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Terms that cause misunderstandings in construction contracts

Professionals know the importance of solid contracts. Contracts establish the terms of the real estate deal, helping ensure that the transaction goes smoothly for all parties. Still, it seems that no matter how specific and legally solid the contract, there are bound to occasionally be contract disputes.

Many contract disputes arise when one or more parties misinterpret contract terms. These disputes can be long, time-consuming, and expensive. It behooves anyone in the real-estate industry to know the commonly misunderstood terms that lead to contract disputes.

  • Pay-when-paid and pay-if-paid

These terms are easy to misinterpret, since they sound so similar. Both refer to payment for contractors. Pay-when-paid means that subcontractors will receive payment once the general contractor is paid. But pay-if-paid means that if the general contractor does not receive payment, then neither will the subcontractors.

  • Indemnify

Sometimes, a contract stipulates that the contractor must indemnify the other signatories. This means that the contractor may be required to reimburse another contracting party for any damages resulting from a lawsuit. But if the contract says that the contractor must defend another party, it means that the contractor may also have to pay related legal fees.

  • Construction liens

When a contractor is not paid for the work they have done, they can file a construction lien in an attempt to receive payment. These liens do not guarantee that the contractor will be paid in full.

Preventing contract disputes

When the parties interpret the construction contract differently, it can lead to a protracted and expensive contract dispute. Fortunately, there are steps that you can take to minimize the risk of contract disputes. It is important to sit down and make sure that your contract is legally sound and that all parties understand the terms. Most professionals and businesses rely on an attorney to create their contracts.

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