Demolition Agreement 101: Definition and Legal Relevance
Demolition Agreements are a contract between the property owner and the contractor (or sub-contractor) to dispose of or demolish a building. These parties may enter into a separate demolition contract even though there is already a contract between the owner and contractor (or general contractor or construction manager). The demolition agreement is most typically entered into prior to the issuance of a demolition permit , which is in turn needed for demolition of the building.
The Demolition Agreement is one of the first steps in a construction project as a demolition contract often precedes the start of actual construction work (except in those rare cases in which the demolition is so deeply embedded in foundation work that it could not occur earlier). When a demolition agreement is in place, it can provide the owner with an important right. The agreement compels the party responsible for "the work" to demolish before construction.
Demolition Agreement: Crucial Elements for Valid Contracts
An essential part of any construction project is the drafting of a clear and concise demolition agreement. A demolition agreement should specify what the demolition contractor must do, when they must do it, and how much they will be paid. There are certain provisions that are essential to any demolition agreement, which include:
- What type of demolition will be performed. Comprehensive agreements can include all types of demolition: interior demolition, selective demolition, complete building demolition, as well as removal of tanks, footings, and foundations. Any demolition outside the scope of the agreement should clearly exclude work not within the scope of the contractor.
- Who will be supervising the demolition work. This is a critical provision that should not be overlooked. If the contractor will be bringing in another contractor to perform the work, they must make it clear in the agreement.
- Under what circumstances the demolition work can be halted. Is demolition work to stop when an emergency arises? Is there a sample procedure, such as a no work order, which shuts down the project for a specified time period?
- An accurate estimated cost of the project. This provision is important for making sure the contractor is responsible for their work and does not defer too far from the original estimate without justification.
- When payment will be made. If any payment or retainer is required before demolition work begins, it should be clearly defined in the agreement.
- Adequate health and safety measures taken by the contractor. OSHA has specific safety requirements for demolition work, which must be implemented and documented. Any on-site safety personnel must be identified.
- How disputes will be resolved. Will the dispute be settled by arbitration, mediation, or litigation? If the demolition contract involves public funds, the contracting agency may have restrictions on how disputes will be handled.
- Right to terminate. The right of either party to terminate the contract should be expressly stated. If the demolition contractor fails to meet their obligations under the contract, they must be exposed to liability for damages suffered by the owner.
Demolition Agreement: Legal Requirements and Compliance
The actual draftsmanship of any demolition agreement must be cognisant of the various formalities for binding and enforceable contractual agreements. In particular, account must be taken of the following: Parties to the agreement – the legal status of the parties to the agreement is critical. It is essential that the parties entering into the agreement are legally capable of so doing and capable of being bound by the terms of the agreement. Signing of the agreement – for agreements to be binding and enforceable it is necessary that all the parties thereto, or their duly authorised representatives, have signed the agreement. In addition, the parties’ signatures should be witnessed by third parties who add their names, addresses and occupations to the agreement. Registration of the agreement – in terms of the general principles of law of South Africa, agreements do not need to be in writing to be binding and enforceable, provided that they comply with the normal requirements for the conclusion of any binding agreement. Demolition agreements are renewable on expiry of a given period or on the happening of a specified event. In order to ensure that such an agreement is binding and enforceable, it is essential that the agreement constitutes a lease agreement in respect of the premises that are the subject of the demolition work and for which the demolition contractor is instructed to perform the demolition work. Special formalities – the ROD requires that all demolition agreements concluded between a municipality and a demolition contractor must be in writing. Such municipality must ensure that a tender process has been followed and that the agreement is duly signed by the municipality. In addition, municipal councils should ensure that any special legislative requirements pertaining to procurement processes, tender issuing procedures and procurement policy documentation have been adhered to. AGSA’s views on the Code – the AGSA is currently attempting to have all demolition contractors in South Africa appointed to demolish municipal buildings sign an agreement with the municipalities using a standard model tender document. Such model agreement provides an indemnity to the demolition contractor against any claims that may arise from the demolition work. The AGSA raised concern that the standard form agreement was neither compliant with the general law nor the AGSA’s views on the Code because the indemnity offered by the contractors could not be measured accurately. This led to further attempts by the AGSA to engage with organised demolition industries to agree upon and adopt a standard model form of agreement which would deal appropriately with the provisions of the Code as well as the specific requirements of the AGSA and its local government projects.
Demolition Agreement: Common Issues and Solutions
The demolition of any major structure can and often does give rise to disputes and legal claims. It is not uncommon for an owner, contractor, or subcontractor to fault the performance of one or more parties to a demolition agreement. Parties can certainly agree to exchange waivers for mechanics’ lien claims, but disputes will continue to arise over the question of who actually performed to the standard of care in their demolition work. The demolition agreement should address these matters and provide for the allocation of risk that typically may accompany demolition work.
