I know the legal issues surrounding a building project can be daunting the first time you go through it, even for small projects. Hiring licensed professionals goes a long way toward protecting you, and you can rely upon them to handle most of the details. But some things are too important for you to leave to others. One of the most important legal issues an owner should understand is the difference between Substantial Completion and Final Completion.
A building project is Substantially Complete when the area that was being worked on can be occupied by the owner for its intended use. This is the most important milestone on your project because it is when legal responsibility for the building passes from the General Contractor to the Owner.
That doesn’t necessarily mean it is complete. There are usually a number of small items to be fixed, like smudges on the wall, a stray drop of paint on the floor, or a ceiling tile that’s cracked.
When the General Contractor believes they have reached Substantial Completion, he will request a Substantial Completion Inspection. At that point, the General Contractor should submit a document to the Architect and owner, listing all the little fixes they know they need to make between now and Final Completion. This is commonly called the Punchlist.
First, the Architect will verify that the building officials have signed off on all the necessary inspections. Then the owner, the Architect, and the General Contractor should inspect the building together. They will check every room for these things:
- Does the Work match what is on the Architect’s drawings and specifications (also called the Contract Documents)?
- Is the workmanship acceptable and does it function properly?
A good architect will have a checklist prepared that will guide you through every item from floor to ceiling, so nothing gets left out.
As you go through the inspection, you will sometimes find small repair items that the General Contractor forgot to put on his list, or didn’t notice. You add these items to the punchlist. At the end of the inspection, the parties agree on an estimate of how much money the items on the punchlist will cost to complete. If the parties agree that the project has reached Substantial Completion, the Architect issues a Certificate of Substantial Completion. At this point, the owner typically pays the General Contractor all money owed to him, except the amount required to complete the punchlist items.
This depends, of course, on the contract language. Some contracts retain some additional funds until Final Completion. This should be openly discussed at the beginning of the project, and clearly addressed in the contract between the owner and General Contractor.
In addition to payment, the date of Substantial Completion marks these important legal milestones:
- The jobsite is no longer under the General Contractor’s protection, which means his insurance will not cover any incidents. Instead, the building now belongs to the owner.
- Warranties and legal statutes of limitation for the work begin
After the Architect issues the Certificate of Substantial Completion, the owner can move into the space, and the General Contractor will complete all the items on the punchlist.
Many people don’t know that you can actually issue partial Substantial Completion. If there is a particular room that cannot be completed due to some special delay, but which does not prevent you from using the rest of the space, your Architect can issue a Certificate of Partial Substantial Completion that omits specific areas. Once that omitted area does reach Substantial Completion, a new certificate will be issued just for that area.
Once all the items on the punchlist are complete, the General Contractor will request a Final Completion Inspection.
The Architect and owner inspect the space once more to verify the punchlist items have been completed.
In addition to checking that the punchlist items are complete, before issuing final payment you and your architect should check for the following:
- An affidavit from the General Contractor that all the sub-contractors have been paid. This is very important because if a sub-contractor has not been paid, they can file a Mechanic’s Lien against your property even if you didn’t know they weren’t paid.
- Certificate of evidence for any special insurance you required to remain in effect for some period after project completion. (This is not typical for most projects.)
- Record drawings, if required by your contract.
- Certificates of warranty for equipment that was installed, like appliances and emergency generators, as well as other installations like roof membranes.
If all of these items have been completed, your project has now reached Final Completion, and your General Contractor is entitled to all money owed. Congratulations on your new building.