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Project Owner Permitted to proceed Upon direct Claim against subcontractor despite lack of privity

Posted by: Kalvin Kamien

Although, as a general rule, a project owner is precluded from proceeding upon a direct claim against a subcontractor due to a lack of privity (See Owssom Builders, LLC v. J & F Refrigeration Air Conditioning and Heating, Inc., 28 Misc. 3d 1218(A), 957 N.Y.S.2d 637 (Sup.Ct., Kings Co. 2010)), the Supreme Court, New York County recently carved out exceptions to this rule.

Posted by: Kalvin Kamien

Although, as a general rule, a project owner is precluded from proceeding upon a direct claim against a subcontractor due to a lack of privity (See Owssom Builders, LLC v. J & F Refrigeration Air Conditioning and Heating, Inc., 28 Misc. 3d 1218(A), 957 N.Y.S.2d 637 (Sup.Ct., Kings Co. 2010)), the Supreme Court, New York County recently carved out exceptions to this rule.

Last year, Greenberg, Trager & Herbst, LLP (GTH)represented the condominium developer in Amsterdam 78, LLC v. Admore Air Conditioning Corp., N.Y.Co.Index No. 650029/2012 (Marks, J. 2013), wherein on behalf of our client, we brought a direct action against the project HVAC subcontractor, alleging that the subcontractor breached various warranties, guaranties, and obligations under the trade contract. Despite the lack of privity between the parties, Justice Marks, in an April 25, 2013 decision and order, denied the subcontractor's dismissal motion and permitted the lawsuit to proceed.

The Court initially determined that the subcontractor could be responsible to the owner under the express warranty provision of its contract where the warranty provision allowed for a direct claim by the owner, and there was evidence in the record that both the general contractor and owner had provided notice to the subcontractor during the warranty period of purported defects in the work.

The Court further rejected the subcontractor's contention that any claim for breach of an implied warranty in the complaint must also be dismissed. It sustained the owner's contentions that the express warranty provision of the HVAC agreement was neither an exclusive remedy nor a contractual shortening of the statute of limitations, and that such a claim was supported by the various provisions of the agreement which provided that the subcontractor would indemnify the owner directly for any failure to fully comply with all the terms of its subcontract.

Whereas a lack of privity would normally preclude an owner from successfully prosecuting a direct case against a subcontractor, there are exceptions to this rule. The language of the subcontract agreement may provide an avenue for the owner to file suit directly against the subcontractor upon claims for either breach of express warranty and/or breach of implied warranty.

The aforesaid is just one example of the importance of proper contract drafting.GTH can lend their expertise in drafting agreements which provide maximum and enforceable protection for the party we are representing, whether the owner/developer, the construction manager/general contractor or the trade contractor.

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