A $90-million surprise is great if it’s in your favor, but woe if it’s not. Miller Global Properties, LLC, a real estate investment company specializing in the development and disposition of high-end hotel and office properties, confronted cost overruns of $90 million on a project purchased from Marriott International that came with an estimated budget of $484.1 million. Miller was stuck with the unexpected increase.1
Once more, the lesson is: Get it in writing!
The property in question is the San Antonio Hill Country Resort and Spa, and an affiliated golf club. Per Miller, the additional expenses did not surface until months after the closing. Miller sued Marriott for fraud based on two alleged oral misrepresentations, which Miller described as “firm” and “specific”: 1) the plans and specifications, on which the budget estimate was based, were essentially complete; and 2) the estimated budget would be adequate to complete the construction. Unfortunately for Miller, the contract and related documents contained language that directly contradicts these statements. Additionally, the contract contained a disclaimer of any guarantees not memorialized in the written agreements. The bad news for Miller: where oral representations conflict with terms of the written contract, the latter normally control.
A contract addendum identified hundreds of required construction elements that were not in the plans used to estimate the budget. These included a children’s pool, boilers, chillers, cooling towers, air handlers, and systems for fire protection, security and telecommunications. Also, an addendum, in the words of the judges, “addressed at length” the potential for costs to exceed the estimated budget and pinpointed Miller as the party responsible to pay those expenses. Yikes! But there’s more.
The contract also contained the following clause: “… Miller agrees that Marriott has not made, and specifically negates and disclaims any representations … of any kind or character whatsoever, … oral or written, … with respect to the transactions contemplated by this Agreement.” Another provision, typical of business contracts, states that the written contract “constitutes the entire agreement between the parties and supersedes all prior understandings …”
These contract terms do not magically disappear. Instead, they trump the oral representations. Thus, the court rejected Miller’s argument that it relied on Marriott’s oral representations concerning the status of the plans and the budget.
Often in negotiations, parties are tempted to rely on the other’s honesty and integrity. Good will is a lovely thing, but can dissipate quickly in the face of a sizeable loss. When entering a contract, be sure all representations important to the transaction are included in the written contract. No exceptions.
1Miller Global Properties, LLC v. Marriott International, Inc., 2013 WL 6237673 (Tex. App, 12/3/2013).