Reviewed Feb 2017By Barry DacombeI had a call the other day from a member of NZACS seeking advice on a multi-unit apartment complex he had designed, but not yet constructed, for a developer client who was in the process of on-selling the development to another promoter.Enquiries like these are welcomed by the Board, as they demonstrate good risk management awareness, and add to the collective experience available able to be shared with other members of our co-operative.This enquiry was a good one as it raises several related issues:
All of these issues posed some interesting discussion, and for the benefit of members, here is a summary of the response given.
An architect’s engagement under the terms of NZIA AAS (and generally most other forms of standard terms of engagement) can be terminated at any stage of the commission by the client or principal. If on-selling the project, the original developer client may not consider continuity of engagement of the incumbent professional advisors for the unexpired portion of their professional services.Naturally, this was of particular concern to the enquiring architect, who wanted to complete the architectural services on the project and see the satisfactory completion of his design efforts. He was also concerned about the extent and nature of the liabilities he might inherit if he did not, or was not able to, complete his commission.There is not a lot that one can do about this as the architect is not a party to the arrangements and negotiations inherent in the on-selling process.However, no architect is going to gain any ground on this issue if they don’t attempt to engage with their client in a conversation about the pitfalls of not being further engaged.The architect will have to prepare a good case outlining the reasons why they would add value to the project if their commission was continued. My following comments may help in in preparation for such an approach.In terms of the architect’s liabilities, you cannot be held liable for work you have not been commissioned to do or have not performed. Your liability attaches only to the work you have performed. If you have contracted for the services on the AAS general conditions, they include a provision reinforcing this position. AAS additionally provides that the architect’s liability in a modified services or early termination situation will be reduced to any extent that the modification or termination has compromised the architect’s ability to mitigate the liability. The client’s attention may need to be drawn to such matters, but of course the language should be in terms of responsibility for issues beyond your control rather than liability for work you have already done.Apartment and townhouse sale and purchase agreements, and financing arrangements, often require certificates or producer statements attesting that the building has been built to the standard and quality set out in the construction contract or specifications used in promoting the sale. The client should be made aware that these declarations may require the architect to be retained for quality inspections or observation. No commercially prudent architect should agree to providing such declarations unless they are engaged to the extent necessary to verify them, and a “quick whip around” at completion is certainly not acceptable.Normally the BCA requires, as part of the Building Consent application, the architect and engineer to declare the extent and nature of their observation or contract monitoring regime. If a BCA issues a consent under a declared regime which is later changed, there may well be an obligation on the part of the relevant professionals to inform the BCA of that change. This will inevitably trigger a requirement for an increased inspection regime on the part of the BCA, or they may even engage outside professionals to perform these inspections and charge the client accordingly.The architect’s continued engagement might not be so expensive after all!
It is by no means unusual for a developer to sell a project on the basis that the consultants will be retained to complete it. This raises a raft of issues, not least of which the consultants may not be consulted about changes to the terms of engagement or scope until late in the negotiation process, and then be “on the back foot”. NZIA Practice Notes and NZACS website articles in relation to novation or changes in scope are relevant to this situation. As well as covering off the “continuity” issues described above, consultants need to consider whether their liability has changed as a result of the change in client, change in circumstances or terms or scope of attendances. All the considerations in mind when being engaged for a new project need to be revisited. If later disputes arise it will be critical to identify whether they attach to work done under the original or subsequent engagement.That suggests that this would be a good time to both record what has and has not been done, and to review past work to identify problematic issues. A new client may not welcome – or have priced in - risks which were accepted as part and parcel of the project by the original client.Architects must bear in mind that even carefully worded “conditional” approvals or certificates in relation to work done have been successfully attacked in claims. Despite the best intentions to limit the scope of responsibility to a limited scope of site observation, inevitably, at some stage in the work, the architect is placed in the position of being exposed to work which they know (or by dint of their expertise, should know) to be inadequate, and is then professionally conflicted in their duty to take action. This is a “damned if you do, and damned if you don’t” position readily exploited by subsequent legal interrogation.