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19 Mar 2021

Architects prepared to take legal action against developers to recover outstanding fees

Architects are increasingly prepared to take legal action against developers in a bid to recover unpaid fees for work they have completed on projects, says Boodle Hatfield, the leading private wealth law firm. Coronavirus disruption has left many architects out of pocket, leading them to take decisive action to recover fees.

Coronavirus has put the brakes on many projects, disrupting cash flow for developers. The negative impact on cash flow has filtered through the supply chain and developers have shown they are willing to delay payments to consultants, including architects. Even if work on site stops, design consultants such as architects are expected to continue with their services and to continue to maintain resource for their projects. Despite architects receiving some Government assistance in the form of the furlough scheme, architect resource costs on delayed projects will continue to build up.

Delays in the delivery of materials due to Brexit disruption, and cost increases, have put developers under financial pressure, which some are pushing on to their project teams.

Boodle Hatfield says that architects are increasingly willing to take the unusual step of pursuing legal action over unpaid costs and in some cases are exercising their contractual or statutory rights to suspend work on projects. The firm warns that this can damage the working relationship between architects and developers, and can also lead to entrenched adversarial positions.

Architects have traditionally been reluctant to robustly enforce their contractual rights in the past but due to the economic pressures of coronavirus, they are increasingly being forced to take stronger measures to recover fees. Architects have also seen professional indemnity insurance premiums increase in the wake of the Grenfell tragedy, and more generally a hard PI market, putting further pressure on their bottom lines.

John Wevill, Partner at Boodle Hatfield says: “Prior to coronavirus, it would have been extremely rare for an architect to pursue formal legal remedies against clients, but it’s now becoming a more common occurrence.”

“Developers are feeling the squeeze and some look to preserve their own cash flow by delaying fee payments or disputing legitimate claims for additional fees. However architects are pushing back quite forcefully in many cases.”

“There’s no doubt that coronavirus has raised considerable challenges across the industry and we would always encourage developers and architects to engage collaboratively in discussions on fees as soon as an issue arises. This will give both parties the best opportunity to find solutions that will help them avoid becoming caught up in costly legal action.”

Navpreet Atwal, Partner at Boodle Hatfield says: “Traditionally, developers have favoured working with the same architects across different projects. However, the fall-out from coronavirus has the potential to damage these long-term relationships.  This is a tough environment and a more constructive way forward would be to open up early dialogue to find workable solutions.”