OVERVIEW
The larger the residential 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 home improvement or construction, but also because of the horror stories they’ve heard about bad contractors. A good home improvement contract—i.e., one that provides maximum protection for the homeowner—can go a long way toward reducing that anxiety. In this article, I’ll discuss not only the legal requirements related to home improvement contracts in California, but I’ll also discuss certain critical contract provisions that all homeowners should insist be included in the contracts with their general contractors.
HOME IMPROVEMENT CONTRACT REQUIREMENTS
It would be helpful to start by defining what I mean by “home improvement.” In the context of home improvement contracts, California law defines “home improvement” to mean, among other things: (i) an agreement between a contractor and homeowner (or tenant) for work to be performed at the owner/tenant’s home; (ii) that is valued at over $500; (iii) that includes all “labor, services, and materials to be furnished.”
When it comes to home improvement contracts, California law goes far in attempting to protect homeowners from unscrupulous contractors by requiring, for example, the following:
- for handwritten portions of the contract, the writing must be legible;
- for preprinted portions of the contract, the text, including any headings, must be in at least 10-point typeface;
- the first page of the contract must include: (i) the date the owner signed; (ii) the name and address to which the homeowner must send any cancellation notice;
- a statement that, upon payment of each phase of the project, the contractor will provide an unconditional release from any potential mechanics lien claimants ;
- a statement indicating that change orders will be made part of the contract once they’re signed;
- a statement that the owner has a right to require the contractor to have a performance bond;
- a statement (in 12-point boldface type) that the down payment cannot exceed 10% of the total project price or $1,000, whichever is less;
- approximate commencement and completion dates;
- specified information regarding the contractors state license board’s contact information;
- information about the contractor’s workers compensation coverage (or a disclosure that the contractor does not have such coverage);
- information about the contractor’s liability insurance (or a disclosure that the contractor does not have liability coverage); and
- a three-day right to cancel notice (or seven days if the work is related to damage caused by an emergency declared by the government).
As far as the law goes in protecting homeowners, however, the law is not always enough. A home improvement contract that is in compliance with the statutory requirements described above might still not be sufficient to adequately protect a homeowner. And that’s where an informed homeowner can step up to protect him or herself.
“MUST HAVE” HOME IMPROVEMENT CONTRACT PROVISIONS
1. The Contractor’s Information
California law requires all home improvement contracts to contain the name, business address, and license number of the contractor. This makes sense. As I discussed in my prior article, “Disputes Between Homeowners and Contractors,” working with an unlicensed contractor can spell disaster for you. Not only will the law consider the unlicensed contractor to be your employee, and thus hold you legally responsible for any damage or injuries caused to someone else (e.g., your contractor’s backhoe damages your neighbor’s property), but if your unlicensed contractor is injured on your property, you will be held personally liable for all of his or her medical bills.
Ensuring that your contractor has a license (which you can and should verify by checking with the Contractors State License Board) and that your contractor actually has a physical business address (as opposed to people who solicit door-to-door), are both in your best interest.
2. Description of the Work
Every home improvement contract must include a detailed description of the work to be performed. Before getting to the specifics of what means, you should know that California law actually requires contractors to use a specific heading for this section of the contract. “Scope of Work” or “Work to be Performed” are not sufficient. Instead, the provision of the home improvement contract that details the description of the work must be titled “Description of the Project and Description of the Significant Materials to be Used and Equipment to be Installed.” [There are additional requirements in the case of swimming pool installations, but those are beyond the scope of this article.]
So, how detailed should the description of work, materials, and equipment be? If you’re the homeowner, the more detail, the better. For example, suppose you’re going to have walnut floors installed in your living room. How should that work be described?
BAD: Contractor will install walnut wood floors in the living room.
GOOD: Contractor to demolish and remove existing flooring in living room, prepare the underfloor for new install, and install ACME Premium engineered walnut floors (5/8″ x7-.5″x86.6″) per the plan drawings. Flooring to be installed in diagonal herringbone pattern, espresso stain. Baseboards shall be removed, sanded, repainted, and reinstalled after new floor is installed.
The point is to include as much detail as possible. Notice that the GOOD provision above includes not just the installation of the new wood flooring, but also the demolition and removal of the old flooring, as well as the necessary prep work prior to, and after, installation of the new flooring. And, of course, notice that the description regarding the new wood flooring identifies the manufacturer, description, color, and size of the flooring, as well as the intended color and configuration for the floor (e.g., diagonal, straight, chevron, herringbone, etc.).
3. The Total Price of the Project
Your home improvement contract should absolutely include the total price that you’re expected to pay for the project, from commencement to completion. That price should include not just the price of the contractor’s labor, but also the cost of all of the materials, applicable state/local fees (e.g., application and permit fees, etc.), and even HOA-related fees (if the contractor is handling the application process for you).
And like the Description of Work section above, here too California law requires that this section of the contract be titled “Contract Price.”
4. Payment Schedule
Not all home improvement contracts contain a schedule of payments because sometimes the project is too small to merit such a thing. For example, if you’re hiring a plumber to install new piping in a portion of your home, there might not be any down payment or progress payments. Rather, the contract might just call for you to pay upon completion. In a lot of cases, however, the project will include certain milestones, and contractors often want to be paid at the completion of each such milestone.
