General Contractors: What to Include in a Home Improvement Contract
You have agreed to do some remodeling work for a homeowner. They seem really nice and innocent. So, you decide not to waste time with a written contract. Worse yet, you don’t even have a basic home improvement contract. You think, these are nice people, what can go wrong? Short answer is, a lot can go wrong. You could lose your right to get paid for all the work, end up in court, under investigation with the Contractor’s State License Board (CSLB) and have your license at risk, and even face a misdemeanor charge.
To avoid these consequences, it is best to have a detailed and complete Home Improvement Contract. Here’s a checklist to make sure your Home Improvement Contract meets the legal requirements:
- The contract must be in writing. All changes to the contract must also be in writing. That means, change orders should be in writing. The contract should be identified as a “Home Improvement Contract.”
- The contract must contain the name, business address and license number of the contractor and if a salesperson was involved, their name and registration number.
- The following notice must be included in 12 -point boldface type: “You are entitled to a completely filled in copy of this agreement, signed by both you and the contractor, before any work may be started.”
- Include “Description of the Project and Description of the Significant Materials to be Used and Equipment to be Installed” and be as detailed as possible to avoid any misunderstanding. You may reference plans and specifications, but make sure to use the date of the plans and specifications to avoid any confusion. You may also include “exclusions” in this section.
- Include the “Contract Price.” An itemized list of costs is a good idea. If you are providing certain allowances, make sure you include the maximum price for the allowances. If a finance charge will be charged, use a heading for “Finance Charge” and include the amount of the finance charge.
- You cannot demand a large down payment before work gets started. The maximum down payment a contractor can demand is $1,000. If the contract amount is less than $10,000, then 10% down payment is the maximum that can be requested. Under the heading of “Down Payment” in 12 point boldface type, include the following notice: “The down payment may not exceed $1,000 or 10 percent of the contract price, whichever is less.”
- If you are planning to collect payments as you make progress on the project, include a section entitled “Schedule of Progress Payments” and list the description of the portion of the work performed and the corresponding progress payment to be made upon completion of said work. In this section, include the following notice in 12-point boldface type: “The schedule of progress payments must specifically describe each phase of work, including the type and amount of work or services scheduled to be supplied in each phase, along with the amount of each proposed progress payment. IT IS AGAINST THE LAW FOR A CONTRACTOR TO COLLECT PAYMENT FOR WORK NOT YET COMPLETED, OR FOR MATERIAL SNOT YET DELIVERED. HOWEVER, A CONTRACTOR MAY REQUIRE A DOWN PAYMENT.”
- The contract should describe the work schedule, by stating when the work will start under “Approximate Start Date” and when the work will be completed under “Approximate Completion Date.”
- Before starting work, a copy of the contract signed by both the homeowner and the contractor must be given to the homeowner.
- No part of the contract should be in a font size smaller than 10-point. That means, no “fine print.”
- If there is a salesperson’s commission on the contract price, then the salesperson gets paid his/her portion as the contractor gets paid, not up front. The contract must contain the name and registration number for the salesperson.
- Include the following notices to consumer:
“Extra Work and Change Orders become part of the contract once the order is prepared in writing and signed by the parties prior to commencement of any 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 following additional notices must also be provided to the homeowner with the contract or as part of the contract:
- Commercial General Liability Insurance
- Worker’s Compensation Insurance
- Performance of Extra or Change-order Work Notice
- Mechanic’s Lien Warning
- Contractor’s Board Notice
- A “Three-Day Right to Cancel” notice must also be provided. The Notice of Right to Cancel should state the deadline for the homeowner to cancel and include a blank signature line for the homeowner to sign to declare his/her intention to cancel
If your Home Improvement Contract does not comply with the above requirements, you may be subject to discipline by the CSLB. Certain violations such as failing to include the contract amount, overcharging on the down payment or accepting payment that exceeds the value of the work may be misdemeanors punishable by a fine and/or imprisonment in county jail. In addition, collection for the work performed may be problematic without a contract that meets the above requirements.
© 2017 Marina Manoukian