by Benny L. Kass
Question: We are going to add a large family room and a bathroom 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-page "letter agreement" or nothing in writing at all.
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 are always concerned with the "horrible hypotheticals," because all too often these turn out to be real situations. If you can anticipate the problems in advance, you can avoid unhappiness and extra expense later.
As a result of the inflated costs of real estate nowadays, more and more homeowners are opting to improve and add 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. Keep in mind that most contractors will only give you favorable references; thus, you should also make arrangements to 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.
As I have said, once you have selected a contractor, it is extremely important to enter into a written 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-page proposal submitted by your contractor. Although this is a contract -- legally binding on you -- these one-page proposals unfortunately provide very little, if any, protection for the homeowner. The American Institute of Architects sells standard form contracts that you should use in your dealings with a prospective contractor. You may contact the American Institute of Architects at 1 800 AIA 3837, 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 left to pay anyone, including subcontractors, to finish the task, but you have already paid 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. Who will pay any additional insurance which is needed -- you or the contractor?
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.
How will any disputes be resolved -- through litigation or arbitration?. There are those who believe that arbitration is faster and less expensive than litigation. However, some consumer groups that have studied this situation have come to the conclusion that arbitration may not in fact be better than taking the matter to the courts. But, whichever way you decide, there has to be some provision spelled out in the contract as to how disputes will be determined.
Before the final payment is made, the contractor should give you a signed statement releasing all mechanics 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. Generally, 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.
Clean-up is important. Make sure that the contractor will leave the site, on a daily basis, in reasonably clean and safe condition. If you will not be in the property during construction, make sure that the contractor has the legal obligation to secure the premises after hours.
These are but a few of the many protections which any homeowner will need when dealing with a home improvement contractor. Don’t wait until you have a problem, for then it may be too late.
Published: December 1, 2003
Use of this article without permission is a violation of federal copyright laws.
 Author of the weekly Housing Counsel column with The Washington Post for nearly 30 years, Benny Kass is the senior partner with the Washington, DC law firm of Kass, Mitek & Kass, PLLC and a specialist in such real estate legal areas as commercial and residential financing, closings, foreclosures and workouts.
Mr. Kass is a Charter Member of the College of Community Association Attorneys, and has written extensively about community association issues. In addition, he is a life member of the National Conference of Commissioners on Uniform State Laws. In this capacity, he has been involved in the development of almost all of the Commission’s real estate laws, including the Uniform Common Interest Ownership Act which has been adopted in many states. |
