IN THE KNOW —
Does It Really Matter Who You Contract With? Believe it or not, correctly identifying who your client, customer or Principal should be in your building contract is not always straightforward. And it does matter, for the following reasons. There are three main characteristics that you want in a client (apart from not being a psychopath). One is that they have the funds to pay you and the willingness to do so. The second is that they have the right to allow you onto the land and make changes to it. The third is that they actually exist (in the sense of being a legal entity that is recognised by the law). As far as payment is concerned, you never want to contract solely with a $2.00 company or a destitute individual. It won’t be a problem if they own the land, because then at least they have an asset you can have recourse to if they default – unless, of course, it is mortgaged up to the hilt and there is no equity left after the secured lenders have taken their share. If that’s the case, or your destitute customer doesn’t own the land, then you need a personal guarantee or a performance bond as security for their obligation to pay you.
Contracting with non-Owners Interestingly, the party that wants to engage your services is not always the owner of the land. It can arise, for example, where a son hires a builder to get repairs done on his elderly mother’s unit. Or the commercial tenant who has been authorised by the landlord to make structural changes to the leased premises. Or the young couple whose parents (or in-laws) have allowed them to build a residence on their property as long as they pay for it. Or the insurer of an earthquake-damaged Christchurch property who is putting up most of the money but wants to call all the shots so the builder doesn’t cut corners and the project doesn’t go over budget. In those circumstances you might be tempted to contract with the party who first approached you, simply because they are more capable of making the decisions, or they are the most motivated to get the job done, or they are the source of the money that you are going to get paid with. And you can contract with them if you like, but it is messy. That is because they don’t own the land, so they don’t have the ultimate decision-making power over whether you can access the property in the first place and what you can build there. That power usually lies with the owner, so at the very least you need the owner’s written confirmation that the son, the tenant, the young couple, or the insurance company has their unconditional, irrevocable and unlimited permission to authorise you
to go and build whatever they want. Otherwise you run the risk that the owner takes a dislike to what you are doing, and stops you in your tracks. It’s often simpler to contract with the owner, and then get them to appoint the interested party as their project manager or underwriter of the project, if necessary.
You may be surprised to learn that if you contract with the Government, you are technically contracting with the reigning English Monarch. Less Common Types of Clients It is also important that you contract with a party that actually exists in the legal sense. That is because you can’t sue a fictitious character. Most partnerships and most trusts are fictitious in the sense that the law doesn’t recognise them as separate legal entities. If you contract with a partnership such as a law firm then you must contract with all of the partners, and if you contract with a family trust then you must contract with all of the trustees. On the other hand, you can contract with a company, state-owned enterprise, crown-owned company, incorporated society, limited partnership, registered charitable trust or, for that matter, a sole trader, because those are separate legal entities that the law recognises. You may be surprised to learn that if you contract with the Government, you are technically contracting with the reigning English Monarch. So if you are building a prison, for example, the wording you use when you describe your customer is “Her Majesty the Queen in right of New Zealand acting by and through the Chief Executive of the Department of Corrections”. Cor blimey. Of course if you are a subcontractor then you will be contracting with the head contractor rather than the owner, and that’s okay. As long as they do have a building contract with the owner, then they have been given the right to allow you access. And if it’s a big commercial contract, then chances are the owner will want a continuity agreement with you that allows them to hire you direct if the head contractor goes bust or gets thrown off site.
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