Be a Good Neighbor: How Contractors Can Protect Themselves From Third-Party Claims

Construction can be noisy, muddy (or dusty, depending on locale) and sometimes destructive—conditions that can put a strain on relationships with neighboring property owners and can even lead to monetary claims for damage. As such, developers (in this article, developers encompass developers and contractors, since indemnification rights and obligations make this analysis common as far as most adjacent property owner claims are concerned.) need to protect themselves from third-party claims. This is especially true in dense urban environments. Developers can protect themselves from claims for third-party damage through license agreements, intensive construction site monitoring and appropriate insurance products. These can prevent costly and debilitating delays and assist in maintaining positive relationships with neighbors.

License Agreements

The realities of urban construction often require developers to temporarily use neighboring property, but before doing so developers may want to clearly document the parameters of this use in a license agreement. License agreements can define the rights of parties with regard to airspace (i.e.: for crane usage), ingress and egress to property for surveying purposes (i.e.: for preconstruction survey), or temporary encroachments (i.e.: for storage of materials or for protective sheds). License agreements for neighboring properties should include terms describing the work or access permitted on neighboring property, the duration of the license, the insurance coverage required for either or both parties, license fee (if any) and indemnity provisions (if any).

One type of license agreement, crane swing agreements, governs the rights of adjacent property owners when one is operating a crane that is swinging over a neighboring parcel. Crane swing agreements may be required by state law in some jurisdictions. Even when not required, crane swing agreements are a desirable risk-mitigating measure, as a damage claim by a neighbor—even if not well supported by facts or law—can be costly and delay-inducing. Developers should start negotiating license agreements well before construction begins, as such negotiations can be time consuming. Further, negotiating license agreements too close to the commencement of construction can significantly weaken a developer’s bargaining position.

Monitoring

Developers should set up thorough, ongoing monitoring mechanisms to minimize the potential for adverse claims throughout the project. Part two of this series introduced monitoring mechanisms that can protect developers from claims by neighboring property owners, and recommended that developers use measurement tools to establish a baseline site condition that is compliant with applicable law and regulations as well as generally in line with neighborhood expectations. Once a baseline is established, tools such as crack gauges, vibration monitoring and decibel meters may be installed by a third-party agency to ensure continued compliance. Development teams can even use a telemetric alert system to provide real-time updates or alerts for vibrations or noises that exceed predetermined “safe” thresholds so that an investigation can be conducted or work can be temporarily halted.

Additional Protective Elements

Developers should be aware of certain “sensitive” neighbors that may warrant additional monitoring or different compliance standards so that vibration and noise remain at an appropriate level. Sensitive neighbors can include hospitals, transit lines, museums, server rooms, sensitive manufacturing, significant or older structures, or airports. To the extent possible, developers should work with such neighbors to determine whether accommodations can be made. These could include scheduling “noisy” work hours or providing warnings for noisier construction times. For transit lines on, near or under the construction site, developers should perform additional diligence review of applicable codes to ensure compliance. For sites adjacent to or near an airport, developers should perform diligence to determine whether any height limitations apply to the property, or whether other restrictions apply.

Insurance

Developers generally maintain a commercial general liability policies, vehicular insurance and professional liability insurance. It is important to note that commercial general liability policies, while protecting against bodily injury and property damage to third parties, may not protect a developer for damage to the developer’s own property.

Developers should consider adding a builder’s risk insurance policy, a temporary insurance policy that protects buildings and structures while construction is underway. Builder’s risk insurance usually covers losses from fire, vandalism, weather, explosions and theft. Typically, builders risk insurance policies do not cover injuries or damage caused by the insured during the construction project, vehicles used for the project, workers’ compensation, and tools and equipment used on the project. Insurance companies often recommend that a policy effective date be before materials arrive at a construction site and end when the property is sold or when applicable certificates of occupancy are issued.

While not a form of traditional insurance, thorough environmental due diligence can be a highly effective form of insurance for developers. If the project site is especially contaminated, developers may also need to consider obtaining an environmental insurance policy.

This is the final article in a three-part series. Part one reviewed how to avoid a lawsuit on a project in close proximity to other buildings and part two covered how contractors and developers can mitigate the risk of claims From adjacent landowners.