The Claims-Free Architect

Why an Architect’s Implicit Trust in a Builder-Developer Led to a Legal Nightmare

• Pro-Demnity Insurance Company • Season 4 • Episode 4

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In a condo project where a brash developer cuts corners and ignores warnings, code violations force residents to evacuate their new homes. Can an architect be liable for these flaws when only hired to sign-off on lenders’ certificates?

Discover how signing lenders’ certificates carries risks, why documenting deficiencies is your armour, and how to stand firm against rogue developers.

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An entrepreneurial Developer, Henk Mathers, hired the Architect Larry Tektone to design a condominium project in Lakevista Springs, a retirement community in southwestern Ontario. The Developer was going to construct the project himself, so there would be no necessity for the Architect to make site visits—except, of course, when it was time to submit Payment Certificates to the Lenders. It was understood by Architect and Client that these visits were to affirm general Code compliance, and nothing more. The Owner–Developer–Builder knew what he was doing, and as far as Mathers was concerned, any architectural interference by Tektone would only slow things down and add to the costs.

The extent to which Mathers did not know what he was doing may explain why this story is called “ROGUE DEVELOPER.”

Construction was proceeding smoothly, or at least it appeared to be. On the few occasions that Tektone visited the site to ensure general compliance, nothing seemed amiss. The Certificates addressed to the Lender required the Architect to verify that everything was perfect, that there were no Code violations or departures from the permit drawings, and that good construction practice had been followed in every respect. Although this was not standard wording, Mathers and the Lender expected Tektone to sign it without complaint or alteration, and he did.

Problems began when the building was nearly finished. Tektone had published his Certificate of Substantial Completion, the painters were clearing up, and the new Owners had started moving in. A few of them got to talking about the general quality of construction and agreed that it wasn’t quite what they’d been promised. Wall plates were crooked, baseboards were missing, cabinets were still on order, and the so-called “Deluxe Florida Rooms” turned out to be nothing more than poorly enclosed balconies. 

These were noticeable things—nothing more than details, really. But what if the same level of sloppiness extended to things that were not visible—structural elements or safety measures, for example. So, to satisfy their uneasiness, the Owners decided to hire an engineering inspection company to take a closer look and prepare a report.

Meanwhile, Owners continued to move in their furniture and set up house. For many of them, this was their final property investment, and they were looking forward to settling into a comfortable, highly anticipated retirement.

The Engineers’ report was worse than expected. The inspectors had taken their job very seriously, and had uncovered a large number of problems: missing fire separations, poorly reinforced masonry, insufficient structural connections, etc. Individually, the issues were repairable, but they represented Code violations as well as poor construction practices, sufficient to create what might be construed as “imminent danger.” This at least is what a judge declared when presented with the report.

The engineering inspectors represented a well-regarded firm, whose testimony had been pivotal in several recent construction litigations. Their report was thorough. The municipal building inspectors, on the other hand, had clearly not done their job.

In the end, the Building Department had little choice but to try and recover some of their dignity, and prevent possible catastrophe, by following the judge’s instructions and issuing an order to vacate. They also ordered the Developer to comply with the Code and remedy the violations.

The building had obvious problems, and some of them might be serious, but was the building actually about to fall down? A few of the Owners believed this, but what’s done is done. So, the purchasers who had moved into their units were obliged to vacate, and those who were preparing to move in had to change their plans. The condo owners were beginning to wonder if things had gone too far.

Many of the unit-holders —particularly those who had unleashed the engineering inspectors in the first place—had another motivation that was less personal and more financial. They had expected to turn a profit by flipping their units, before moving in. Their engineering report was intended to uncover small faults that could be quickly corrected, and the value of their investment would be protected—possibly even enhanced. 

But this strategy had backfired. The fickle real estate market, which had been booming for years, had begun its inevitable decline—and the endless delays caused by the order to vacate meant that the value of their investment was tanking. 

