Requirements for Home Remodeling Contracts and Home Improvement Contracts in California Law
Requirements for Home Remodeling Contracts, "Home Improvement Contracts”, “Home Solicitation Contracts”
and Residential Swimming Pool Contracts under California Law, and Homeowners Cancellation Rights and other Legal Protections.
and Residential Swimming Pool Contracts under California Law, and Homeowners Cancellation Rights and other Legal Protections.
The California General Assembly has imposed stringent requirements on contractors performing improvement, repair or remodeling work on “residential” properties, and on such contracts entered into at one’s home or other than at the contractor’s offices.
Because these provisions are designed to protect owners of residential property, they are one of the most frequent grounds for disciplinary actions against contractors by the Contractors State License Board.
Thus, is quite important that both property owners and contractors be aware of and follow the requirements of and protections afforded by these statutes.
Most of these laws are found in the California Contractors State License Law, in the California Business and Professions Code, portions of which can be found at: http://www.leginfo.ca.gov/cgi-bin/waisgate?WAISdocID=821196120+0+0+0&WAISaction=retrieve
"Home improvement" as defined in Bus & Prof Code § 7151 means the repairing,
remodeling, altering, converting, or modernizing of, or adding to, residential property and shall includes, the construction, erection, replacement, or improvement of driveways, swimming pools, including spas and hot tubs, terraces, patios, awnings, storm windows, landscaping, fences, porches, garages, fallout shelters, basements, and other improvements of the structures or land which is adjacent to a dwelling house, among other things
A "Home Improvement Contract" means an agreement, whether oral or written, or contained in one or more documents, between a contractor and an owner or between a contractor and a tenant, regardless of the number of residence or dwelling units contained in the building in which the tenant resides, if the work is to be performed in, to, or upon the residence or dwelling unit of the tenant, for the performance of a home improvement as defined in Section 7151, and includes all labor, services, and materials to be furnished and performed, and other activities set out in Bus & Prof Code § 7151.2.
Even though an “Home Improvement Contract” can be an oral contract for Home Improvement work, to comply with the Contractors State License Law, the contract must be in writing, must be legible, and if it is preprinted form must not be in minuscule type or fine print.
Before any work is started, the contractor is required to give the property owner - and the property Owner should INSIST upon receiving - a copy of the contract, signed and dated by both the contractor and the buyer.
The buyer's receipt of the copy of the contract initiates the buyer's Rights to Cancel the contract pursuant to Sections 1689.5 to 1689.14, inclusive, of the Civil Code, in the case of Home Solicitation Contracts, which are discussed below.
The contract also must state that, upon satisfactory payment being made for any portion of the work performed, the contractor, prior to any further payment being made, shall furnish to the person contracting for the home improvement or swimming pool work a full and “Unconditional Release” from any potential lien claimant claim or Mechanic's Lien authorized pursuant to Section 3110 of the Civil Code for that portions of the work for which payment has been made.
(Each time the owner makes a payment he or she should insist on receiving a “Conditional Release” of Mechanics Lien from both the General Contractor and all subcontractors who have worked on the job in the period preceding the payment, especially if the subcontractors or suppliers have served the Owner with a Preliminary Notice, sometimes referred to as a Pre-Lien Notice or 20-day Notice. See our related article regarding mechanics lien releases on this website, or at http://www.wolfflaw.com/Articles/)
The Home Improvement Contract should also include a change-order form for changes or extra work change orders which are incorporated into the contract and become part of the contract only if they are in writing and signed by the parties prior to the commencement of any work covered by a change order.
Any changes in the contract or the work should be in writing, and signed by the Owner and Contractor with an agreed price before the change order or extra work is done, to protect both the Owner and Contractor from future disputes, as such change orders and extra work requests are one of the most frequent sources of disputes and litigation on all construction jobs!
The also law requires that all changes or change orders on Home Improvement Contracts must be in writing.
The Contractor is also required to include a notice stating that the owner or tenant has the right to require the contractor to have a performance and payment bond, to insure that the work will be completed as agreed and all subcontractors and suppliers are paid, in order to minimize any risks to the Owner from the Contractor’s default or insolvency and possible double liability of the owner on mechanics liens recorded by unpaid subcontractors and materials suppliers.
