When their house suddenly lurched one day in February — causing the ceiling to cave in and the floors to sink — the Klenk family in Fishtown knew they had to get out fast.
They didn’t know that the contractors working in the house next door did not have the proper permits. They didn’t know that the workers had damaged the properties’ shared foundation wall, destabilizing their home to the point that the city declared that both properties would have to be razed.
They certainly didn’t know that they would become the poster child for a growing Philadelphia problem.
As Philadelphia’s building boom continued throughout 2019, the city saw a number of construction accidents, beyond the Klenks’ house. Part of a historic Fishtown building buckled due to what David Perri, commissioner of the Department of Licenses & Inspections, called “incompetent” work. Perri later said that a combination of excessive rainfall, inexperienced contractors, “the mentality of get-rich-quick," and a zoning code that “encourages teardowns” has led to a growing problem for Philadelphia’s real estate scene.
The city will likely face similar problems in the future, and L&I has said it is working to strengthen construction oversight and safety. This week, local officials got some help from state lawmakers, too, through a proposal that aims to better hold contractors accountable.
On Monday, State Rep. Michael J. Driscoll (D., Phila.) introduced a bill designed to protect property owners whose homes are damaged by construction next door. The legislation provides homeowners an avenue to collect money if contractors are responsible for the damage.
Driscoll’s bill, which has been referred to the House Commerce Committee, would require contractors to obtain a $500,000 surety bond for each property that adjoins one where they are working. The bill requires that the bond be available to cover only the cost of damages caused to the properties next door.
According to the bill, an “adjoining property” is defined as any residential or “dual-use” property that is physically connected to a construction site. In Philadelphia, that would mean that any builder, contractor, or subcontractor working to renovate a rowhouse would have to obtain a surety bond for the properties attached on either side.
The legislation applies to any new construction, renovations, or demolitions that cost more than $500.
Surety bonds are different from construction insurance and seek to ensure that contractors follow all rules that govern their industry. Surety bonds function similarly to a line of credit, meaning a third-party provider issues the bond, while a contractor pays a fraction of the full amount to purchase it.
In the event that something goes wrong, the surety provider would pay the homeowner for any damages and then would collect the entire cost from a contractor. Unlike typical insurance, a contractor must pay the provider back in full.
According to Driscoll’s legislation, a contractor would have to provide proof of bonding when applying for a permit from a municipality.
In an interview, Driscoll said that the legislation was partially inspired by what happened to the Klenks, as well as by other construction accidents in his district, which covers a swath of Northeast Philadelphia and includes neighborhoods like Mayfair.
“I thought, ‘Geez, why don’t we have anything in place to hold [contractors] responsible?’” Driscoll said. “... With the boom that we’re having in construction right now, it’s bound to happen again if we don’t do something.”
Driscoll’s legislation would not protect against contractors who do not apply for proper permits — a growing problem in Philadelphia, according to L&I. Between January 2017 and March 2019, L&I recorded 11,088 violations against contractors for working without or exceeding permits on 6,108 properties citywide.
The legislation does, however, allow for a civil penalty of $10,000 for a first offense and $20,000 for each subsequent offense for any contractor who doesn’t comply.
In a statement, L&I spokesperson Karen Guss said that while the city wants “owners of property damaged by adjacent construction to be compensated,” the department is still reviewing the bill.
Currently, most licensed contractors in Philadelphia have no bond requirement, though they are required to provide a certificate of insurance. Demolition contractors in the city are required to be bonded, though for much lower amounts of money.
Driscoll’s legislation currently has nine cosponsors, eight of them Democrats and one Republican.
Daniel Durden, CEO of the Pennsylvania Builders Association, said Friday that the organization was still studying the bill and had not taken an official position. However, he added that he was personally concerned about how the legislation applies to any renovation that costs more than $500.
“It could be crippling” for small remodeling companies or individuals who do common renovation projects, Durden said, adding that “after a certain number these [jobs], he’s going to have a hard time purchasing bonds.”