by Sara K. Hayden, Associate

Introduction

Rehabilitating historic properties is not just the subject of “This Old House”.  The intersection of an aging building stock, urban revitalization, and, perhaps surprisingly, the green building movement, creates opportunities for innovative rehabilitations and adaptive reuses of historic properties of varying types and scales.  Even in the economic downturn, federal and state tax credits provide owners with incentives to undertake historic rehabilitation projects.  In turn, because historic projects are more labor intensive, they generate more construction jobs than the same amount of new construction and also can bolster the local economy.  Additionally, as indicated by the adage, “The greenest building is one that is already built,” rehabilitation often goes hand-in-hand with the sustainability principles of the green building movement.

Historic rehabilitation projects provide exciting opportunities for contractors to interact with history.  Knowledgeable and experienced contractors are crucial for any successful construction project; they are even more crucial when the preexisting materials and structures are unique and/or sensitive.  But contractors also face specific issues on such projects, and issues that are present on new construction projects are magnified because of the nature of the historic rehabilitation project.  The purpose of this article is to provide general practical pointers on how contractors may address some of these issues.  Please note that this article is not all encompassing and the actual issues on a project will vary with the particulars of the project, including the project delivery method utilized.

Understand The Historic Designation And Significance

One of the first issues for a contractor is to understand the historic designation and significance of the existing property and to understand the owner’s and designer’s intent in rehabilitating.  A property may have historical designation under national, state and/or local laws.  Understanding the designation will provide the contractor with the necessary context not just to perform properly, but also to identify potential issues.  The historic designation of the property will dictate the applicable regulatory processes.  Another possibility is that the owner may seek some historic designation at the conclusion of the project.  While it is the designer’s responsibility to specify the scope of the materials and to ensure that the project accords with all applicable regulations and codes, it is prudent for the contractor to understand the processes to ensure adequate schedule time and to negotiate favorable contractual provisions.

Know The Special Requirements Of Historic Materials

Though this may be an obvious warning, it is important for the contractor to be knowledgeable of the particular requirements of rehabilitating a historic property.  Rehabilitation work is labor intensive and requires special skills – a contractor must ensure that he either possesses these skills or is sufficiently knowledgeable to identify them when selecting subcontractors and that he bids accordingly.

A contractor may expose itself to increased liability for destroying or mishandling materials of historic significance that are irreplaceable, or only replaceable at a high cost.  An unfortunate example is when a contractor demolishes historically significant material or components.  Though a designer may be primarily responsible for this error if it failed to correctly identify the materials to be salvaged or repaired in the construction documents, the contractor may also face liability.  Thus, a dose of caution in addition to knowledge about the unique materials are advisable.

Understand The Applicable Regulatory Processes

One major difference between historic property projects and new construction is that the former entail additional layer(s) of regulatory approval, which often run parallel to the construction documents.  Depending on the historic property, it may be subject to federal, state and/or local laws and regulations.  Though it is unlikely that the contractor will be responsible for directly participating in any of these processes, it is crucial that the contractor understand the applicable regulatory processes because they may affect the construction schedule and cause delays.  Another scenario is when there is an approved permit set of construction documents, but the documents had not yet been approved by the governing historical property agency.  A hasty owner may direct proceeding with construction while awaiting review of the documents which may lead to changes because of needs or regulations to protect the historic character of the building, or the discovery that historically significant materials have been removed or destroyed in early demolition work.

Ensure Adequate Insurance Coverage

Does the historic rehabilitation project have builders’ risk insurance or other such insurance at the commencement of the project, whether it is the responsibility of the owner or the contractor?

Negotiate The Contract to Address Anticipated Issues 

• Compensable Delays

While a potential issue on any project, the likelihood of delay may increase on a historic rehabilitation project because of the regulatory process involved with a historic property, the heightened possibility of hidden conditions, and the issue of particularly sensitive historical materials.  Incomplete documentation of existing conditions may also lead to delays.  Historic projects are also more susceptible to public opinion and litigation surrounding the projects.  Accordingly, the contractor needs to pay particular attention to contractual delay provisions and may want to specifically define compensable delays to include delays caused by regulatory processes, third party litigation, supplier delays, or for the discovery of hidden site conditions, to name a few of such circumstances.  Again, the specific contractual provisions will depend on the project.

• Unanticipated Site Conditions

Another common issue with historic projects is encountering unanticipated site conditions during construction.  The nature of historic projects and the possible difficulties in assessing what lies beyond the surfaces makes unanticipated site conditions particularly common on a historic project.  When there is no contractual provision addressing the allocation of responsibility, the risk of unanticipated site conditions is often allocated to the contractor.  Thus, the contractor wants to pay particular attention to negotiating and crafting this contractual provision with the goal of shifting the risk to the owner for site conditions truly unanticipated.  Pay close attention to contractual clauses relating the contractor’s duty to inspect the site because these may undermine the benefits of the hidden site conditions clause.

• Hazardous Materials

Commonly, an unanticipated site condition will be the presence of hazardous materials, which raises the issue of who is responsible for removing the material as well as potential delays from the removal.  Often, abatement will be affected by the specific challenges of working with historically significant materials.  The contractor should be particularly mindful of contract provisions that govern the discovery of hazardous materials – will the contractor have responsibility for reporting and removing the materials? Or will the contractor have a contractual right to stop work? Again, the delay provision should address whether a resulting delay from the discovery of hazardous materials is a compensable delay or not.

Conclusion

Projects involving rehabilitation and adaptive reuse of historic properties present specific challenges to the contractor.  But if timely identified and addressed, these issues hopefully will not impede the successful completion of a project that also provides the unique reward of integrating past, present and future.

The information or opinion provided in this article is the author's own and not necessarily that of Watt, Tieder, Hoffar & Fitzgerald, LLP. The author is solely responsible for the information and opinion that he or she has provided. The information contained herein does not replace seeking specific legal counsel to directly address individual client needs.