Zeidel & Associates Helps Building Owner Untangle Complex Contractual Relationships Affecting Hurricane Roof Repairs

Situation

The owner of a large hotel complex in Florida retained Zeidel & Associates to draft a construction contract with a roofing contractor for a full roof replacement following damage caused during Hurricane Ian in 2021. The building included a timeshare share component, governed by its own condominium association. According to the owner, the majority of the cost for the roof repair was to be paid by the insurance company under the joint insurance policy for the building and the condominium association as a covered claim based on the hurricane damage.  The condominium association had taken the lead with the insurance company on engaging the engineer and the project manager and had selected the roofing contractor for the roof replacement. The owner was under pressure from the insurance company and the condominium association to execute the roof contract with the contractor chosen by the association prior to the beginning of another hurricane season in Florida.  Our firm was asked to ensure that the contract adequately protected the owner’s rights.

Approach

The relationship among our client, the condominium association and the insurance company raised red flags with us. Digging deeper, we learned that the insurance company had already paid insurance proceeds of over a million dollars to the condominium association, which raised concerns as to how our client would ensure that it could access these funds in order to pay the roofing contractor.  The association refused to turn over these funds in advance, leaving us at an impasse. Despite the pressure from the insurance company and condominium association, we encouraged our client to identify the governing documents with the condominium association regarding capital projects.  Our client located a cost sharing agreement between the condominium association and the building owner which set forth how the building and the condominium association are to share costs. It became clear that payment of insurance proceeds to the condominium association was in contradiction of this agreement, which provided instead that it was the building owner’s right to supervise and direct repairs for the roof of the building.

Our client was also concerned about the suitability of the roof design that was provided by an engineer retained by the association, and about the qualifications of the project manager that had been engaged by the association, all in contradiction to the cost sharing agreement.

Result

While negotiating the roof construction contract, in order to protect our client, we required the condominium association to enter into a payment guaranty and indemnification agreement with the building owner, which provided that the condominium association would indemnify the building owner for claims by the roofing contractor and for claims arising from the roofing replacement engineering work that had been approved by the condominium association.  At our request the condominium association provided board resolutions confirming that it approved the replacement design. With our support, the building owner was also able to use its leverage to replace the project manager engaged by the condominium association with its preferred project manager. 

The client was very pleased that we were able to help it understand its legal relationships and protect it from undue risk from the association, the contractor and with respect to any defective design.