Take precautions before signing a remodeling contract

By Benny L. Kass
Friday, March 11, 2011; 2:53 PM

When planning major home renovation, there are many steps you have to take to find the right professionals, including the contractor and perhaps an architect. It's equally important to take steps to protect your legal interests - and to do so early in the process.

Word of mouth is the best way to find a contractor, and a check with the Better Business Bureau can help ascertain whether any complaints have been filed against the contractor. Before you commit to the project, you or your attorney should also review court records in your jurisdiction to determine whether there are any lawsuits pending against the contractor. This information is publicly available from local courts and online (search the Internet for "court cases" in your state), although some records are accessible only by attorneys.

Before you sign any contract, call the licensing board in your state, county or city. Make sure that the appropriate licenses have been issued and are current.

There are precautions you should take when negotiating the price of the job. Will this be a fixed price or a time-and-materials contract? The latter means you will be paying the contractor an hourly fee for the work done by that contractor and any subcontractors he hires to work on your house.

If it is a time-and-materials contract, make sure you get in writing the maximum hourly rate and a requirement that you will get a weekly accounting of how many hours were worked and by whom. I have been involved in cases where the contractor padded his hours. We discovered this when the homeowner said he was at home one day and no one showed up, despite the fact that he was billed for six hours of work.

You always need a written contract. Many contractors use what I call the "two-page special." This is a simple contract that merely states who the contractor is, a very general description of the work to be performed and the total cost.

This is not in your best interest.

The American Institute of Architects, at aia.org, publishes a number of contract forms for use by homeowners, architects and contractors, and you should insist that your contractor use one of them. One such form is A105, a standard agreement between owner and contractor for a residential or small commercial project. Form A107 , which is more comprehensive, can also be used for projects of limited scope.

An AIA form contains many provisions that will protect you. For example, it addresses what warranty you would get for the work. It will state that any changes in the scope of work must be in writing. There will be a schedule of when you have to make periodic payments. The contract also addresses what would happen if the contractor were to walk off the job and the rights you would have if you are dissatisfied with the quality or timeliness of the job.

Perhaps the most important provision addresses how much money you will hold back until the job is finished to your satisfaction and you get a written release of liens from the contractor and all subcontractors. I like to see a 15 percent retention of the total price, but no less then 10 percent.

What can you do if, once your contractor has concluded he has completed the job, you are not happy with a number of items?

The AIA contract provides for arbitration of disputes, such as what constitutes a completed job. You can contact the American Arbitration Association at adr.org or 800-778-7879 to get more information about the process and the costs involved. If there is an arbitration requirement in your contract, you cannot file a lawsuit. And in many situations, arbitration may be much less expensive - and faster - than the court system.

What would happen if, after work has begun you learn that your contractor did not have the appropriate license? The laws vary in the different jurisdictions within the Washington area.

District of Columbia laws provide the best consumer protection in the metropolitan area. If you have paid an unlicensed contractor $300 or more up front, you are entitled to get back all of the money you paid him. It does not matter that you knew the contractor was unlicensed when you started the job, nor how good the work is. According to D.C. law, no person shall accept payment for a home improvement contract in advance of full completion of the work without a home-improvement license issued by the District's Department of Consumer and Regulatory Affairs. The public policy of the District is to penalize contractors who do not have that license.

Across the Potomac, the Virginia Board for Contractors issues different classes of licenses depending on the dollar amount of the job. For example, Class C contractors can perform work on single jobs that cost more than $1,000 but not more than $7,500. Yearly they are not to exceed $150,000 for all jobs.

It is a misdemeanor, punishable by fine (and perhaps jail) for a contractor to work without a license. Additionally, it may be a violation of the Virginia Consumer Protection Act, which allows recovery of treble damages and attorneys' fees if the homeowner is successful in court.

In Maryland, as in the District, unlicensed contractors are not entitled to recover if they sue the homeowner for breach of contract. The Maryland Home Improvement Commission regulates contractors. It is a misdemeanor not to have a license, and upon conviction, the contractor can be fined up to $1,000 or imprisoned for up to 30 days.

If the contractor is licensed in Maryland, homeowners can recover as much as $20,000 from the Home Improvement Guaranty Fund for losses caused by poor or incomplete work.

Before you sign up with a home improvement contractor, do your homework. Too many homeowners have found themselves having paid 80 percent or even 100 percent of the contract price, only to see the contractor walk off the job having done less than 75 percent of the work. With careful planning - and with a fair and balanced contract- you will be in the driver's seat.

Benny L. Kass is a Washington lawyer. This column is not legal advice and should not be acted upon without obtaining your own legal counsel. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036.

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