Clearly, the Owners believed, The Development Company, the Developer–Builder and the lender who had financed this fiasco, were all to blame for this intolerable situation and should offer compensation. Accordingly, the Owners served them with a lawsuit. The three plaintiffs, in turn, third-partied the Architect Larry Tektone, the Engineer Primo Ernest, the Municipality of Lakevista Springs, and a variety of Subcontractors.

The local news media had a field day, running headlines such as: “Rogue Developer Victimizes Local Retirees.”

According to the news stories, “Elderly purchasers of units in a new high-rise condominium have been ordered to vacate, just as they started to move in. Architectural and engineering reports commissioned by the purchasers themselves had found dangerous Code violations. They were now demanding a reduction in purchase price—or their money back.”

The animosity that these sensationalist reports fueled wasn’t just directed at the “rogue developer,” but also at the Architect, the other consultants, and anyone else who had participated in the so-called catastrophe.

On receiving his Notice of Claim, Tektone contacted Pro-Demnity. He had difficulty understanding why this involved him at all. He had adhered to his Client–Architect contract, to the letter and, as far as he knew, he had no contractual obligation to the purchasers who had created the current turmoil. Any construction complaints were between the Owners and the Developer, and no one else. 

The Claims Specialist noted that Tektone had forgotten an important point: Not all professional obligations are contractual. There is nothing to prevent a civil action being brought against an architect whose alleged negligence may have caused harm to someone.

Pro-Demnity began by having their own expert—an experienced, retired building inspector—examine the Architect’s construction documents. He declared them to be “typical for the class of work”—in other words, not meant to satisfy the expectations of an institutional or commercial client intending to use a General Contractor, but entirely acceptable for an Owner–Builder of an apartment building. He was prepared to testify that the drawings met the standards of the profession. This was also the view of Pro-Demnity.

The Pro-Demnity expert then inspected the building itself. But this examination was inconclusive, in part, because Mathers was in the process of patching the place up, and access had been made nearly impossible. After finally gaining entry into a few of the units, our expert reported average builder-type workmanship. The holes in the floors were being made fire-safe and the exterior walls were being pumped with grout.

Discoveries began, and cases were presented.

The plaintiffs consisted of two groups. The first was composed of the purchasers who had not yet finalized their agreements but had made small down-payments and were paying rent to the Developer. This group included the speculators who had initiated the whole process. They were a mixed and argumentative lot, extremely vocal, and very difficult to deal with. The second group comprised those who had already moved into the units and had begun to settle in, when they were forced out. They had lost their peaceful enjoyment, and possibly their deposits. They had bought carpets and furniture, and they had vacated their previous homes, to which they could not return. These were modest units, and the purchasers were not rich. They were suffering grievously. 

The Condo owners’ legal counsel was confident of a winnable case—possibly justified under the circumstances. Both the Owner groups had been wronged. They were out of a home, out of pocket, and out of patience. No element in this fiasco had been their fault. Some or all of the defendants must compensate them.

The Lender was a subsidiary of a large trust company, who were plaintiffs by way of cross-claim and third-party action. They were facing certain loss in the value of their supposedly temporary construction loan. Obviously, if the building required significant remedial work, their loan-to-value ratio was dismal. Bankers don’t like that, although they should be used to it by now.

Their case was simple: They had advanced funds based on the Architect’s certificates and the Developer’s monthly applications, believing them to reflect value. The value was simply not there. The applications and certificates were either false, or incompetently prepared. The Builder should repay the money advanced, and the Architect should compensate for his negligence.

The defendants then presented their positions.

Mathers, in defence of his company and himself, since both were named in the suit, stated that the reports were grossly exaggerated. As for the fire separations, a few openings may have been overlooked, but these things happen and can be easily remedied—which he intended to do himself. It was also true that some steel had been omitted from the exterior structural masonry, and that the concrete blocks were not properly filled, but this was only because of the Architect’s lack of direction onsite. He had done everything he was told to do.

