Always, always sign a written contract, no matter how small the home improvement job. Taking the time to write a solid contract is as important as hiring a good contractor. Here's what to include.
- Contractor's business information. The contract should include the contractor's name, business name, business address, business telephone number, email address, and contractor's license number (if your state requires that contractors be licensed). If a salesperson for the company negotiated the construction contract, the contract should also include that person's name and salesperson registration number (if required by your state).
- Work schedule. Include the approximate dates that the project will begin and end, as well as the time of day, and days of the week, that the workers will show up.
- Description of project. The contract must contain a detailed description of all work to be performed. Include drawings showing the shape, dimensions, and other details of the project. Specify that the contractor is responsible for cleanup and obtaining necessary building permits.
- Description of materials. Include a detailed description of all materials to be installed -- including colors, sizes, and brand names.
- Total price. Include the total cost for all aspects of the project.
- Down payment. Include the amount of any down payment and when that initial payment is due. Some states limit the amount of down payment that the contractor can charge.
- Payment schedule. Condition each payment upon completion of a specific portion of the project. The contract should specify the amount of each payment and what work must be performed in order for the payment to become due.
- Provisions to protect against mechanic's liens. A mechanic's lien may be recorded against your property by a subcontractor or materials supplier if the contractor does not pay them for work done or materials supplied for your project. Subcontractors and suppliers can do this even if you paid the contractor in full. If the lien holder does not get paid, he can eventually force the sale of your home. There are several ways you can protect yourself against mechanic's lien problems:
- Include a "retention of funds" clause specifying that a certain percentage of the project price (for example, 10%) will not be due until a number of days after completion of the entire project (the number should correspond to when the right to file a mechanic's lien expires, which is often shortened if you file a Notice of Completion). This ensures that you do not make final payment until the mechanic's lien rights of subcontractors and suppliers expire.
- Include a clause in the contract which requires the contractor to obtain lien releases from all subcontractors and materials suppliers before you make the final payment.
- Include a requirement that the contractor obtain a payment bond. This is similar to an insurance policy -- it requires that the bonding company pay all mechanic's liens recorded against your property.
- Make checks out jointly to the contractor and subcontractor. The idea is that the subcontractor won't sign off on the check until having been paid. (To learn more about mechanic's liens and how to head off problems, see Nolo's article Mechanics' Liens From Home Improvements.)
- Warranties. The contract should include all warranties and guarantees from the contractor, subcontractor, and material suppliers.
- Notice of right to cancel within three days. According to federal law, if the home improvement contract was signed at your home or at a location other than the seller's permanent place of business, you have the right to cancel the contract within three days. The contract should include this notice.
- Special instructions. Include anything that you may be concerned about -- such as where materials and tools will be stored during the project or special instructions regarding pets or children.
- Arbitration clause. Many standard home improvement contracts contain a mandatory binding arbitration clause. This means that if you have a dispute with the contractor, you give up your right to go to court. Instead, you agree to submit the dispute to binding arbitration. There are advantages and disadvantages to arbitration. Before you sign a contract with such a clause, make sure you understand arbitration and its pros and cons. To learn more about arbitration, see Nolo's Mediation, Arbitration & Collaborative Law topic.
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