Written Contract Essential For Major Home Renovations

Written Contract Essential For Major Home Renovations

Written by Benny L. Kass on Wednesday, 07 September 2016 3:11 pm

 

Question. We plan on adding two rooms and a bath to our house. What protection should we include in the contract with our architect and contractor?

Answer. I receive a number of questions on this topic every year. It is an area where an ounce of prevention can make a significant difference to the homeowner, and yet it always amazes me that homeowners will hire contractors for major renovations to their homes having only a loosely written one or two-page “letter agreement” or nothing in writing at all.

 In my opinion, it is absolutely essential to have a written contract with your home improvement company (the contractor) that spells out all of the terms and conditions of the proposed renovation.

We lawyers have to be concerned with “horrible hypotheticals,” because all too often these turn out to be real situations. If they are anticipated, homeowners can avoid unhappiness and extra expense.

More and more homeowners are improving and adding onto their residences in lieu of buying new homes.

Selecting a good licensed contractor is often a difficult task.

Ask every contractor you interview for references. You also should inspect the contractor’s previous work, to assure yourself that he or she is right for you. It is also important to make sure that the contractor is licensed in your jurisdiction. Keep in mind that no contractor will provide you with an unhappy homeowner.

Once you have selected a contractor, it is extremely important to enter into a contract spelling out in detail all of the terms and conditions under which the remodeling or renovation job will be done.

Do not rely on good faith, promises, or a handshake.

Here are some suggestions for mandatory provisions in any contract that you sign:

Do not sign the typical one or two-page proposal submitted by your contractor. I call this the “two page special”. Although this is a contract — legally binding on you — these one or two-page proposals unfortunately provide very little, if any, protection for the homeowner. The American Institute of Architects sells standard form contracts you should use in your dealings with a prospective contractor. You may contact the American Institute of Architects, and ask for AIA document A107, entitled “Abbreviated Owner-Contract Agreement Form For Small Construction Contracts.” It is available to non-AIA members at a nominal cost.

The contract should contain a payment schedule that has been carefully worked out. Regardless of whether you or your bank will be making the actual payments, it is recommended that at least 15 percent of the payment be retained until the job is completed. All too often a contractor will leave a job unfinished after he has been paid in full, and homeowners are caught in a double bind. There is no money to pay anyone, including subcontractors, to finish the task, and you have already paid most if not all of the entire contract price.

What kind of warranty is the contractor willing to provide? This should be discussed in detail with the contractor before you sign, and the exact terms of the warranty should be spelled out in the contract itself.

The contract should state that “time is of the essence.” One common problem with remodeling contractors occurs when the contractor is unable to finish the job within the estimated time. It is also suggested that the contract provide for a daily penalty from the contractor for each day the work is not completed after the time specified for completion in the contract. This provision will give the contractor a real incentive to complete the work within the promised time period. As an additional incentive, many homeowners offer a bonus to the contractor for early completion.

Are you properly insured against possible claims by workers who may be injured on the job? Insist that the contractor be adequately insured, and check with your own insurance company to determine the limits and extent of your liability.

You should have the absolute right to terminate the contract if, after reasonable notice to the contractor, you are dissatisfied with the work. Of course, you have to be reasonable and cannot terminate the contract arbitrarily.

Arbitration must be provided for in the contract. You should not have to go to court to resolve any disputes that may arise. Legal fees, court costs and the time involved can be a deterrent to a prompt resolution of your dispute. Your contract should provide that all disputes be resolved through binding arbitration under the rules of the American Arbitration Association. I am not an advocate of arbitration, but it is certainly cheaper and faster than litigation.

Before final payment is made, have the contractor give you a signed statement releasing all mechanical liens. This means that the general contractor — as well as all of the subcontractors — should sign a release-of-liens form before you make the final payment. We have seen too many cases in recent years when the general contractor was paid in full, but conveniently “forgot” to pay the subs. In many jurisdictions, the subcontractors have the right to file “mechanic liens” on your property. You want to avoid the unnecessary expense and hassle of having to defend against such other liens.