As a matter of fact, after the matter erupted, he had called in his own expert consultants, and they had reported that the structure might need a little work, but it didn’t present any danger—certainly not enough to have the building evacuated.

The Architect Tektone stated that there was nothing wrong with the design of the building. There were definitely workmanship problems, including the missing steel and concrete infill, and he had reported these problems to Mathers. As far as he was concerned, his responsibility ended there. Anything that happened between visits couldn’t be blamed on him. The Developer was a tough, self-made man with little respect for professionals, and he had instructed—and contracted—the Architect to visit the site only when requested. 

As for the certificates addressed to the Lender, it was true that they claimed to warrant that everything was perfect: no Code violations, good workmanship, faithful to the permit drawings, etc. But this was very different from standard wording—that to the best of the architect’s knowledge, the work was in general compliance with the permit documents. Everyone knows that an Architect dealing with an Owner–Builder has little power over what is actually done on the site. He was asked to sign the Lender’s documents, and he did.

The engineer Ernest denied that there was anything wrong with his design. The plaintiff’s engineering experts, in their report, had failed to consider the stiffening effect of masonry corners and short bracing walls. Their report was therefore incorrect. The walls were not unstable, and the building was not unsafe. In fact, he had engaged his own experts to assess the situation, and these experts agreed with his position 100%. The absurd media speculations about collapse in high wind or mild earth tremor represented nothing more than science fiction.

The Building Department naturally denied that their inspections were lax, pointing out that they were entitled to rely on the Architect’s and the Engineer’s certification. They could not explain why the building permit and the permit drawings had gone missing from their files. But they could definitely recall issuing the permit and making routine inspections.

For us, the picture was starting to look quite bleak. The claims against the Architect vastly exceeded the limits provided by his Pro-Demnity policy. He had no excess insurance, and his ability to repay his share of any excess damages or expenses was remote, at best. Meanwhile, our duty to defend him would involve expenditures far in excess of any likely damage amounts.

Furthermore, the evidence seemed to be piling up against us.

First, the facts spoke for themselves. The order to vacate had been precautionary, but wise, and it had caused the purchasers financial losses. Trying to argue that the judge had made a mistake in issuing the order was a dead-end defence.

Second, the reports, prepared by senior members of the architectural and engineering professions, alleged serious Code violations and gross negligence in the performance of professional services. The negligence could be argued, but the Code violations could not.

Third, the Certificates provided to the Lender were an embarrassment. No Architect should ever sign such potentially misleading documents. But the fact is that some lending institutions insist upon these Certificates, whose wording is crafted by their lawyers, with no other purpose than to shift the blame to everyone in sight. It’s absurd to expect an Architect to “indemnify and hold harmless” a large financial institution from the actions of one of its very own customers. After all, the loan officer and the borrower are good buddies when the loan arrangements are made. They only become bitter enemies when things go wrong, and then, the indemnification and hold harmless clauses are trotted out to insulate them from the inevitable mudslide.

The Architect’s only defence—and a feeble one at that—was to say that the loan officer must have understood that, in these circumstances, the Owner–Builder calls the shots, not the Architect. The Lender should have had an independent third-party consultant report on the progress of the work. Furthermore, most of the defects listed by the plaintiff’s expert were included on the Architect’s deficiency lists, which had been submitted to Mathers and summarily ignored. How was that the fault of the Architect? He had naïvely assumed the deficiencies listed had been dealt with and the defects remedied. 

Discoveries lumbered forward.

The Builder decided not to cooperate. Possibly drawing inspiration from some movie courtroom drama, he would acknowledge only that his name was Henk Mathers. He refused to confirm that he was the Developer—only an employee of a company whose ownership he couldn’t recall. As this company had no assets what did it matter anyway? He stonewalled against every question, denied every charge, couldn’t recall basic facts, and claimed there was nothing wrong with the building . . .but . . . if defects did exist, it was the Architect and Engineer who were responsible, not him, or the company that employed him.

