In the hands of a skilled, honest, and hard-working contractor – and with a little luck – home renovation projects can be completed with few problems. But things rarely go smoothly. You might change your mind about some details, the contractor might disappear for a week, the plumber could drop a pip through the floor, or the vanity that gets delivered may not be the one you ordered.
If you experience similar setbacks or have a dispute with your contractor, the contract you’ve signed will be your first stop for resolving the problem. If the contract has been properly drafted, it will tell you who is responsible for what problems, what steps you can take, and how the disputes can be resolved if you can’t work things out. Consequently, the best way to protect yourself during home renovations is to have a good written contract in place before work begins.
A home renovation contract generally serves two purposes; setting out the agreement between you and the contractor, and providing for what happens when things go wrong or if circumstances change. In the case of home renovations, the contract should specify the details of the job-whether it entails putting a new roof on your house or building a swimming pool in your backyard. The contract should specify the amount that you, the homeowner, agree to pay the contractor upon completion of the job. The contract should also include enforcement mechanisms-for example, a provision stating that if the new roof leaks, the contractor must fix it within then days; or that if you, the homeowner, fail to make a payment, the work stops. A contract is not for the easy times; it is for the difficult ones.
Once you and the contractor have agreed on the terms of the project, the contractor will likely present you with a “standard” contract – often a pre-printed form. However, there is really no such thing as a “standard” contract. Every contract is subject to negotiation, and any contract can be changed, annotated, or rewritten. If a person flat-out refuses to negotiate a contract, you may want to seriously consider walking away from the deal. Take the contract home and read it very carefully and think about where you will stand once you sign. What has the contractor promised and what have you promised?
At the contract stage, especially if tens of thousands of dollars are at stake, having a lawyer review the document is a smart investment. Your lawyer can help you clarify the terms and make sure the contract protects you as much as possible.
There are a variety of common clauses and considerations that you should make sure your contract covers before signing on the dotted line, including:
Mechanic’s Liens – Any person or business providing services, labor, or materials for work performed on real property is entitled to record a lien (claim for money) against the property if they are not paid for the work or materials. During the contract negotiations, you can ask the contractor to waive lien rights, assuming you are making periodic payments. At the end of the project, make sure you get a full release of lien rights (called a lien waiver) from everyone involved in the project before making a final payment.
Warranties – The contract should contain warranties or guarantees that the work will be completed in a “workman-like” manner, and the materials used are guaranteed to last for a certain number of years.
Cost – Although it sounds obvious, this point can’t be overstated: Your contract must make clear how much the project is going to cost. The contract should clearly state the costs of labor and materials. An experienced contractor will have a good idea of how much work is required, what materials are needed, and how much time the project will take. The contractor will probably want to include a clause addressing the costs of unanticipated problems. This is rare, but make sure you discuss what sorts of problems might occur and what will happen if they do.
Payment Structure – You will want to spread out payments over the course of your project. Typically, this means making periodic payments at certain milestones in the work – for example, upon completion of drywall taping, installation of ceramic tile, and so on. Final payment should not be due until all the work is completed and you have procured releases for liens from all the necessary parties.
Change Order – A change order is an order for the contractor to alter something that was agreed upon at an earlier time – anything from the placement of lighting or routing of plumbing to the size or shape of the room. Your contract should specify that any change orders must be in writing and signed and approved by you before the work detailed in the order can begin.
Permits – The contract should state that the contractor is responsible for acquiring the necessary building permits. If your city discovers that you renovated without a permit, it may require you to tear down any completed work.
Attorney Fees and Arbitration – The contractor’s standard contract probably will include language stating that he or she is entitled to attorney’s fees and court costs in the event of litigation, with no reference to your rights. In the event of litigation, such a clause would require you to pay all attorney costs and fees for yourself and the contractor, even if you are in the right and ultimately win the case. This obviously does not work in your favor and you should try to negotiate a change. Push for language stating that the prevailing party in any potential lawsuit is entitled to attorney’s fees and court costs from the losing party. The contract may also provide for arbitration, which is less formal than litigation in court, and is generally a faster and less expensive means of resolving a dispute.
If you have any questions about how arbitration works or any other parts of the contract, talk to your attorney before you agree to the contract. Negotiate for what you want before you sign.
Reprinted from Your Law Summer 2017, Vol 30 No.3