LITIGATION TREND: CONSTRUCTION LAWSUITS SET TO RISE IN SOUTH FLORIDA AMID BLEAK INDUSTRY OUTLOOK

Bad news for South Florida real estate developers: Lawyers are expecting a sharp increase in construction-related litigation.

Attorneys attribute the expected increase in litigation primarily to developers running out of funding during construction and being unable to pay bills, largely due to the impact of the coronavirus pandemic.

As coronavirus cases in South Florida have risen in the last two months, so has uncertainty about the solvency of real estate projects.

Now, attorney Jordan Nadel, a partner at Mark Migdal & Hayden in Brickell, said there will be an increase in litigation as lawyers advise owners of construction projects on how to emerge from bleak situations.

Among the problems Nadel sees is an influx of claims “from contractors, sub-contractors, suppliers — pretty much anyone who has been in a construction contract for nonpayment.”

Part of the problem is that construction projects in Miami-Dade and Broward counties were deemed essential businesses when the stay-at-home orders were established during the beginning of the coronavirus closures. Those working on the projects were accruing bills as capital was drying up because of the shutdown of the economy.

According to a recent Dodge Data & Analytics report, year-to-date South Florida construction starts are down 17% or over $4.6 billion, compared with the same period one year earlier.

There are also rising costs for building materials and difficulties obtaining supplies from nonessential companies and overseas suppliers in China, which is a major supplier of building materials in South Florida.

Nadal said that one of the issue within the construction industry is the reliance on the industry practice “that contractors know what to do, or think they know what to do” when they are putting together documentation.

“What you’re really going to see is a lot of litigation,” Nadel said.  “There will be issues where lawyers are getting involved in navigating contractors and everyone else in the project, getting them out of a bad situation.”

The Dodge Data & Analytics report noted that even though construction was deemed an essential business, new construction activity in South Florida declined for the past four consecutive months.

Nadal observed that the slowdown in construction activity and payments by cash-strapped developers will also likely lead to the resolution of disputes in the courtroom.

He said, “There will be more litigation resulting from the slowdown in the industry, as contractors become more aggressive to get paid for new work.”