OVERVIEW
A dispute with a contractor can turn into a nightmare for a homeowner. In fact, most homeowners are familiar with the horror stories surrounding shoddy workmanship, project abandonment, and outright fraud perpetrated by dishonest, incompetent, and/or unlicensed contractors. Unfortunately, these stories are not as uncommon as we’d like them to be. To say the least, disputes between homeowners and their contractors can cause all sorts of problems, and an unresolved contractor dispute may not only be a nightmare to work through, but it can even temporarily torpedo your property’s value.
Ideally, the contractor you hire will perform according to a written agreement with you specifically describing the scope of work to be performed on your property. [See my article “Requirements for California Home Improvement Contracts.“] And while it’s certainly in your best interest to take steps to protect yourself when dealing with a contractor (such as insisting on a detailed contract), the fact is that because of the nature of the work they do, and the fact that their work affects your most valuable asset—i.e., your home—home, contract or not, there are simply a lot of ways a contractor can make your life a living hell.
This article is intended to provide you, as a homeowner, with basic information about some of the more common types of disputes that arise between homeowners and their contractors, as well as how to protect you when such disputes occur.
CONTRACTORS/HOMEOWNERS DISPUTES CAN TAKE A VARIETY OF FORMS
Failure to Perform
A contractor cannot legally abandon a pending construction project without a good legal excuse, nor willfully fail or refuse to diligently perform on a construction project. All too frequently, however, unscrupulous contractors threaten to walk away from projects if homeowners don’t consent to pay more than originally agreed, or if some other dispute arises.
Although a lot of these bait and switch scams frequently occur subtly—e.g., within the context of change orders—some dishonest contractors are more direct about things, and simply demand more money once they’ve started tearing things apart.
Poor Workmanship
In most cases, contractors are required not only to perform their work in substantial compliance with the project’s plans and specifications, but also to ensure that their work is performed in accordance with accepted trade standards for good and workmanlike construction. [Workmanlike” is an industry term that basically means that the work must be as good as other typical contractors in the area performing the same type of work.]
In other words, contractors are required to perform their work according to generally accepted standards of care, and when their work falls below those standards, they can be held liable.
Faulty Materials
As part of a contractor’s obligation to perform work in accordance with accepted trade standards (i.e., in a workmanlike manner), contractors are required to use the proper building materials. The issue of using improper materials occurs most often in a couple of different ways. For example, where a construction contract doesn’t specify specific materials from specific manufacturers (e.g., Pella windows), some dishonest contractors will simply buy the least expensive (i.e., cheap) materials regardless of their fitness, safety, or reliability.
Sometimes, a contractor will charge the homeowner a premium price for specific materials from a specific manufacturer, but then actually use generic materials while pocketing the difference. Of course, this scenario would typically only occur in a case where the switch wouldn’t be obvious. [So, for example, in the case of the Pella windows referenced above, a contractor probably wouldn’t try to get away with a switch because it would be too obvious to spot.]
To be clear, therefore, the law prohibits a contractor who is trying to save money (and thus pocket more) from using substandard materials, or materials not designed for their intended use. And, in cases where a contractor specifies the use of certain materials, the law prohibits a contractor from substituting other materials unless (i) the contracted materials are unavailable, and (ii) the contractor notifies the homeowner and/or the homeowner otherwise agrees to the switch.
Property Damage
Sometimes, during the course of a project, a contractor will damage something on your property. For example, a tractor used to help dig a hole for the pool you’re building might crack your hardscape or run into the side of your home, causing damage. In such cases, as you might expect, the contractor is legally obligated to fix the damage by putting the property back to the way it was before the damage occurred. And, when the damage is obvious, such as in the case of the example with the tractor, you’ll rarely hear about a contractor refusing to fix the problem.
More often, this issue arises when a contractor does far more subtle damage to your property. For example, suppose during the digging process referenced in the example above, one of the workers causes a small leak in a water pipe. Depending of course on the size of the leak and the type of pipe damaged, it’s entirely possible that you might not notice the leak for some time. In such cases, where it’s a bit harder to prove causation, many dishonest contractors will deny responsibility, and instead blame the issue on some other cause.
Unpermitted Work
Contractors are required by law to abide by state and local building codes. State and local building codes require obtaining permits for a variety of improvements/construction projects. While some contracts leave the responsibility of obtaining the necessary permits to the homeowner, most of the time it’s the contractor who has that obligation. This, of course, makes a lot of sense because contractors are the ones who are most familiar with a municipality’s permit requirements.
Building Code Violations
State and local building codes exist to ensure that your home is properly constructed and safe for habitation. Contractors are tasked with being familiar with the applicable building codes as part of their licensing, and when a contractor is either unfamiliar with relevant code requirements, or opts to ignore them to cut corners, it can (and does) cause significant problems for homeowners. Indeed, if the city ultimately refuses to permit the work performed on your property, it will be on you to fix the problem—not your contractor. That could mean hiring (and paying) and new contractor to start over again.
Work by Unlicensed Contractors
In California, any contractor performing work of $500 or more—including labor and materials— must have a valid contractor’s license. While it’s true that licensed contractors are almost always more expensive than unlicensed contractors, this is one of those situations where more often than not, you get what you pay for. Aside from the fact that licensed contractors have presumably met requirements set by the State of California to ensure proficiency in their field of expertise (e.g., plumbing, electrical, etc.), choosing to use an unlicensed contractor can result in serious liability to you.
The most obvious example lies with the fact that many unlicensed contractors lack any (or sufficient) liability/bodily injury insurance or worker’s compensation insurance—both of which the law requires general contractors to have. If the unlicensed contractor (or one of the contractor’s workers) is injured on your property, the law holds you, the homeowner, liable. This is because an unlicensed contractor is treated by the law as your employee. Even worse, depending on your homeowner insurance policy, you might find that an unlicensed contractor injured on your property won’t actually be covered, resulting in your being personally liable for what could amount a fortune in medical bills that you’ll have to pay out of pocket.
