July 2024

• Unfortunately, disputes in construction are inevitable. And litigation often follows.
• But by implementing some proactive strategies, construction companies can try to minimize the pain.
• A good lawyer can help you navigate this treacherous landscape and avoid any catastrophic pitralls.

I have mentioned this before, but our businesses can sometimes be offset and cyclical. In times like we are in now, where there are fewer deals closing in the market and times are rougher in the real estate world, there seems to be a lot of litigation. And while that can be good for our litigation section, I certainly recognize its not good for our clients. Litigation is generally not fun.

But it does happen. And one area it happens a lot is construction. In construction, disputes are an inevitable reality. Construction companies often find themselves at the center of these disputes, facing a myriad of legal complexities. Understanding the legal landscape and effectively navigating potential litigation is essential for construction companies to protect their interests and safeguard their business. So let’s talk about it.

Common Legal Issues in Construction Disputes

Construction disputes encompass a broad spectrum of legal issues, arising from disagreements over contractual obligations, defective workmanship, delays, cost overruns, and project performance. Some of the most common legal issues faced by construction companies in litigation include:

• Breach of Contract: Claims for breach of contract are prevalent in construction disputes, alleging that one party has failed to fulfill their contractual obligations. These claims can center on issues such as non-performance, defective work, and failure to meet deadlines.

• Negligence: Negligence claims arise when a construction company’s actions or omissions result in damages or injuries. Allegations of negligence can stem from faulty design, improper construction techniques, or inadequate safety measures.

• Mechanic’s Liens: Mechanic’s liens are legal claims filed by unpaid subcontractors, suppliers, or laborers to secure payment for their work or materials. Construction companies may find themselves involved in mechanic’s lien disputes, particularly when the owner fails to pay contractors.

• Delay Damages: Delay damages are sought when a construction project is not completed on time, causing financial losses to the owner or other parties. Construction companies may face claims for delay damages if they are deemed responsible for project delays.

• Defective Workmanship: Claims for defective workmanship arise when the completed construction work fails to meet the agreed-upon standards or specifications, causing damage or impairing the property’s use. Construction companies may be held liable for defective workmanship if they failed to adequately supervise or inspect the work.

 Legal Strategies for Construction Companies

To effectively navigate construction disputes and minimize legal risks, construction companies should adopt proactive strategies. As they say, an ounce of prevention is worth a pound of cure. And by preparing beforehand, the pain of litigation can be reduced. Thus, its important to:

• Review Contracts Thoroughly – Carefully review and negotiate contracts to clearly define project scope, responsibilities, timelines, and payment terms. Ensure that contracts include adequate protections against potential disputes.

• Have a Risk Management Plan – Implement a comprehensive risk management plan to identify, assess, and mitigate potential risks throughout the construction process. This includes maintaining detailed project documentation, conducting regular inspections, and addressing issues promptly.

• Have Open Dialogue – Maintain open and transparent communication with all parties involved in the project, including owners, contractors, subcontractors, and design professionals. Promptly address any concerns or disagreements to prevent escalation into disputes.

• Resolve Disputes Early – When disputes arise, seek early and amicable resolution through negotiation, mediation, or arbitration. These methods can be more cost-effective and time-efficient than traditional litigation.

• Engaging Legal Counsel – Obviously this is the most important step. Consult with experienced construction law attorneys early in the dispute resolution process to gain legal guidance, protect your interests, and ensure compliance with legal procedures.

 Conclusion

 Construction disputes can be complex and costly, posing significant challenges for construction companies. By understanding the common legal issues, implementing proactive strategies, and seeking legal counsel when necessary, construction companies can effectively navigate the legal maze and protect their business from unnecessary risks and liabilities.

• Recent reports suggest that, nationwide, there is a slight recovery in the multifamily market.
• But that recovery does not seem to have hit Texas yet.
• Its unclear whether Texas multifamily markets will recover in the next year.

Is there possible good news on the horizon for Texas multifamily owners? Some reports suggest that the second quarter of 2024 saw a noticeable uptick in apartment demand across the United States.. This shift in the rental market is particularly intriguing given the recent history of declining rental rates. As we delve into the factors driving this increased demand, it’s essential to consider its potential impact on future rental prices and the overall outlook for the remainder of the year.

A Resurgence in Rental Demand

First lets talk about the good news. That’s always more fun. According to Apartments.com, nationwide there were 170,000 units absorbed in the second quarter this year. And while 180,000 new units came online, that is the smallest gap in eleven quarters. In addition, rent growth was approximately 0.9% in June. 

Will this trend continue? And will it hit Texas? The increased demand for apartments has raised questions about the potential reversal of the downward trend in rental rates experienced in recent years. While it’s too early to definitively predict a significant and sustained increase in rental prices, several factors suggest that this trend may be stabilizing or even reversing in certain markets.

• Inventory Levels: The availability of rental units is a critical factor influencing rental rates. The demand/supply gap was the lowest in eleven quarters. If that gap continues to decline, that could lead to increased rents.
• Market-Specific Factors: Local economic conditions, job growth, and population trends will play a crucial role in determining rental rate fluctuations. Areas experiencing rapid population growth or economic booms may see more substantial rent increases compared to slower-growing markets.
• New Construction: I’m not telling you anything you do not know when I say that its really hard to get anything out of the ground right now. Between slowing rents, construction loan terms, and construction costs, new starts often just do not pencil. As a result, a shortage of supply in the coming years could increase rents.

Texas Does not Look as Rosy

I told you we were starting with the good news. And that was it. Unfortunately, its now time for the bad news. The big cities in Texas are not seeing rent growth. Indeed, according to the Apartments.com report, Austin had the biggest decline in rents of any of the top 50 markets. And San Antonio was near the bottom also. And year over year, the numbers do not look much better. The bottom line is that while demand is robust, the new apartments coming online just outpaces the demand.

So while the rest of the country appears to being seeing a little bit of a rebound in the multifamily market, its not clear at all that that is happening in Texas.

Outlook for the Rest of 2024

But will it come to Texas? Will it get better here? Predicting the exact trajectory of the rental market for the remainder of 2024 is challenging due to the numerous variables at play. 

However, based on current trends and expert analysis, several key factors will likely shape the market:

• Economic Conditions: The overall health of the economy will continue to be a primary driver of rental demand. A robust economy with steady job growth is likely to support sustained demand for rental housing.
• Interest Rates: Mortgage rates will influence the demand for rental housing indirectly. If mortgage rates remain elevated, it could continue to push potential homebuyers into the rental market.

While the second quarter of 2024 has shown promising signs for the rental market in the country, it hasn’t really happened yet in Texas. So it’s essential to approach the outlook with caution. The rental market is dynamic and subject to rapid changes. As the year progresses, it will be crucial to monitor key indicators such as rental rates, occupancy levels, and new construction to gain a clearer picture of the market’s trajectory.