This is my first time posting to the forum. Please let me know if there is anything that should be done differently.
Thank you, Carl
In paragraph 6 of the InterNACHI New York State Home Inspection Agreement, it states: “New York state law provides that we may not include any limitation on the amount of damages in this agreement for any alleged negligence or errors or omissions.” Then it goes on to state: “As to other claims, we assume no liability for the cost of repair or replacement of unreported defects, either current or arising in the future. In those other cases, our liability is limited to liquidated damages in an amount not greater than 1.5 times the fee you paid us”.
I have a difficult time with all the legal jargon, but this seems contradictory to me. Can someone clarify this for me?
Paragraph 6 also states: “If you wish to eliminate this liquidated damages provision, we are willing to perform the inspection for an increased fee of $______, payable in advance.”
What exactly does eliminate liquidated damages mean?
Do you use the liquidated damages provision in your agreement?
What percentage of your clients choose this option?
How much do you increase your fee?
Do you do anything different during your inspection, such as bring in someone that has more experience in a particular area such as a structural engineer and others?
Paragraph 6 of the InterNACHI New York State Home Inspection Agreement
LIMITATION ON LIABILITY AND DAMAGES . You waive any claim for consequential, exemplary, special or incidental damages or for the loss of the use of the home/building. New York state law provides that we may not include any limitation on the amount of damages in this agreement for any alleged negligence or errors or omissions. As to other claims, we assume no liability for the cost of repair or replacement of unreported defects, either current or arising in the future. In those other cases, our liability is limited to liquidated damages in an amount not greater than 1.5 times the fee you paid us. You acknowledge that these liquidated damages are not a penalty, but that we intend them to: (I) reflect the fact that actual damages may be difficult or impractical to ascertain; (ii) allocate risk between us; and (iii) enable us to perform the inspection for the agreed-upon fee. If you wish to eliminate this liquidated damages provision, we are willing to perform the inspection for an increased fee of $______, payable in advance.
mcohen
(Mark Cohen, InterNACHI General Counsel and Corporate Secr)
2
Carl’s question is understandable. The language may seem contradictory, but it is not. The New York law provides an inspector can’t include a limitation on damages for any alleged negligence or errors or omissions, but those are not the only types of claims a dissatisfied client might assert. For instance, there might situations where an unhappy client asserts claims based on other legal theories such as misrepresentation. If the client is the owner, there might even be a situation where an unhappy client sues the inspector for defamation. The New York statute doesn’t prevent an inspector from attempting to put a limit on damages allegedly resulting from those types of claims.
The idea behind allowing a client to eliminate the liquidate damages provision pertaining to these other types of claims in return for a higher inspection fee is to show that the client had a choice. In deciding whether a contract provision is unconscionable, courts often consider whether the consumer was offered the contract on a “take it or leave it” basis. InterNACHI drafted this contract to show that the client had a choice. I think it is rare for a client to ever agree to pay a higher fee to eliminate this limitation on damages, but I would suggest a fee of 1.5 or 2 times your normal fee.
Mark Cohen, J.D., LL.M., Former General Counsel to InterNACHI and Friend of Nick Gromicko
Mark, thank you again. In a conversation with Nick, his thought was that the number needs to be large enough to “keep clients from taking it. And reduces your liability.” His number would be $3,000. In my NYS training class, they talked about this option as well, and their business charged $3,000 or $1.00 per square foot, whichever is greater. It seems that if your normal fee is $400 for an inspection and increase that by 2 times to $800 to eliminate the liquidated damages provision, you are going to get a fair number of clients taking that option, increasing your liability for not very much money. Please let me know your thoughts.
Additionally, when a client takes the option to eliminate the liquidated damages provision, what exactly does that mean for the inspector. Does it make it easier for them to win if they sue, to get more money if they sue, are they more likely to sue? Please bear with me; this is entirely new to me. I am still looking for legal counsel in my area, so if you have any referrals in Central NY that you could pass along to me, I would appreciate it.
mcohen
(Mark Cohen, InterNACHI General Counsel and Corporate Secr)
5
Based on what I have seen, even if you just multiply your fee by 1.5, nobody is going to take you up on it. I am fearful that if you make it too high, a judge might say the client did not have a meaningful choice.
If a client actually took that option, it would mean they would not be bound by the limitation on liability on those other claims if they win the lawsuit. It doesn’t make it easier for them to win, but it does mean that if they win they won’t be subject to that limit on damages.
These are good question, but you may be overthinking it. I’m not sure anyone has ever exercised that option.
Good Afternoon Mark
I am a new business owner in SW Florida. I’ve read the back and forth between Carl and yourself regarding this clause and I’m still a bit unsure as to exactly what it means and how it can affect me and my business. If they client chooses the option to eliminate the liquidated damages clause, does that mean that they can sue my company for any amount? If so, why would you even put this clause into the agreement? Thank you
Chris Franco
Bears Home Inspection, LLC
mcohen
(Mark Cohen, InterNACHI General Counsel and Corporate Secr)
8
The reason you would give the client a choice is this. In some states a clause that purports to limit damages is unenforceable if it was given to the client on a “take it or leave it basis.” Putting this clause in the contract and giving the client a choice makes it more likely that that the limitation would be enforceable because the Court would see that the client had a choice and chose the less expensive alternative.
“Simply brilliant.” – Steven Pinker, Professor of Psychology, Harvard University
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