Limitation of Liability Clauses in Construction Contracts

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What Are Construction Contracts?

Construction contracts are contracts that are usually created between three main parties: the property owner, the general contractor, and the architecture / engineering design firm. They are necessary for any construction project as construction contracts list out what is expected of all parties involved and what will happen should a construction dispute occur between the parties.

What Is a Limitation of Liability Clause?

“Limitation of liability” clauses are mainly used by parties looking to shield themselves from either civil or criminal liability. If you have a contract with a limitation of liability clause, you must be careful. Limitation of liability clauses releases a party from liability and prevents you from holding them responsible should something go wrong. If you have to accept a limitation of liability clause, make sure you extract something of value from the other party in exchange.

Are There Any Legal Issues Involving Limitation of Liability Clauses?

When dealing with a limitation of liability clause the main legal issue that comes up often is whether or not the clause is actually enforceable. Generally, an architect owes a duty to the owner to draft defect-free plans. Contract law does not look favorably on indemnity agreements, especially ones where the owner releases the designer from all liability. However, some states do allow reasonably drafted limitation of liability clauses, while a number of other states do not allow limitation of liability clauses to be enforced at all.

What Makes a Limitation of Liability Clause Enforceable?

Some states allow a limitation of liability up to $50,000, the cost of the contract, or whichever amount is greater. Additionally, in order for a limitation of liability clause to be enforceable, some states usually require that both parties clearly state that they both intend to enter into the current contract containing the limitation of liability clause.

If there is a dispute, the courts will usually look to see whether or not the limitation of liability clause was located is a conspicuous place in the contract with a clear and noticeable heading. Additionally, the courts will look to see whether or not both parties had equal bargaining power and were both equally legally savvy. The courts are more likely to enforce the clause if both parties were free to negotiate the contract and if both parties had legal counsel.

Do I Need an Attorney?

To ensure the success of your business operations, it is important to consult with a business lawyer before entering into any major agreement. An attorney make sure that no clause in a contract is against your best interests.

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Last Modified: 06-12-2014 11:18 AM PDT

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