As an example, there was a case in California involving an individual who owned a few hundred acres of mostly undeveloped property in Shasta County (located in very northern part of California) that he used primarily for hunting. The property has a barn, a small house, and a bunkhouse that sleeps about 6 people. This individual hired an unlicensed contractor to make various repairs to the barn. While preforming the repairs on the barn, the contractor decided to burn a pile of trash he’d found in the barn. The contractor somehow lost control of the fire and it ended up burning up several thousand acres before Cal. Fire gained control. The State of California sued the property owner for over $3.5 million in damages because as an unlicensed contractor, the property owner was the contractor’s employer, and thus responsible for the damage done.
While there are a lot of well-meaning unlicensed contractors (often billing themselves out as handymen or handywomen), you’re better off sticking to contractor’s whose licenses you can actually verify. But, for those unlicensed contractors who have no problem with engaging in outright theft and fraud, if you pay attention, you can go a long way toward protecting yourself from becoming a victim of those crooks. For example, you should be on guard with any contractor who:
- solicits you by knocking on your door;
- claims that they can save you money because they have leftover material from another job;
- provides you with an unsolicited “free inspection,” and then points out things that need to be repaired (especially if they also apply pressure tactics to get a quick commitment);
- can’t show you their pocket license from the Contractors State License Board;
- use PO Boxes or UPS Store addresses; or
- demand to be paid in cash.
To be sure, while you’ll very likely save money going with an unlicensed contractor, doing so brings with it a whole host of risks that in the long run may not be worth it.
Fraud and Misrepresentation
Contractors may not engage in any willful acts that results in substantial injury to another (like fraud does). Nondisclosure, intentional misrepresentation, and concealment are forms of fraud that frequently arise in the context of contractor disputes. Generally speaking, contractor fraud occurs when your contractor makes a misrepresentation to you that the contractor knows to be false, that you relied upon, and that caused you financial damage.
For example, a common scam that unscrupulous contractors engage in involves their “discovering” a previously unseen (and non-existent or greatly exaggerated) defect/condition that requires additional work and materials (and, of course, a change order reflecting a substantial increase in the contract’s price) to “fix” the supposed problem. Other examples of contractor fraud many homeowners typically see include things like falsifying change orders, substituting inferior or generic materials/supplies, billing for work that was never performed (i.e., skipping work that the homeowner paid to have done), collecting a deposit and then disappearing, or intentionally providing an unreasonably low bid to win a contract. [That last example is the main reason why the construction contract you enter into with your contractor must be detailed enough to describe everything that has to be done to complete the project.]
Negligent misrepresentation occurs when a contractor makes a representation to you that the contractor had no reasonable basis to believe was true (e.g., your contractor tells you that the new bathroom he/she installed doesn’t require any permitting, and then you subsequently find out, when you put your property up for sale, that the contractor was wrong). While unintentional (or negligent) misrepresentation doesn’t quite rise to the level of fraud, the conduct still involves serious wrongdoing by the contractor.
Mechanics Liens
Simply put, a mechanics lien is a legal claim against someone’s property intended to secure payment to a contractor or materials supplier who wasn’t paid for work performed or supplies delivered. Because a mechanics lien can result in a forced sale of your property, there are strict controls and timelines governing their use. For example, your contractor has to record a mechanics lien within the earlier of 90 days after completion of the project, or 60 days after you file a notice of completion (see Q&A section), while subcontractors or suppliers hired by your contractor must not only serve you with a preliminary lien notice within 20 days of starting their work (or delivering their supplies), but they must also record their liens within the earlier of 90 days after completion of their work or 30 days after you record a notice of completion.
One of the more common difficulties that a homeowner might face is what to do when they’ve paid their general contractor, but the general contractor has failed to pay one or more subcontractors. Subcontractors can record liens for non-payment too. That is why it’s so important for homeowners to take steps to ensure that the contractor actually pays the subcontractors.
Just remember that an unscrupulous contractor may use the threat of a mechanics lien to force you into paying money for things that you didn’t necessarily agree to knowing full well that you’ll probably do everything in your power to avoid the hassle of dealing with a mechanics lien. And while wrongful mechanics liens can be removed, doing so requires court intervention. So it’s better to avoid the problem altogether.
While a homeowner facing an invalid mechanics liens can force the lien’s removal (and in some cases, may be entitled to reimbursement for attorneys’ fees—e.g., Civ. Code, § 8488), it’s much better if a homeowner can avoid the problem entirely.
The two most common ways to avoid having a mechanics lien recorded against your property in the first place are: (i) obtaining a conditional or unconditional release and waiver; or (ii) making all progress payment checks jointly to the contractor and subcontractor. Regarding the former, you can obtain conditional and unconditional waiver and release forms from the contractors state license board website (cslb.ca.gov). If a contractor refuses to provide you with a lien release form (signed by the contractor and any applicable subcontractors), you may legally withhold any future payments due. So, you should obtain the waiver and release forms every time you make a payment.
Finally, although it doesn’t avoid the recording of a mechanics lien, recording a Notice of Completion as soon as the work is completed does trigger the tight timelines set by law for contractors and subcontractors to record and sue on their mechanics liens.
CONCLUDING THOUGHT
The larger the construction project, the more anxiety homeowners feel—and not just because they have to live with the inherent noise and mess that go hand-in-hand with construction, but also because of the horror stories they’ve heard about bad contractors. And there are a lot of bad contractors. At least now, you’re armed with some information about the most common types of disputes you might face with a contractor.