Home Improvement Contracts - and logically any construction contract - must also
include and should for the protection of both parties include:
(1) The name, business address, and license number of the contractor.
(2) The name and registration number of the home improvement salesperson that solicited or negotiated the contract.
(3) The following heading on the contract form. "Home Improvement."
(4) A statement in large bold type that "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."
(5) The heading: "Contract Price," with the amount of the contract in dollars and cents.
(6) If a finance charge will be charged, the heading: "Finance Charge," with the amount in dollars and cents. The finance charge must be set out separate from the Contract Price or amount.
(7) A section with the heading: "Description of the Project and Description of the Significant Materials to be Used and Equipment to be Installed," followed by a description of the project and a description of the major materials to be used and equipment to be installed. For swimming pools, the project description must include a plan and scaled drawing showing the shape, size, dimensions, and the construction and equipment specifications.
(8) If a down-payment will be charged, the details of the down-payment must be expressed, and must include the text of the notice as specified in subparagraph (C):
(A) The heading: "Down-payment."
(B) A space where the actual down-payment amount appears.
(C) The following statement in at least 12-point boldface type:
"The down payment may not exceed $1,000 or 10 percent of the contract price, whichever is less."
(9) If payments, other than the down-payment, are to be made before the project is completed, the details of these payments - known as “progress payments” - must be described including:
(A) A schedule of progress payments under the heading: "Schedule of Progress Payments."
(B) Each progress payment shall be stated in dollars and cents and specifically reference the amount of work or services to be performed and materials and equipment to be supplied.(i.e. What milestones trigger what payment obligations)
(C) The section of the contract reserved for the progress payments must also include the following statement in at least 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 MATERIALS NOT YET DELIVERED. HOWEVER, A CONTRACTOR MAY REQUIRE A DOWNPAYMENT."
(10) The contract must also address the required start date on commencement date of the work, including:
(A) A statement that describes what constitutes substantial commencement of work under the contract.(e.g. state of demolition, foundation work etc.)
(B) The heading: "Approximate Start Date."
(C) The approximate date on which work will be commenced.
(11) The estimated Completion Date, including:
(A) The heading: "Approximate Completion Date."
(B) The approximate date of completion.
(12) If the work is governed by plans, specifications, or other documents (which is advisable, especially Plans and Specification prepared by a licensed Architect) there must be a heading: "List of Documents to be Incorporated into the Contract," followed by the list of documents which the contractor is required to adhere. (The plans and specifications usually should be listed in detail, including the dates of the plans, the pages or sheet numbers of the plans, etc etc, so there is no confusion as to which plans and specifications apply)
(13) A heading: "Note About Extra Work and Change Orders," followed by the following statement:
"Extra Work and Change Orders become part of the contract once the order is prepared in writing and signed by the parties prior to the commencement of 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 Home Improvement Contract also should include a number of other statutory notices:
(1) A notice concerning commercial general liability insurance in one of two forms.
(A) "(The name on the license or 'This contractor') does not carry commercial general liability insurance."
(B) "(The name on the license or 'This contractor') carries commercial general liability insurance written by (the insurance company). You may call (the insurance company) at_________________ to check the contractor's insurance coverage."
(C) "(The name on the license or 'This contractor') is self-insured."
(D) "(The name on the license or 'This contractor') is a limited liability company that carries liability insurance or maintains other security as required by law. You may call (the insurance company or trust company or bank) at _________________ to check on the contractor's insurance coverage or security."
(2) A notice concerning workers' compensation insurance.
(A) "(The name on the license or 'This contractor') has no employees and is exempt from workers' compensation requirements."
(B) "(The name on the license or 'This contractor') carries workers' compensation insurance for all employees."
(3) A notice that provides the buyer with the following information about the performance of extra or change-order work:
(A) A statement that the buyer may not require a contractor to perform extra or change-order work without providing written authorization prior to the commencement of work covered by the new change order.
(B) A statement informing the buyer that extra work or a change order is not
enforceable against a buyer unless the change order also identifies all of the following in writing prior to the commencement of work covered by the new change order:
(i) The scope of work encompassed by the order.
(ii) The amount to be added or subtracted from the contract.
(iii) The effect the order will make in the progress payments or the completion date.