It was a hopeless waste of time and money. But it confirmed in everyone’s mind that our Architect could have had little influence on a man who had been raised to believe that success could only result from hard work, self-sufficiency and general mistrust of authority.

The case dragged on and on, for months on end, with little useful information being provided by the Architect, Engineer or Building Officials, while the plaintiff’s counsel produced further allegations, and damages escalated.

The Architect Tektone was in a very bad position. The publicity surrounding the case was taking a toll on his popularity, so his client base was shrinking daily. Meanwhile, the case was generating unsympathetic sentiments toward the heartless government officials, who were now erecting obstacle after obstacle in Tektone’s applications for building permits. They made a point of being ultra-competent by insisting on a minute examination of every document.

Meanwhile, we had reached a few conclusions.

To begin with, there was no argument: The Owners were innocent parties who had suffered an indisputable loss for which any court would grant some restitution.

Further, the Architect and Engineer were being unfairly accused, but could not escape some of the blame. The court would hear testimony from senior professional witnesses that they had been negligent. We would naturally rebut with our own witnesses, but the court would still be looking for contributions.

And further to that, the Engineer had not under-designed the structure to any serious degree, and remedies would have been minor, if required at all. However, by issuing deficiency lists to the Builder, without ensuring that the corrections had been made, he had not sufficiently discharged his duty. Once again, a court’s decision on this issue was anyone’s guess.

The Lender was another matter. Their claim for loss was potentially huge. They had no choice but to foreclose on a building that, in the falling market, was worth less than the mortgage—by several million dollars. And their argument that they had “relied on the certificates of the Architect” may have been self-serving, but a court might buy it.

At this point, extricating the Architect for as little as possible was our only objective. Pro-Demnity’s legal counsel came up with a reasonable proposal, calling for all defendants to contribute and for the Plaintiffs to drop their demands and face reality. The biggest obstacle was the Plaintiffs’ legal bill.

With much pulling and pushing, and a little help from the pre-trial judge, a deal was cobbled together and a major trial, from which no winners could have emerged, was averted.

Pro-Demnity is often faced with a dilemma. We all know that the “standard of care” that an architect can render, varies greatly according to circumstances. The institutional client receives the most comprehensive professional care and pays for it. The owner–builder demands and gets the minimum service for a fraction of a “full-fee” job.

In this instance, the building had obvious defects, and the Architects attempts to have the Builder remedy those defects were wilfully, even disdainfully, ignored.

In the final analysis, it was the Developer’s callous inflexibility that created and fueled the confusion. He had made little effort to cooperate with anyone, or to follow legitimate suggestions, or to treat his purchasers with any consideration. Egged on by a pugnacious lawyer, the purchaser group had little choice but to seek compensation wherever it might be found.

The unfortunate Tektone felt very hard done by. He had been pilloried by the press, had lost a great deal of dignity, and had watched his good reputation go down the drain. There really is no way to defend oneself in cases like this. The only salvation for Tektone is that the public’s memory is mercifully short.

For the rest of us, there are valuable lessons to be learned.

Lesson No. 1: It’s open to question whether your duty is discharged by giving the Owner–Builder deficiency lists. There may be a duty to ensure that any critical deficiencies are made good.

Lesson No. 2: You may find yourself facing allegations regarding inspections, shop drawings, and administration of the certification process, on jobs for which you were paid to perform these services minimally, or not at all. When problems arise, lawyers are quick to point out that all Clients are owed the most comprehensive “standard of care,” and Architects may find themselves facing allegations of neglecting services they were not contracted to perform.

Lesson No. 3: In an owner-builder relationship, you may have little power over what is actually done on the site. But you can document everything you recommend to the client and establish that you have met your duty to warn them about the implications of ignoring your recommendations and the construction documents. When clients say you shouldn’t worry because they know what they’re doing, it may actually be a hint that you should start worrying, because they don’t know what they’re doing.