Minimize Risk - Maximize Performance
July 2013

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Lender Created Liability for A/E's


At the beginning of the project you did a good job in reviewing the Client’s generated contract and removing language regarding any warrantee, certification and guarantees. However, one small phase inside the agreement slipped by, “ The Design Professional Shall Cooperate Fully with the Client’s Lender Including Executing Requested Documents at the Completion of the Project”.  At first glance, this may seem like a rather harmless provision, however such vague language can mean tremendous liability problems for the design professional. The use of this type of language and approach is a growing and risky trend in the industry today. 




In today’s building and construction environment, when developers, including limited partnerships obtain a construction loan, they are anticipating lender requirements including documents requested during the course of construction, and upon completion. At this point, usually all conditions and document requirements are not fully defined so requests are worded rather broadly. This past week one of my Clients received a document from the Project Owner for signature at the completion of a project that included the following:



Design Professional Lender Certification:

“The undersigned certifies that the Project has been completed in strict accordance with the construction documents, and complies with, all applicable conditions, restrictions, reservations, whether or not of record, statutes, regulations and ordinances, including, without limitation, all pollution control, environmental protection, zoning, planning and land use requirements, building codes and all restrictions and requirements imposed, and all other governmental entities having jurisdiction over the Project, including without limitation, the requirements of any plan as amended, subdivision and parcel map requirements, environmental requirements in connection with use, occupancy and building permits, and in compliance with all applicable requirements of public utilities which affect the Land, the Project, the construction of the Project and the contemplated use of the Partnership Property. The undersigned also agrees that all documents, reports and specification including their copyrights for this project are the property of the lender.”



The above provision is very problematic and should never be signed. The list of reasons is almost endless but to name a few - a warrantee and guarantee with the construction documents and compliance to “all” regulations, codes, statutes, environmental, governmental entities, etc. A warranty and guarantee of the design documents, including the contractor’s work should never be provided. Also there are thousands of regulations, codes, statutes, laws, codes related to construction. All are open to interpretation by officials and subject to change at any time. You can easily find yourself in breach of the contract with conflicting regulations placing you in a vulnerable and unfavorable position. Relinquishing ownership to design documents opens you up to additional liability including the modification and reuse of the design documents. 


To make matters worse, lenders pressure the design professional to immediately sign and approve the requested documents without sufficient time to review, including a third-party review by an industry professional. Without any contractual protections in these situations, you are placed in a very difficult and risky position.





Delete any contractual language that requires full compliance and cooperate with the Client’s lender. Removing this language protects you later in the project. If your Client insists on a lender provision, provide a provision stating compliance with only those requirements that in your professional judgment are reasonable, consistent with common law, and within your scope of services and agreement with your Client. You as the design professional should not be required to execute certificates or consents that would require knowledge, services or responsibilities beyond the scope of the agreement you signed for that project with your Client. Clearly state that you shall require adequate time to review any documents, and shall not be required to provide any information or documentation that is considered a warrantee, guarantee or certification of work you have not observed and, or can ascertain.

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SmartRisk is a leading risk and performance management consultancy for design and building professionals. Through firm specific risk assessments, training and consulting, services focus on improving overall performance, profitability and reducing insurance costs through tailored risk management solutions.

If you have any questions about our services, or would like dicusss how we could assist your efforts, please contact us.

Thank you,

Timothy J. Corbett, BSRM, MSM, LEED GA
Founder & President

Copyright and Information Only. This newsletter is for information purposes only and should not be construed nor relied upon as guidance, regulatory or legal advice. Readers should consult with appropriate counsel regarding their specific situations and circumstances. SmartRisk shall not be liable for any errors in content, or for any actions taken in reliance thereon.

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