Discovering that a general contractor has filed for Chapter 11 bankruptcy can thrust property owners into a realm of uncertainty and concern. This guide aims to illuminate the rights of property owners in such situations and offer direction on navigating the complexities that follow.
Understanding the Contract
Contracts with general contractors often stipulate that a bankruptcy filing constitutes a default. However, property owners must grasp that relying solely on this provision to terminate the contract is not a straightforward process. Without prior approval from the bankruptcy court, such actions may violate the automatic stay.
Ipso Facto Clauses
The termination provision linked to a bankruptcy filing is commonly known as an ipso facto clause. While it may seem like an immediate solution, its application is nuanced and requires careful consideration.
Seeking Court Approval
For a legal termination of the contract, property owners must initiate an expedited application to the bankruptcy court. This application should articulate the harm and damages incurred due to the general contractor's delays and other breaches under the contract.
Additional Recommendations
Legal counsel is essential for navigating this intricate process. Experienced attorneys can clarify property owners' rights and obligations, guiding them through the necessary legal procedures.
While a general contractor's bankruptcy filing poses challenges for property owners, a firm grasp of the legal landscape can help mitigate the impact and safeguard their rights. Seeking professional advice is prudent in such circumstances to ensure all actions align with legal boundaries. This guide empowers property owners to navigate the complexities of contractor bankruptcy with informed decision-making.
This article summary is based on my previously published article in
Reference Entry
Feb 7, 2022
Rosen, Kenneth A,
Determining Owner’s Rights When the General Contractor Is in Bankruptcy
CONSTRUCTION EXECUTIVE