The mold epidemic has caused many contractors to incorporate mold releases into their construction contracts. The validity of mold releases in construction contracts may be challenged. The recent case of Pardee Construction Company v. Superior Court of San Diego County (Rodriguez), California Court of Appeal, Fourth District ? Division One, may be cited for the proposition that mold releases in residential construction contracts are unenforceable based on adhesion and public policy.
The Pardee case involved a binding judicial reference provision (i.e., waive right to trial by jury and right to seek punitive damages) in a construction contract for an entry level home. The court, in invalidating the judicial reference provision, focused on the lack of bargaining power and legal naivete of an entry level buyer. The court also relied on the fact that the judicial reference provision was not a conspicuous, clear, and simplistic provision. Although this case did not involve a specific mold provision, this case nevertheless illustrates that in residential construction contracts between an apparent sophisticated builder and a less sophisticated owner, courts will closely examine whether releases violate public policy and/or are contracts of adhesion and will construe these clauses strictly against the builder.
Along the same analysis of the Pardee decision, a challenge to a mold release contained in a construction contract may be based on, among other things, the following arguments:
- A mold release is void as against public policy if it limits or eliminates a contractor's tort liability for mold claims. Any provision to limit or eliminate tort liability as a part of or in connection with any contract relating to the construction, alteration, repair or maintenance of a building, structure, or other work related to construction is against public policy and void. Wis. Stats. § 895.49. Consequently, a provision in a Wisconsin construction contract whereby the owner agrees to release the builder from mold claims arising out of or relating to the builder's negligence may be void.
- A mold release may be void as against public policy if the release is not conspicuous, does not clearly and unambiguously inform the owner of exactly what is being waived, or does not alert the owner to the nature and significance of what is being signed.
- A mold release may be unenforceable if it is a contract of adhesion or is unconscionable. This arises when there is an absence of a meaningful choice on the part of one party and the terms unreasonably favor the other party. It exists where an owner has no realistic opportunity to bargain over the terms of a contract and has little choice to but accept the contract. Courts will look at, among other things, the sophistication of the buyer, relative bargaining power, whether the buyer had a realistic opportunity to bargain over the terms of the contract, and whether alternative sources of goods or services exist.
Those considering incorporating a mold release into their construction contract should, or those with mold releases in their construction contracts may want revisit the release to, ensure they are able to enforce the provisions given the issues raised in this article. In drafting an initial release or revising an existing release, the release language should conspicuously and clearly advise the owner of the potential personal injury and property damage associated with mold and conspicuously and clearly identify what mold related claims the owner is releasing. Similarly, if the release language is not in a separate document requiring a separate signature, the release language should be in an easy-to-find part of the contract and should not be not be buried in fine print. The release provision should be preceded by a clear, non-misleading heading and the release provision itself should stand-out from the rest of the contract, either by larger font, all capital letters, bold print, and/or italicized font. Even if, however, a builder has a conspicuous and unambiguous release, the builder should nevertheless consider how its contracts are negotiated. The builder should consider explaining the release provisions to an owner, especially if the owner is not represented by counsel. The builder should also consider documenting the negotiations and retaining any and all correspondence and prior drafts evidencing the same.