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It's The Law: Recovery For Defective Construction May Be Limited By Economic Waste

Q: I hired a contractor to build a custom home. When he got done, I found that the dimensions of many rooms were not true to the plans, elevation of the garage was 1 foot lower than it was supposed to be and the roof angle was much steeper than required by the plans. I demanded he fix these problems and he told me he did not have to because the cost of the repair would exceed any benefit to me. Is he right?

A: When you have a contract, you are generally entitled to the benefit of your bargain. That means, you are to receive what is promised by the contract.

In some cases, a buyer is entitled to force the seller to perform exactly in accordance with the contract. That is known as specific performance and is usually limited to those cases where the item being purchased is unique, such as real estate. Alternatively, a buyer can seek damages which would place the buyer in the position he would have occupied if the other party had performed. Damages can be the cost of repair or replacement. If the buyer has to buy a replacement from another source, damages would be any extra costs associated with the replacement purchase.

Construction cases are not so simple. Where a contractor fails to complete construction or completes it in a deficient manner, the buyer might be entitled to the costs of completion or repair. Alternatively, the buyer can recover the difference between value of properly completed construction and the value that was actually received by the buyer. If completion or repair would involve unreasonable economic waste, the buyer is limited to recovery of the difference in value. Economic waste generally means that the cost of repair or completion so far exceed any real benefit or value to the buyer such that forcing the repair or awarding damages equal to the cost of repair is nonsensical. The recent case of Heine v. Parent Construction, Inc. is a good example.

The Heines hired Parent Construction to build a home. Parent Construction sued Heine for failure to pay and Heine sued Parent Construction for construction defects. The trial court awarded Parent Construction $36,825.46 under its contract and the Heines $78,742.64 as costs to repair construction defects. The trial court applied the doctrine of economic waste, finding the cost to repair was not warranted and after hearing expert testimony awarded the Heines $25,000.00 as diminution in value resulting from the house being built at a wrong elevation.

The home was built at an elevation of 7.5 feet instead of the contracted for 8.5 feet. The Heines claimed they were entitled to $930,000.00 to tear down the home and rebuild it at the proper elevation. A real estate expert testified that 3 factors determine value of homes in that community: view, flood history and insurability. The Heines admitted the home had not been flooded during hurricanes Frances, Jean and Wilma. The Heines had no difficulty obtaining insurance and a real estate expert opined that the home's lower elevation resulted in only a "nuisance" diminution in value of $25,000.00. Accordingly, the trial court decision was affirmed on appeal.

The appellate court explained how damages would be calculated in this type of case, by reference to a Florida Supreme Court decision. In the Supreme Court case, the buyer contracted for a home with a southeast exposure. When he later visited the builder's office, he found that the builder intended to build a home facing the opposite direction. The buyer pointed out the problem but the builder still built the home facing the wrong direction.

Even under those circumstances, the Supreme Court found that the doctrine of economic waste prohibited the buyer from recovering cost of tearing down and rebuilding the home facing the proper direction.

The builder then argued that it should not have to pay any damages because by the time the case was concluded, the home had actually increased in value. The court held that damages should be measured at the time of breach, not at the time of trial or appeal and sent the case back to the trial court to determine if the home at time built was worth less than it would have been worth had it been built in accordance with the contract.

The facts of each case will determine the outcome. At first blush, it sounds like the doctrine of economic waste would bar most if not all of your claims. If so, you would be left with a case for diminution in value. However, these cases are decided by expert testimony and the presentation of evidence. I suggest that you speak with an experienced attorney about the facts of your particular case before proceeding further.

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