Relating to Real Estate
No Harm, No Foul for a Breach of the Maryland Custom Home Protection Act
In Akinyoyenu v. Keswick Homes, LLC, No. 1126 Sept. Term 2015, 2017 WL 875981 (Md. Ct. Spec. App. Mar. 6, 2017), the Court of Special Appeals held that even though a construction contract that was at the core of a dispute did not comply with the Maryland Custom Home Protection Act, the violation itself did not render the contract unenforceable without proof that the owners were actually injured by the violation.
Titilayo Akinyoyenu entered into a contract with Keswick Homes, LLC to build a custom home on a one-acre lot that he owned in the Avenel community in Montgomery County that was expected to cost almost $1,200,000. Later, his wife became a co-owner of the property. After construction was finished, Keswick Homes requested an increase in the contract price by about $477,000 for additional site work that had been performed by subcontractors, which the owners refused to pay. The parties went to court, and a jury in the Circuit Court for Montgomery County found that the owners were obligated to pay for those additional charges.
The Maryland Custom Home Protection Act provides that every custom-home contract shall “[e]xpressly state that any and all changes that are to be made to the contract shall be recorded as ‘change orders’ that specify the change in the work ordered and the effect of the change on the price of the house.” Real Property Article (“RP”) §10-505(3). This did not occur. However, when the case reached the Court of Special Appeals, the court held that the owners did not prove that a reasonable jury was required to find that, as a matter of law, the owners had sustained actual injury or loss because the builder did not comply with the Act. Therefore, the owners were not entitled to a judgment in their favor on the builder’s claims.
The Custom Home Protection Act does not create a private right of action. Instead, it defines any conduct that fails to comply with that Act as an unfair or deceptive trade practice within the meaning of the Consumer Protection Act. RP §10-507(a). It is the Consumer Protection Act that creates a right to recover damages, plus reasonable attorneys’ fees, for “injury or loss sustained . . . as the result of” prohibited trade practices. Commercial Law Article (“CL”) §13-408(a)-(b).
A representative of Keswick Homes testified at the trial that he repeatedly told the owners that the site-plan revisions that the owners desired would result in substantial cost increases, but he admitted that he did not disclose the amount of the approximately $477,000 of additional charges, either orally or in writing, until after the work was complete. Then Keswick Homes presented a final draw request that included the extra costs. The court found that Keswick Homes’s contract violated the Custom Home Protection Act because a site-cost addendum authorized changes to be made to the contract through the builder’s submission of invoices at a final draw, rather than through a written change order or a series of change orders specifying the changes in the work ordered and the effect on the price of the project.
The court pointed out that Maryland has rejected a “rigid rule that any contract made in violation of any statute is unenforceable.” As noted above, if a builder violates the Custom Home Protection Act’s contract and disclosure requirements, the “violation constitutes ‘[a]n unfair or deceptive trade practice’ under the Consumer Protection Act.” Because the Custom Home Protection Act funnels its remedies through the Consumer Protection Act, the application of the Consumer Protection Act controls the disposition of private claims for damages under the Custom Home Protection Act. Unfortunately for the owners, the Consumer Protection Act permits an individual consumer to recover damages only “for injury or loss sustained by [the consumer] as the result of a practice prohibited by [the Consumer Protection Act].”
In the subject case, the court stated that to prove their alleged damages, the owners needed to present evidence from which the factfinder could calculate the amount of damages with reasonable certainty. However, the owners presented insufficient evidence from which the jury could have quantified any alleged damages. The owners produced no evidence, for instance, that the charges were excessive or unreasonable, that the work was in any way defective, or that the site work and supporting wall went beyond what the owners knew was required.
The court concluded that even though Keswick Homes “failed to abide by the provisions of the Act,” the owners did not conclusively prove that “they were actually injured as a result of [Keswick Homes’s] violation of the Act.” Without the required showing of actual injury or loss resulting from violation of the Custom Home Protection Act by Keswick Homes, the owners were unable to receive the protections of the Consumer Protection Act. Accordingly, the Court of Special Appeals held that the circuit court did not err when it refused to grant judgment in favor of the owners.
Practice Note: Claim for Attorney’s Fees – Use Simple Language
The construction contract included the following sentence that was intended to change the American rule that each party pays its own counsel:
In the event Owner or Contractor initiates legal action against the other party arising out of or relating to this Contract and said legal action is unsuccessful, then the initiator of said legal action shall be liable for the other party’s reasonable attorney’s fees and costs spent to defend anysuchimproperly brought claim. (Emphasis added.)
Both the circuit court and the Court of Special Appeals struggled with whether “said legal action is unsuccessful” and “suchimproperly brought claim” meant the same thing if an action was brought, and the plaintiff lost, but the case was within the bounds of reasonableness. The courts chided the drafter of this language as someone who “seemed to want to use every word in the dictionary.”
The lesson from this is: keep it simple. Draft using clear and straightforward language, and do not hesitate to use the same word or phrase more than once if the same meaning is intended in each context. Had the last words in the quoted language been “any such unsuccessful legal action,” the parties and the courts would have been spared a lot of time and trouble.
For questions, please contact Ed Levin (410) 576-1900.