Article: Home Improvement (Construction) Contracts

HOME IMPROVEMENT (CONSTRUCTION) CONTRACTS This article is intended to provide a basic explanation of “home improvement (construction) contracts” (HICs). This article is not intended to give the reader legal advice on how property owners and/or licensed contractors are to draft HICs. Many factors, including but not limited to: (a) nature of project, (b) general conditions, (c) project specifications, or (d) architect’s involvement, have a significant impact on the terms contained in a HIC between a residential property owner and a contractor. On occasion, a contract may be more effective because of a provision omitted from or an area of construction services specifically excluded from the contract. Therefore, this article is not intended to substitute for the advice of an attorney as to a specific problem, a specific contract or a specific construction project. If the reader has a specific legal question or needs legal advice, the reader should contact an attorney.

In our practice, we provide guidance to resolve construction contract disputes. Frequently, construction disputes arise in the context of residential remodels or renovations. Home remodels, referred to as “home improvement” projects under California law, require a written contract that complies with California law for a “home improvement contract” (or “HIC”). We assist both contractors and homeowners in the drafting of HICs and resolving home improvement contract disputes.

Unfortunately, as happens all too frequently, we are contacted only after problems have already arisen. For instance, contractors will often come to us after being notified of a homeowner’s complaint to the Contractors State License Board, or after a claim has been made against the contractor’s license bond. We have helped many contractors in these and other similar situations.

In addition, we have also helped homeowners (a) draft or tailor HICs for their home remodel project; or, (b) help homeowners resolve disputes utilizing their contractors. Often, homeowners will contact us after realizing that their contractor is knee-deep in a home improvement project, is over budget, behind schedule, has not requested prior approval for certain work, has charged for duplicative or corrective work, or has provided work that violates building codes or is otherwise defective. Sometimes, homeowners do not find out until after the fact that they have hired an unlicensed person claiming to be a “contractor” who has insufficient (or no) workers’ compensation insurance. We have represented homeowners to successfully resolve their disputes utilizing a number of legal options and strategies.

The purpose of this article is to educate both contractors and homeowners alike in the necessity of having a “code compliant” home improvement contract, setting forth the parameters of the project, BEFORE the home remodel construction project begins.

HOME IMPROVEMENT PROJECTS

By legal definition, a “home improvement” involves repairing, remodeling, altering, converting, modernizing, or adding on to residential property. In addition to the house itself, a home improvement also includes work on other adjacent improvements, such as driveways, swimming pools, patios, landscaping, and fences.

In California, if a home improvement project is valued more than $500, there must be a written contract between the contractor and the owner (or tenant). Section 7159 of the Contractors’ State License Law sets forth numerous items that must be included in any home improvement contract, including but not limited to down payments, mechanics’ liens, change orders, and a homeowner’s right to cancel the contract. California law even mandates the size and style of the typed font that must be used in the contract.

INFORMATION FOR CONTRACTORS

If you are a California contractor, do you have a written home improvement contract that you use for home improvement projects and remodels worth more than $500? If not, you are violating California law and are at risk of being fined; and in certain circumstances even imprisoned. If you do use a written contract, is it up-to-date and compliant with current California law? Do you also provide the homeowner with all required additional documents and disclosures, such as the homeowner checklist or federally-mandated lead hazard information? Are the construction services disturbing lead paint, requiring EPA certification? Do you use the same written contract for all of your home improvement projects? In our experience, a one-size-fits-all contract has its limitations, especially when the scope of your work varies from project to project.

At Last & Faoro, we assist contractors in drafting home improvement contracts that not only comply with California law, we also address common reoccurring problems that we have observed in our 25+ years of litigation experience. Additionally, we have helped contractors adopt and implement construction and business practices and procedures to avoid problems that our other contractor clients have experienced. For example, a home improvement contract should address common concerns about payment, increasing your likelihood of getting paid, how to avoid payment problems with other contractors and suppliers, and how to prevent construction delays.

A home improvement contract should consider not only how to avoid disputes but how to resolve disputes that arise. For example, does the contractor want to arbitrate a construction dispute? A mandatory arbitration clause in a home improvement contract requiring a homeowner and contractor to arbitrate their dispute must comply with Section 7191 of the Contractors’ State License Law. If not, as a California court recently decided in Woolls v. Superior Court, the arbitration provision may not be enforceable by the contractor.

Before you begin work on your next home improvement project, you should consult with an attorney to ensure that the HIC and your business practices are consistent with the law, in an effort to minimize the potential for future disputes or liability, and to maximize your long-term business success and profitability.

INFORMATION FOR HOMEOWNERS

Doing your homework, before selecting a contractor, can make a huge difference between a successful home remodel and a nightmare. Below are some simple steps that property owners can take as precautions to protect themselves, before hiring a contractor:

• Make sure the contractor is licensed. You can check online at the Contractors State License Board website at www.cslb.ca.gov.
• Have the contractor provide you with a copy of the contractor’s liability insurance company information, with phone number, to verify that the contractor is insured.
• Confirm that the contractor has workers’ compensation insurance for all of the contractor’s employees.
• Confirm that the contractor has a contractor’s bond.
• Be wary of a contractor who requests a down payment before any work begins. If the contractor does request a down payment, remember that California law limits down payments on home improvement projects to either $1,000 or 10% of the contract price, whichever is less.

In addition to the above, consult with an attorney before hiring a contractor to further protect yourself. An attorney can review the home improvement contract to ensure that there are adequate protections to help you avoid common problems. For example, does the contract contain a completion schedule? How detailed is the scope of work? Is there a retention clause? Is there an indemnity provision requiring the contractor to defend and indemnify the property owner? An attorney can assist contractors and property owners alike with these and other common construction issues.

An attorney can also provide advice and assistance with securing lien releases from contractors, subcontractors, and suppliers. An experienced construction attorney, such as the attorneys at Last & Faoro, can guide you through a construction project, with advice and recommendations on change orders, subcontracts, performance or payment bonds, and mechanics’ liens.

CONCLUSION

As is our recommendation for our existing and potential clients, legal consultation ought to be employed proactively, ideally BEFORE the contract is signed, to avoid future problems.

Mr. Faoro is a partner at Last & Faoro specializing in Real Estate and Construction Law for over 25 years, assisting owners, developers, contractors and realtors in real estate and construction matters. He can be reached at 650-696-8350, or by email at [email protected] The foregoing article is intended only to provide a general overview of some of the issues that should be addressed with a home improvement construction contract. The article is not intended to contain legal advice, is not intended to discuss or address any specific situation or problem and should not be relied on in making any legal decisions. If you have a specific legal question or need legal advice, you should contact a qualified attorney.

Dennis L. Faoro Last & Faoro 177 Bovet Road Suite 550 San Mateo, CA 94402 [email protected] Tel: 650-696-8350 Fax: (650) 696-8365