Most people view home improvement projects as an exciting time and enter into the project with optimism. Our homes are our sanctuaries and tailoring them to our particular taste is one of those investments in our lives we often do not mind making.
However, the nature of construction projects is such that reality often overcomes our feelings of optimism shortly after the project is under way. Typically, the project is delayed, materials cost significantly more than anticipated, designs need constant revisions. The finished product often does not look anything like what was promised.
Builders often dread home construction agreements knowing that homeowners can become extremely emotional over matters that most commercial construction projects would consider minor. Thus, the color of tile or the texture of paint will usually matter little to a retail outlet but may be vitally important to a home owner.
Homeowners also have much to fear since there are predatory builders out in the market place, often unlicensed and offering bargain prices, who fully understand that projects without engineers or architects are often unsupervised and the average home owner is an amateur when it comes to oversight of a construction project. Consider: a commercial developer will deal with a thousand such contracts each decade. A home owner will probably deal with three or four such contracts in his or her lifetime.
Recognizing this fact, the California legislature has enacted various protections in the relationship between a contractor and a home owner and many of those are directed to the terms that must be in the Agreement. This article shall outline the essential terms required in such home improvement agreements in California.
The reader should first review the basic law on Contracts on this website as well as the law on Mechanics Liens before reading further.
The Basic Requirements:
State statutes impose mandatory language in home improvement contracts, among other requirements, and if the contractor fails to comply with these statutes, the homeowner has an arsenal of remedies to right the wrong. This attorney opines that around one-third of home improvement contracts do not contain the required language, but perhaps ten percent of the homeowners under such contracts know their rights or do anything to assert them.
The fact of the matter is that many homeowners do not even realize that these statutes exist. Before you begin a construction project, or if one is going wrong, you should learn your rights.
First of all, make sure your contractor has a valid license. You can run a simple search on the California state website at www.cslb.ca.gov. If your contractor performs services and does not have a license, you have a several potential remedies, including the return of all monies paid to such contractor, and penalty damages. The contractor has no right to file a mechanics lien or stop notice. Depending on whether the contractor willfully and intentionally misled you as to the status of his or her license, you may have a cause of action for fraud and punitive damages.
If the contractor violates the obligations imposed by statute, the contractor may be disciplined by the State of California and may lose his or her license should you report them.
If the contractor is not licensed, the contractor also has no right to sue, in addition to the requirement to return all payments [B&P § 7031(a) & (b)].
California law also requires that certain language to be in all home improvement contracts. These obligations and requirements are codified at California Business and Professions Code Section 7159 et seq., and California Civil Code Section 1689 et seq.
The required language includes the following:
1. Right to Cancel
Notice of the right to cancel for a limited period of time after execution is required to be in a home improvement contract (CC § 1689.7). If the notice is not included, the owner can rescind contract at any time without paying any compensation. (CC § 1689.11(c)).
2. Limited Down Payment
The contractor is limited to a down payment of ten percent of the contract value, or $1,000, whichever is less (B&P § 7159(d)). The contractor can of course require a substantial payment shortly after signing.
3. Lien Releases
Upon payment for a particular phase of work, the contractor must give mechanic lien releases. (B&P 7159(e), (f)). Upon making payment on any completed phase of the project, and before making any further payments, require your contractor to provide you with unconditional "Waiver and Release" forms signed by each material supplier, subcontractor, and laborer involved in that portion of the work for which payment was made. The statutory lien releases are set forth in exact language in Section 3262 of the Civil Code.
4. Description of Work
A description, plan and job specifications are required to be in the contract. The statutory requirement is general, but it should include specifications and project milestones. (B&P § 7159(c)).
Note that all the above require a written contract to perform the work, signed by both parties and containing the required provisions as specified above.
Violations of the aforementioned statutes may result in suspension or revocation of the contractor’s license, in addition to civil and potentially criminal penalties. The homeowner’s best remedy for violation of the statutes referenced above is the right to cancel any contract with the contractor … and the contractor must return all consideration paid to him or her under the contract (although please note that the contractor, under limited circumstances, may have a claim in quantum meruit for services rendered, meaning payment for the value of services rendered. However. Judges are generally not receptive to claims of contractors that breached statutory obligations.
If you are a contractor, you should develop a standard form contract that provides the above language and rights to the homeowner and should always use the agreement in all circumstances. Attorney review of your proposed agreement is vital and you should consider adding various other key clauses such as arbitration of all disputes, limits on warranties, etc.
If you are a homeowner, a good test of the professionalism of the contractor is whether they have the standard form agreement that conforms to the requirements above. You should also obtain legal review and consider having an expert supervise the construction project unless you have sufficient experience in the field of construction supervision to be comfortable with that role. Performance bonds should be considered, especially if the work is major. To have a contractor disappear with the foundation half completed or the roof open to the elements can be disastrous to the value of the home.
It is an oddity of human nature that people who will spend hours considering which shoes to purchase will execute inappropriate construction agreements, hardly reading them, and entrusting their most precious valuable possession, their home, to the whims of person who may have limited expertise and experience. And do not assume that because your brother in law had the same builder replace his porch that the same contractor can replace all your windows or install a roof.
The time you have the greatest freedom of action is before the building begins. Learn the law, study your contract and get background information as to the builder. And if the builder does not have the legal agreement, you do not need a further background check. Pick another builder.