February 17, 2020

By Lee Brumitt

We’ve all heard it: “They got out on a technicality.” A recent case out of the Kansas Court of Appeals reminds us that what may look like a technicality is, in fact, a court properly applying the plain language of a statute, as enacted by the legislature.

In Drywall Systems, Inc. v. A. Arnold of Kansas City, LLC, Arnold entered into a commercial lease of a building in Olathe. Wanting to separate itself from other tenants in the building, Arnold then entered into a contract with Drywall Systems to build a partition wall. Drywall constructed the wall but was allegedly stiffed by Arnold.

The trial court found that Arnold had indeed breached the contract and entered judgment for Drywall for the contract amount only. The Court denied Drywall’s request for prejudgment interest and attorneys’ fees under the Kansas Fairness in Private Construction Contract Act. The Act’s goal is to promote prompt payment through the various construction tiers – from owners to subcontractors. The Act sets standards for promptness. In the case of an owner, the Act requires payment to a contractor within 30 days of submission of an undisputed amount. If the owner fails to pay within that time frame, it is required to pay 18 percent interest and attorneys’ fees.

Interpreting the Act, the trial court decided that Arnold, as a mere tenant, was technically not an owner and not subject to the rules; Drywall appealed. The appeals court found that the Act drafted and entered into law by the Kansas legislature specifically defined an “owner” as one “who holds an ownership interest” in the property – a tautology (the saying of the same thing twice in different words) and perhaps a technicality. But, because a tenant does not have an ownership interest in the property, the court reasoned that the legislature did not mean for the Act to apply to Arnold.

I wish I had a nickel (OK, maybe a dollar) for every contractor that has described its business as “TI” or tenant improvement work. If you fall in that category, how do you overcome this potential problem? Make sure there is a written contract with the tenant that provides payment of 18 percent interest and attorneys’ fees in the event of default or, better yet, contract directly with the “owner.”