The Value of a Good Contract

Every remodeler works with a contract, and if you don’t, you should. A good contract protects you and the homeowner. How much attention have you put into creating a contract that has been reviewed by an attorney to confirm you meet all required federal and state laws?

Let me share my experience: When I was still doing remodeling work in the Washington, D.C., area, I got a copy of a contract from a very successful contractor in the area. I thought if it worked for him, it should work for me. I used his contract to create my own. I know this was very naïve, but I don’t think I was that unusual. How many other remodelers reading this have “borrowed” contract wording from another agreement and used it in their own agreements?

It happens a lot. The problem is that some real issues can arise when we don’t understand the penalties for working with an incomplete contract. I’ve been speaking with attorney D.S. Berenson, whose law firm, Great Falls, Va.-based Berenson LLP, serves as general counsel to Arlington, Va.-based NAPAC (National Association of Professionally Accredited Contractors). He shared some very sobering stories about what happens when there are negligent contract omissions.

Example 1: There is a multiproduct home-improvement company in New Jersey that lacked some necessary financial disclosure information in its contracts. A different attorney recognized the aforementioned company agreement lacked the financial disclosures required by New Jersey law. This attorney saw an opportunity and has filed a class-action lawsuit against the home-improvement company for $100 million. Win or lose, the home-improvement company will spend hundreds of thousands of dollars defending itself against this lawsuit. The attorney who recognized the financial disclosures were missing may have generated a very attractive settlement if he chooses to settle this out of court.

Example 2: A contractor in California who had never been sued and had an A rating with the Better Business Bureau got into a disagreement with a senior citizen. The senior citizen wanted to rescind her contract, and the contractor was slow to respond. Although the contractor eventually returned her $200 deposit and canceled the contract, the senior citizen had gotten upset waiting for him to return her money. She filed a complaint with the district attorney and the DA began an investigation. The DA discovered the contractor’s agreement violated some California contract statutes. Between fines levied by the DA and attorney fees, the contractor was forced out of business.

Example 3: A window-installation company in Delaware completed a $22,000 job. After the project was completed, the window-installation company received notice the homeowner was suing the company because it didn’t properly disclose the homeowner’s right of rescission. In Delaware, state law requires the right of rescission be printed in a different-color ink from the general wording in the agreement to make the contract legal. Let me repeat that: The right of rescission must be printed in a different-color ink to make the contract legal. The homeowner took the window company to court, and when the judge determined the right of rescission was not properly highlighted with a different-color ink, he sided with the homeowner and voided the contract. The homeowner received a $22,000 window job for free.

Could this happen to you? The unfortunate answer is “yes.” Ignorance is not an excuse, and if you find yourself in court, in many ways you have already lost. During my remodeling career, I once was sued by a homeowner. The lawsuit was dismissed when it went before a judge, but the legal fees and all the worry that accompanied the suit made it a very unpleasant and expensive experience.

I have a very generous offer for you: The people at NAPAC have agreed to do a contract evaluation for any contractor who wants to submit his or her contracts for review. NAPAC does business in all 50 states, so its review will evaluate the state requirements for where you do business. To get your free contract review, scan the front and back of the contract and send it to Confidentiality is guaranteed. For more information, you also can call NAPAC at (800) 224-6155.