(C) A statement informing the buyer that the contractor's failure to comply with the requirements of this paragraph does not preclude the recovery of compensation for work performed based upon legal or equitable remedies designed to prevent unjust enrichment.
(4) A notice with the heading "Mechanics' Lien Warning":
"MECHANICS LIEN WARNING:
Anyone who helps improve your property, but who is not paid, may record what is called a mechanics' lien on your property. A mechanics' lien is a claim, like a mortgage or home equity loan, made against your property and recorded with the county recorder. Even if you pay your contractor in full, unpaid subcontractors, suppliers, and laborers who helped to improve your property may record mechanics' liens and sue you in court to foreclose the lien. If a court finds the lien is valid, you could be forced to pay twice or have a court officer sell your home to pay the lien. Liens can also affect your credit.
To preserve their right to record a lien, each subcontractor and material supplier must provide you with a document called a '20-day Preliminary Notice.' This notice is not a lien. The purpose of the notice is to let you know that the person who sends you the notice has the right to record a lien on your property if he or she is not paid.
BE CAREFUL. The Preliminary Notice can be sent up to 20 days after the subcontractor starts work or the supplier provides material. This can be a big problem if you pay your contractor before you have received the Preliminary Notices.
You will not get Preliminary Notices from your prime contractor or from laborers who work on your project. The law assumes that you already know they are improving your property.
PROTECT YOURSELF FROM LIENS. You can protect yourself from liens by getting a list from your contractor of all the subcontractors and material suppliers that work on your project. Find out from your contractor when these subcontractors started work and when these suppliers delivered goods or materials. Then wait 20 days, paying attention to the Preliminary Notices you receive.
PAY WITH JOINT CHECKS. One way to protect yourself is to pay with a joint check. When your contractor tells you it is time to pay for the work of a subcontractor or supplier who has provided you with a Preliminary Notice, write a joint check payable to both the contractor and the subcontractor or material supplier.
For other ways to prevent liens, visit CSLB's Internet Web site at www.cslb.ca.gov or call CSLB at 800-321-CSLB (2752).
REMEMBER, IF YOU DO NOTHING, YOU RISK HAVING A LIEN PLACED ON YOUR HOME. This can mean that you may have to pay twice, or face the forced sale of your home to pay what you owe."
If a Contractor violates any - or several- of these provisions, it is possible that the contract may not be enforceable against the property Owner, but the law and the precedents in case law are not yet clear on this point. The result may turn on how sophisticated - or unsophisticated - the property Owner is relative to the Contractor, and whether there have been any prior relationships or dealings between the two parties.
However, in the case of “Swimming Pool Contracts” , which are Home Improvement Contracts where the primary purpose of the contract is the construction of a swimming pool on residential property, a contract which does not substantially comply with the above contract requirements regarding change order provisions, mechanics lien releases, description of the work to be done in detail, and regarding downpayments and progress payments, “shall be void and unenforceable by the contractor as contrary to public policy”! Bus & Prof Code § 7167.
Contractors may be - and often are - disciplined by the Contractors State License Board for failure to comply with these requirements, and some violations of these requirements are also criminally punishable as misdemeanors.
If a contract contains on arbitration clause requiring arbitration instead of a lawsuit in case of a dispute, the provision must be in bold type and must be initialed by both parties, in order to be valid or enforceable under California (but not Federal) Law.
A "Home Solicitation Contract or Offer" means any contract or any offer for the
sale, lease, or rental of goods or services or both, including a contract for Home Improvements, made at other than where either the owner or seller normally carries on a business. Civ Code § 1689.5
Thus a Home Improvement Contract signed at the homeowner’s residence would be such a Home Solicitation Contract.
In every Home Solicitation Contract or offer, except those for emergency repairs in
case of a disaster such as earthquake etc (which are subject to a 7-day Cancellation provision), Civil Code § 1689.7 requires that the buyer's agreement must be written in the same language, e.g., Spanish, Chinese, etc as mainly used in the oral sales presentation or contract negotiation, must be dated, signed by the buyer/property owner, and must contain a conspicuous statement in a large type at Notice, as follows:
"You, the buyer, may cancel this transaction at any time prior to midnight of the third business day after the date of this transaction. See the attached notice of cancellation form for an explanation of this right."
