When it comes to securing the final payment from your client on an extensive custom renovation or new home that is done on your client’s property, my advice is: Do not let your client get ahead of you when you are in the final stages of completing their project. However, I can tell you from experience, it is so much easier to say, or write about, than it is to accomplish.
Our company’s client contract addresses this exact concern. Its key elements are as follows:
- We require two initial payments: the first is a deposit that is held to be applied to the final payment; the second is to fund the client’s operating account, which we use to pay all project costs as well as our builder management fee (we build open-book).
- We have the right to request funding of the operating account every 14 days and we require a minimum balance in the account.
- We have the right to stop the job when a funding request is delinquent, which is seven days after our client receives the request.
- We have a clause in our contract that states: “No funds shall be held back for issues related to quality or completeness of the construction in place.”
- We have the right to lien the property; however, I was informed recently by my lawyer that New Jersey law states that a contractor has the right to lien a job, even if he does not include this language in his contract. Check with your lawyer about the lien laws in your state, as they vary significantly and typically need to be strictly adhered to in order to be applicable.
Do not let your client get ahead of you
So, per our agreement we have protections built in, right? Maybe so, but candidly, our recent track record is not so good. Presently one client is far ahead of me financially. My lawyer prepared the liens and we may file them at any time. His home is very close to completion. We have a $25,000 deposit from him. We had a $50,000 operating account minimum. We stopped the job once for a few weeks right after sheetrocking his 6,000-sq.-ft. custom home. He made payments so we restarted the job. I allowed the job to proceed when he became delinquent again. In retrospect, I should have stopped the job a second time but that is easier to say than do. There are many complexities to issuing the stop-work order. As I write this column, I do not know if I have made the right choices; he owes significantly more than his deposit.
We have the right to lien the property
Despite the safeguards we have, other clients have managed to get to the completion of their job and be ahead of us. Past clients weren’t as bad as this worst-case client, but enough so that we kept refining and perfecting their home after completion until absolutely no punch items — no matter how small or how unreasonable — were ever denied or left undone. This is a very tough way to get a final payment.
Perhaps you have your own final payment war story you would like to share? Perhaps you have advice for me. If you want to weigh in with some input, feedback or questions, please e-mail your comments to firstname.lastname@example.org. I look forward to hearing your thoughts on this subject!