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Notice and Opportunity to Cure: Only if Specifically Required in a Construction Contract

Posted: September 28, 2021

A Texas appellate court recently ruled that an owner properly terminated its contract with a contractor, despite the owner’s failure to provide the contractor notice and an opportunity to cure. See TPG (Post Oak) Acquisition, LLC, et al. v. Greystone Multi-Family Builders, Inc., et al., First Court of Appeals of Texas, No. 01-18-00396-CV, 2021 WL 3870130 (August 31, 2021). The Texas appellate court reversed a trial court decision in favor of the contractor, which had ruled that the owner failed to provide the contractor notice and an opportunity to cure.

This case involved an AIA A103 – 2007 construction contract between owner TPG (Post Oak) Acquisition, LLC (“Owner”) and Greystone Multi-Family Builders (“Contractor”) for the construction of a 277-unit apartment project. Section 2.4 of the AIA A201 - 2007 General Conditions of the contract (modified from the standard AIA language) allowed the Owner to terminate upon the Contractor’s default under nine different circumstances, each listed as separate subparts (a) through (i).  Subparts (a) through (h) were specifically defined defaults without any notice and opportunity to cure requirements. Subpart (i), a catch-all, including a notice and opportunity to cure requirement, reads:

“[Owner] shall be in default if: …(i) [Contractor] fails to observe any other term in this contract, or reasonably required by Lender…and if [Contractor] fails to promptly cure such default within three days following notice from [Owner].”

Owner terminated the contract for specific defaults noted in subparts (c) through (h), including Contractor’s failure to make proper payments to subcontractors, failure to comply with scheduling requirements, and failure to replace or correct rejected materials or workmanship. Owner did not provide the Contractor with notice, nor did Owner allow Contractor a cure period. The trial court reasoned that the notice and opportunity to cure “catch all” in subpart (i) applied to all preceding subparts in the section and ruled that the Owner did not properly terminate the contract for cause.

However, the First Court of Appeals of Texas reversed the trial court’s decision and concluded the grammatical structure of the section supports a different interpretation. Insofar as “the notice-to-allow-cure requirement was structurally constrained to subpart (i), it strongly suggests each subpart may be understood separately,” and only a termination under the subpart (i) catch-all required notice and an opportunity to cure prior to the Owner terminating the contract. As a result, the Texas appellate court ruled that the Owner was not required to provide notice and opportunity to cure before the Owner properly terminated the contract for cause.

This case serves as a reminder that careful construction contract drafting is critical and the placement of a notice and opportunity to cure clause can make or break your case. Frederick Poindexter contributed to this piece.