Multiple contractors may work in the same area at different times during a demolition project, which can increase the potential for damage to occur to other parts of the site. Before entering into an agreement, consider whether you are willing to allocate risk and the financial responsibility for repair of those damages. For example, will you be asking the contractors to maintain separate exclusive areas on the worksite and agree among themselves to share responsibility if those areas overlap? If your demolition brings on backfill, do you want your contractor to be held responsible for damage caused by a third party firm that performs additional backfilling work on the site?
With respect to adjoining land owners, you may need to allocate responsibility for damages under strict tort liability rules or mitigation of the risk of such damages to the contractors . While previous owners may have received permission from an adjoining property owner to build a structure, you may have no right to maintain the structure in the event of sale or foreclosure of the property. In many cases remedies for damage to the adjoining property may be at law only, which may limit the amount of money you can recover from your contractor. Once again, you may need to allocate that risk within your agreement.
Someone must be responsible for the pre-demolition Hazardous Material (as defined in the agreement) assessments. While you can provide for the contractor to perform that assessment, someone may need to confirm its accuracy, and that the contractor’s performance follows those assessment recommendations. An agency or the owner may reserve the right to inspect the improvements before the demolition agreement becomes binding, but that only establishes the Hazardous Materials status at that time. Your agreements can require your contractor to perform updated assessments during contract performance.
Environmental and Safety Considerations in Demolition Contracts
Environmental and safety considerations are paramount in demolition agreements. Not only must the demolition take place safely, but you must be concerned with what happens to the materials that are demolished. For example, the agreement may require recycling metal, cardboard and the like as part of an urban renewal plan. Common to many demolition projects is lead and asbestos abatement. Lead and asbestos are hazardous materials and the demolition contractor must be qualified to handle the materials and dispose of them in the manner required. The EPA (Environmental Protection Agency), PADEP (Pennsylvania Department of Environmental Protection) and other agencies regulate the handling and disposal of these materials under the laws and regulations which the contractor must follow.
In addition, there may be on site safety considerations in your demolition agreement. Certain contracts may require securing the site with fencing. The agreement may require immediate notification of the other party if someone is injured on site. There may be a specific time period for the demolition contractor to provide a report on all injuries and the measures which were taken in light of those injuries.
Demolition Agreement: Finalization and Negotiation
Demolition agreements – or contracts for the demolition of buildings – form a key element in the cycle of construction. For example, the new built environment will have to be demolished at some stage in the future because of matters such as redevelopment, modernisation or to make way for new infrastructure.
Negotiating a demolition agreement
An essential characteristic of demolition is that it is a process which can only safely be carried out by an experienced and competent contractor. Largely for this reason, the usual value-added steps which must precede the concluding of a building contract, including the obtaining of planning permissions and building control consent, will also apply to a demolition agreement. Equally, the potential risks of a demolition contract are such that it is essential that proper pre-contract work is completed. Where, in the course of its work, specific mechanical demolition techniques are recommended, then the demolition contractor will be supplied with appropriate representations by the employer or client. This is because such representations form an important aspect of the risk allocation and reallocation. Those representations will relate not only to aspects of the work to be demolished, but also to such issues as the safety of neighbouring buildings and properties, or the presence, nature and location of previously consolidated infrastructure (such as power lines and pipework) and services.
The two steps
In the context of negotiating a demolition agreement, the process can be divided into two steps. In the description of each step, the parties are referred to as the contractor and the employer .
What happens when the negotiations stray from this formula is over-complicated by unique and individual factual situations. However, what a competent demolition contractor and its client/employer should ensure is that they both understand and accept this negotiation structure and process as follows:
Step 1 – discussion, consultation and planning
Step 2 – drafting the demolition agreement (and any related agreements such as an employer’s requirements document, or other such additional documents, schedules and specifications).
What is the structure of a demolition agreement?
Within a demolition agreement, the legal structure will generally be as follows. The pre-contract site risk assessments and investigations referred to above can be time-consuming and expensive. They can be avoided entirely if the demolition contractor or its employer had all of the necessary documentation and information beforehand.
Equally important to successful demolition agreement negotiations are other negotiations. These include, of course, negotiations between the demolition contractor and any third parties such as a local authority or government agency. Again, the demolition contractor usually proceeds with its own, standard, demolition agreement. But the demolition contractor also has to negotiate with the parties referred to in the headings above. This group of parties can be made up of two categories: those for whom the demolition is being carried out and those who have a direct control over the continuing safety and stability of the nearby properties. It is only after these further negotiations are completed that the demolition contractor can proceed with the demolition.