state enabling legislation. The Court rejected the County's argument that
the Guidelines were merely "aspirational"
and "voluntary" because the evidence at trial demonstrated that every
site plan application approved by the County since 2001, other than six
projects that were for affordable housing projects themselves, included an
affordable housing contribution at on above the level identified in the
guidelines. Kansas
– Lincoln, L.C.
v. County Board
of Arlington, 66 Va. Cir. 274 (2004).
·
Criteria for Variance Tightened, Then Relaxed. The Virginia Supreme Court on April 23, 2004 interpreted the Virginia
state zoning enabling legislation to prohibit variances absent proof that the
effect of the zoning ordinance upon the property without the variance is to
interfere with "all reasonable beneficial uses of the property, taken as a
whole." Based upon this
interpretation, the Virginia Supreme Court held that the BZA was powerless to
grant variances from side yard set backs to allow for construction of a
proposed new house, a garage or a shed when it was demonstrated that the
properties retained beneficial uses and substantial value without the
improvements. Cochran
v. Fairfax County Board
of Zoning Appeals, 267 Va.
756, 594. S.E.2d 571 (2004) In response to this
decision, the General Assembly on March 23, 2005 amended the enabling legislation
to allow, but not require, local governments to enact amendments to their
zoning ordinances allowing the Zoning Administrator to grant "a
modification from any provision contained in the zoning ordinance with respect
to physical requirements on a lot or parcel of land, including but not limited
to size, height, location or features of or related to any building, structure
or improvements" upon a finding that there is undue hardship not shared
generally and the modification will not be of substantial detriment to other
properties or the character of the zoning district. (HB 2159; Va. Code §15.2-2286).
Commercial Leases
·
Assignee of Lease from Bankrupt Tenant Entitled to Exercise Option to
Extend Lease. The United States District Court for the
Eastern District of Virginia has ruled that an extension option in a commercial
lease may be exercised by an assignee of a bankrupt tenant, notwithstanding the
provision of the lease restricting the option to the original tenant only. The Court held that such a provision is
rendered unenforceable under Section 365(f)(3) of the
Bankruptcy Code because it seeks to “modify” the lease “on
account of an assignment.” Double
K Properties LLC v. Aaron Rents, Inc. (1:30 cv 00044,
July 14, 2003)
·
Landlord Held to Have no Duty to Mitigate its Damages. The Virginia Supreme Court has held that a
landlord of a shopping center was within his rights under a lease when,
following the default of his tenant, he refused an offer by a proposed new
tenant to re-lease the premises under the same terms as the defaulted
lease. The Court held that the landlord
had no duty to mitigate his damages under the terms of the lease which provided
that the landlord could re-let the premises “under such terms and
conditions as Landlord shall deem reasonable to any tenant or tenants which it
may deem appropriate.” River Road
Shopping Center v. Scott, 259 Va.
87, 523 S.E.2d 494 (1/14/00).
·
Elements of
Constructive Eviction. The
Virginia Supreme Court has held that a tenant failed to prove its defense of
constructive eviction in an action for unlawful detainer
brought by the landlord. The Court held that to constitute constructive
eviction, there must be intentional conduct by the landlord that permanently
deprives a tenant of the beneficial enjoyment of the premises, and that the
tenant must completely abandon the premises within a reasonable time after the
landlord's conduct. North Ridge v. Ruffia,
Record #981100, April
16, 1999.
·
Landlord's
Right to Recover for Tenant Alterations.
The Fourth Circuit Court of Appeals has held that a landlord cannot recover his
estimated costs of repairing alterations to a building made by a tenant because
the repairs were never made and the building was substantially gutted by
subsequent tenants in order to accomplish their wholesale remodeling
plans. Parkridge Phase Two Associates
v. Lockheed Martin Corporation, et al., CA-97-623-A, February 2, 1999.
·
Tenant who
Assigned its Lease to Another Held Discharged from Liability
to Landlord. Ordinarily, absent
an agreement to the contrary, a tenant who assigns its lease to another remains liable under the lease. However, the
Fourth Circuit Court of Appeals has held that a tenant is discharged from
liability if the assignee of the lease and the landlord materially alter the
lease without the tenant's knowledge or consent. The Court reasoned that
a tenant which assigns its lease assumes the status of a surety, and that a
surety's obligations terminate whenever the principal obligor and creditor
materially alter the agreement underlying the suretyship.
The Corner Associates v. W. R. Grace & Company, No. 98-1153, 02/19/99.
Commercial Litigation
·
Members of LLC Held Not to Owe Other Members a Fiduciary Duty. The Circuit Court
of Fairfax
County has ruled that the
Virginia Limited Liability Company Act, Va. Code §13.1-1000 et seq.,
establishes that a manager of an LLC, owes a fiduciary duty to the LLC, but the
Act does not impose fiduciary obligations towards, among on between
members. WAKA LLC V. Humphrey, (Fairfax Circuit
Court, #2006-14305, 5/2/07
·
Covenants Not to Compete in a "Business Competitive With"
Former Employer Invalidated. The United
States District Court for the Eastern District of Virginia has invalidated a
one-year covenant not to compete in a "business competitive with" a
former employer. The Court reasoned that
the restriction was overly broad and therefore invalid because it prohibited
the employee from performing some functions which he never performed for the
former employer and the restriction did not contain a geographical
limitation. Cantol,
Inc. v. McDaniel, 2006 WL 1213992 (E.D. Va.
4/28/06). The Court cited the Virginia Supreme Court's
2005 decision in Omniplex World Services v.
US Investigations Services, Inc., 618 S.E.2d 340 (2005) where a similar
result was reached involving a one-year covenant not to provide "services
for any other employer in a position supporting" [the former employer's]
customers," irrespective of whether the employee would be competing with
the former employer.
·
Delay by Real Estate Settlement Agent in Notifying Seller of Buyer's
Bounced Check Held Breach of Fiduciary Duty. The Circuit Court of Loudoun County
has held a real estate settlement agent liable to a seller for failing to
timely inform the seller that the buyer's deposit checks had been
dishonored. The Court held that a person
who receives money to distribute as required by an agreement is a fiduciary and
awarded damages, including the dishonored check,
unpaid rent, and costs of eviction and cleaning. Sedler v.
Select Properties, Inc. (Circuit
Court of
Loudoun County).
·
Assessment of Punitive Damages Against Managing Member of LLC for
Breach of Fiduciary Duty Upheld. The
Virginia Supreme Court has upheld a trial court’s ruling assessing
$350,000 of punitive damages and $178,349.02 of attorneys’ fees against
the managing member of a limited liability company and prohibiting the member
from continuing to serve as a manager.
The Court concluded that the managing member had acted maliciously and
wantonly for his own personal gain by transferring assets of the limited
liability company to another venture in which he had an interest. Flippo et. al. v. CSC
Associates III, L.L.C. (Record No. 002183, 6/8/01).
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