What does “lockup” mean and when is a project at the “lockup” stage? These questions were recently the subject of a dispute before the BC Supreme Court.
FACTS
In Skadberg Construction Ltd. v. Buschholz, 2010 BCSC 869, Skadberg Construction (the “Builder”) and Buschholz (the “Homeowner”) entered into a construction agreement based on the precedent provided by the Canadian Home Builders’ Association of British Columbia for the construction of a duplex.
Under the contract, the parties agreed to a payment schedule in stages that included a 10% deposit paid into trust and a 30% payment “on completion of the home to lockup.”
Construction started in November 2007. Around January 2008, the Builder told the Homeowner that he had reached the lockup stage. However, the Homeowner refused to pay the 30% draw as she did not consider the project to be at lockup, which she described as having the “building closed in or when you had a key for the door.” Her reasons for not making the payment included:
- Some of the window frames were boarded over instead of the windows being installed;
- The doors were not installed;
- The interior staircase was not installed;
- The rear of the house had not been completed; and
- In February 2008, a structural engineer told the Homeowner that the duplex lacked structural stability and required moment frames.
The Homeowner applied for a draw on her construction loan in February 2008. The bank determined that 42% of the work had been completed and approved the progress draw, but the Homeowner did not pay the Builder.
The Builder stopped working and sued the Homeowner for the work completed. The Builder argued that he had reached the lockup stage and was entitled to payment.
In response, the Homeowner argued that the Builder was not entitled to any payment as it abandoned construction prior to lockup.
ISSUES
1. Was the home at the lockup stage?
DECISION
The Builder called two expert witnesses who both held the opinion that the home had reached lockup. One noted that missing windows or doors can be boarded over to reach the lockup stage and the other stated that he considered the Project to be at lockup despite his estimation that approximately 10 hours’ worth of work remained to install the missing windows and doors. Additionally, an inspector for National Home Warranty Group Inc. gave his opinion that construction was 45% complete and had reached the lockup stage.
In light of the expert evidence, the court held that:
The term [lockup] has some flexibility. It does not absolutely require the windows, exterior doors, or temporary staircases to be installed. Its specific meaning must be derived from the construction agreement itself, along with the particular facts and circumstances of the building project.
With regard to the particular facts and circumstances of this home, the court relied on four factors to support the conclusion that the Project was at the lockup stage:
- The Homeowner’s bank advanced a progress draw based on the quality surveyor’s report that 42% of the work was complete. While the bank was not given the power under the contract to determine whether lockup had been achieved, the court considered it noteworthy that the home had clearly reached a stage of construction where the bank considered a progress draw to be appropriate.
- The Builder had valid reasons why certain things were not complete when he requested payment. For example, some windows could not be installed because they had to be moved to accommodate changes to the plans; some custom windows were on back order; the doors were only temporarily installed as they would have to be removed to install the decking membrane; two doors were missing because the Homeowner had not chosen or confirmed them; and the specified staircases were not to be installed until after the drywall stage was completed.
- The objective expert evidence supported a conclusion that lockup had been achieved. Aside from the evidence of the Homeowner herself, this evidence was not contradicted.
- The Homeowner’s reasons for withholding payment from the Builder did not justify non-payment. For example, the Homeowner complained about the retaining wall (a landscaping issue) and insisted that an invoice was required, yet the contract did not provide for either landscaping or an invoice requirement. Disagreements over the quality of plumbing fixtures and type of fireplaces required by the contract, were also found to be a mere excuse that did not provide a reasonable basis for withholding of payment.
In the end,the court found that the Homeowner breached the contract by refusing to make the payment required at lockup stage. The Builder was entitled to full payment for the work it completed.
LESSONS LEARNED
1. Wherever possible, define the terms in your agreement to minimize the potential for conflict.
2. If the terms are not defined, the court will define them for you based on what the particular facts and circumstances are, in light of the reasonable expectations of the parties.
Ian Moes is a lawyer who practices construction law with the law firm Kuhn LLP. This article was prepared with the assistance of Micaela Carlson, articled student. This article is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have any questions or comments about this case or other construction law matters, please contact us at 604-864-8877.
