One of the more common questions asked in the construction contracting arena is whether an owner of a construction project can enforce the terms of a subcontract or its architect's consulting agreement with engineers directly against the subcontractor or engineers as a third-party beneficiary. The answer is “yes,” but (as with all things legal), with some caveats.

Subcontractors

In most cases, the owner of a construction project is a third-party beneficiary of any subcontracts formed to carry out the construction work. Logan-Baldwin v. L.S.M. General Contractors, 94 A.D.3d 1466, 1469 (4th Dept. 2012). Under contract law, claimants may assert third-party beneficiary rights if they can demonstrate: (1) a valid contract exists; (2) the contract was intended to benefit them; and (3) the benefit they were to receive was more than incidental. Id. The second prong of the third-party beneficiary test is what often raises a factual issue and, in the context of construction, New York courts have been inconsistent on this issue.

For example, the Second Department held in Key Intl. Mfg. v. Morse/Diesel, 142 A.D.2d 448, 455 (2d Dept. 1988) that, in the context of construction, “it is almost inconceivable that those…who render their services in connection with a major construction project would not contemplate that the performance of their contractual obligations would ultimately benefit the owner…” However, the same department, four years later, held in Board of Manager of the Riverview at College Point v. Schorr Bros., 182 A.D.2d. 664 (2d Dept. 1992), that owners of condominium units could not sue a general contractor with whom they did not have privity. (While a condominium unit owner may be more removed from the contracting process than an owner—e.g., the sponsor of the condominium—the rationale of Key Intl. should seemingly apply, and did apply as discussed below regarding architects.)