It must also contain (1) the name and address of the seller/Contractor to which the
notice is to be mailed, and (2) the date the buyer/property Owner signed the agreement or
offer to purchase, and a form for cancelling the contract. (The proper form of Cancellation
Notice is included at the end of this article)
The buyer/Property Owner has the right to cancel a home solicitation contract or offer until midnight of the third business day after the day on which the buyer signs an agreement or offer to purchase which complies with Section 1689.7.
This means that, if the Owner did not receive this Notice of Right to Cancel at the time the contract was signed, then the Owner may cancel the Contract at any time until three days after he or she has been given a proper notice, even if this after the work has been completed!
Upon cancellation, the Contractor must return all money and other consideration it
has received, and the Owner must offer to the contractor return whatever items she or he has received, to the extent possible.
If a Contractor has not complied with this Notice of Right to Cancel contract
requirement, a legal action may be brought either for damages or for rescission or cancellation of the Contract.
Obviously, the best practice for Contractors is to make sure your Contract complies with these requirements at the time the contract is signed, and for a property Owner to make sure your Contract contains such a Notice, and very carefully review your Contract within the three-day period and timely decide whether you want to cancel the Contract.
If Notice has not been timely given or received, or if the contract is unclear or does not appear to comply with the above requirements both parties likely should consult with legal counsel experienced in construction law regarding their rights, responsibilities and potential liabilities.
The above discussion is NOT an exhaustive or complete summary of the law on
Home Improvement Contracts, Home Solicitation Contracts, or Swimming Pool Contracts but does cover a few of the points which may be important to or which will be encountered by many property Owners and Contractors
Obviously property owners also should also use only licensed contractors. (See related article on this website, or at http://www.wolfflaw.com/Articles/)
A contractor’s license, bonding and workers compensation insurance status can be checked with the Contractors State License Board Website at www.cslb.ca.gov, or one can call 800-321-CSLB (2752), or write the Board at P.O. Box 26000, Sacramento, CA 95826.
If the Contractor is using workers, even if they are called “independent contractors” or “subcontractors” they still must be covered by a contractor’s or subcontractors’ Worker Compensation Insurers, or else the property owner could potentially be liable if they are injured on your job. (See our related article on this website or at http://www.wolfflaw.com/Articles/)
And it is also advisable to use only insured contractors and subcontractors, in the
event any damage is caused to your property, or if third parties are injured in various way by the construction work performed on your property.
Verify this insurance by demanding that the contractor provide you a Certificate of Insurance from his or her Liability Insurance company, or by asking for and reviewing a copy of their insurance policy itself.
When you are having construction work done on your property - particularly if the property is vacant during the construction - also always inform your Homeowners or Property insurer that this working will be going on and obtain any additional policies or endorsements that may be required to ensure that you will be covered in case the property is damaged or destroyed by fire or other cause during the course of the construction work.
Because the performance of construction work on a property increases the possibility somewhat that a fire or other damage will occur, many insurers will not cover loses incurred during or because of construction operations unless you have notified them in writing of the work and obtain any additional endorsements or policies to cover this added risk of loss.
When in doubt on contractual, insurance, mechanics lien, change orders or other matters concerning a construction contract or project it is usually better - and often much cheaper - to consult with competent construction counsel before a problem arises, rather than after a dispute has arisen or a calamity has occurred.
“Three-Day Right to Cancel
You, the buyer, have the right to cancel this contract within three business days. You may cancel by e-mailing, mailing, faxing, or delivering a written notice to the contractor at the contractor’s place of business by midnight of the third business day after you received a signed and dated copy of the contract that includes this notice. Include your name, your address, and the date you received the signed copy of the contract and this notice.
If you cancel, the contractor must return to you anything you paid within 10 days of receiving the notice of cancellation. For your part, you must make available to the contractor at your residence, in substantially as good condition as you received it, any goods delivered to you under this contract or sale. Or, you may, if you wish, comply with the contractor’s instructions on how to return the goods at the contractor’s expense and risk. If you do make the goods available to the contractor and the contractor does not pick them up within 20 days of the date of your notice of cancellation, you may keep them without any further obligation. If you fail to make the goods available to the contractor, or if you agree to return the goods to the contractor and fail to do so, then you remain liable for performance of all obligations under the contract.”
ABOUT THE AUTHOR: George W. Wolff
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.