For example, let’s say that you’re hiring a contractor to renovate your master bathroom. In such a scenario, the contractor might want to be paid after completion of the: (i) demolition stage (knocking out the old bathroom, fixtures, etc.); (ii) framing; (iii) installation of new fixtures; and (iv) painting. In such cases, you want to make sure that your contract contains clearly labeled, unambiguous progress points, as well as the specific amount due upon completion of each such progress point (or phase) and the materials/equipment to be supplied.
And like certain other sections discussed above, for those home improvement contracts that do contain required progress payments, the section of the contract containing that payment schedule must be titled “Schedule of Progress Payments.”
5. Start and End Dates
These are two of the provisions discussed above that all home improvements contracts must include, and here too the law requires those sections to be titled a certain way (“Approximate Start Date” and “Approximate Completion Date,” respectively). In addition to the dates, however, it might also be a good idea to include a list of “acceptable” delays to those dates (with the flip side being that any other delays would be “unacceptable”).
For example, obviously if there’s a problem with obtaining supplies (due to a labor or materials shortage, for example), a contractor might not be able to start on a timely basis, and you may want to let the contractor off the hook in such a case. If, however, this contractor made representations about his or her having the requisite supplies, or if you selected the contractor over another because your contractor promised that the start date would remain firm no matter what, then you might prefer to have the contract specify the firmness of the start date, regardless of what could happen with supplies or materials.
6. A Description of Available Warranties
When it comes to warranties, I’m referring to two types: (i) product warranties; and (ii) project guarantees.
Product warranties, often referred to as manufacturers’ warranties’, are the warranties that manufacturers offer to ensure that the all the fixtures, equipment, or products used in your project will work as intended. Your contractor should include as an attachment to the contract a copy of each existing warranty (when they come in) available for all products purchased for your project. On a related note, you can ignore those postcards that manufacturers often request be filled out and returned, as they really only serve one purpose. Without the cards, manufacturers won’t have a way to reaching you to notify you of product recalls.
Home improvement guarantees, a relatively recent phenomenon, serve as an extra layer of protection for homeowners by basically guaranteeing that the projects are completed according to the the requisite specifications spelled out in the home improvement contract. The guarantees help avoid litigation by ensuring that there is a third party (the guarantor) out there willing to guarantee the successful outcome of your project. You see these types of guarantees most often from home improvement chains like Lowe’s or Home Depot.
7. Change Orders
All home improvement contracts are required to have a provision regarding change orders. The headings of such provisions must be entitled “Extra Work and Change Orders,” and must include a statement that: “Extra Work and Change Orders become part of the contract once the order is prepared in writing and signed by the parties prior to the commencement of work covered by the new change order. The order must describe the scope of the extra work or change, the cost to be added or subtracted from the contract, and the effect the order will have on the schedule of progress payments.” The law also requires additional things to be disclosed, which you can review at your leisure.
A good home improvement contract will include a sample change order as an attachment to the contract, and a change order design will make it easy to quickly determine all the important information (e.g., the scope of the new work, the adjusted price, and what affect, if any, the change will have on the expected completion date).
8. Subcontractors
A subcontractor is a type of contractor, except it’s not the contractor who the homeowner directly contracted with. Rather, it’s a contractor that the general contractor has decided to hire to perform a specific part of the overall project. Because homeowners don’t directly contract with subcontractors (i.e., they are not in “privity” with the subcontractors), and thus often have no idea who they are, homeowners have to be more vigilant in avoiding mechanics liens.
Although not required, a careful homeowner will want the contractor to identify who all of the subcontractors scheduled to perform work or provide supplies are. The purpose of this is to make it easier for the homeowner to check licenses and, as I implied in the prior paragraph, prevent mechanics liens.
9. Mechanics Lien Notice
In short, a mechanics lien is a legal claim against the property of a homeowner aimed at securing payment owed to a contractor (or subcontractor) or materials supplier who wasn’t paid for work performed or supplies delivered. Every home improvement contract must include a mechanics lien notice, and the title of the heading must be “Mechanics Lien Warning.”
The specific language used in the notice can be found in the statute.
10. Miscellaneous Provisions
In addition the provisions discussed above, as well as some of the unstated required provisions contained in the statute, homeowners should also insist on a provision that:
- awards the prevailing party in any litigation its attorneys’ fees and costs [a lot of contractors don’t like attorneys’ fees provisions because they are already protected from a homeowner’s breach under the power offered by mechanics liens, while homeowners have no such reciprocal protections when it’s the contractor who breaches the contract];
- details who is responsible for obtaining all building permits and ensuring that all necessary inspections occur;
- requires the contractor to remove all debris and trash;
- makes it clear that any property damage must be addressed by contractor’s insurance company (not the homeowner’s); and
- ensures that the contract is the “final” agreement between the parties (also known as an integration clause).
CONCLUDING THOUGHT
While California law provides a series of powerful protections for homeowners hiring contractors to perform home improvement work, homeowners can do a lot to protect themselves by ensuring that their home improvement contracts contain provisions aimed at protecting them, as opposed to the contractor.