Homeowner Remodeling Contract

What to Look For in Contracts with your Remodeling Contractor

One of the largest expenditures that homeowners will make during their lifetimes is for the remodeling of their homes. The average expenditure spent on home remodeling in the Chicago Area in 2015 was $278,000.

Likewise, a remodeling contract entered into by a small remodeling contractor can be the difference between that contractor making a hard earned profit and the failure of his or her business and sometimes worse. Many small contractors risk losing their personal assets and personal bankruptcy.

A contract is a transaction between two parties where a homeowner and a constructor, usually called a contractor or general contractor (GC), enter into an agreement for the constructor to make improvements to the home.

The fair home improvement contract assigns the risks of the construction contract to the party best able to handle the risks. The contractor is the party who is supposed to know the most about what is involved in doing the construction.

Although frequently, general contractors can be generic salespeople who negotiate a remodeling contract with a homeowner today, but tomorrow they may be selling appliances or cellular phone contracts.

A detailed written remodeling contract, if drafted properly, is a helpful instruction manual for the project. If things go wrong, a well drafted contract is critical for getting the agreement enforced.

One of the classic warning signs that we see is when the homeowner starts noticing that the project is delayed and work isn’t progressing as scheduled. Notwithstanding the delay, the contractor is asking for either more money or advance payments so he can “keep the project going.”

When this happens, if the homeowner doesn’t have a good contract – someone trustworthy to consult with on the legal aspects of the construction project – the temptation is usually great to just make an extra payment so the project will be over.

All too often, what actually happens is that instead of moving the project along, it is further delayed. The homeowner is out more money and subcontractors who the contractor hasn’t paid (and who the homeowner didn’t even know about) start calling the homeowner. They are now asking the homeowner to pay them directly, and threaten to file liens against the home if they don’t receive payment.

Because of statutory mechanic’s lien rights that subcontractors have, if a homeowner isn’t careful about having a good remodeling contract, and in how payments are made to the contractor, that homeowner runs the risk of having to pay twice for the work that is done – once to the contractor and once to the subcontractor who has recorded a lien against the property.

Provisions Every Home Remodeling Contract Should Have

Here are the basic provisions that a homeowner wants to have in their home remodeling contract. These should be followed meticulously during the construction project to give a homeowner a fighting chance in the event the project runs into serious snags, disputes or in some instances even contractor fraud.

  1. A provision that states that the contractor has to provide the homeowner with a contractor’s sworn statement prior to the initial payment and prior to each payment. The contractor’s sworn statement is a list with names and addresses of each of the subcontractors on the project including the amount of each subcontract and the amount that each subcontractor is paid on each payment to the contractor. (This is the best protection that a homeowner can get from the risk of unpaid subcontractors filing liens against the property.
  2. Make sure you can actually read what is stated on the remodeling contract, especially about the scope of the project.
  3. A provision that lets you have an independent person review the progress of the project to approve each payment, like an architect or inspector familiar with local building codes.
  4. Each page of any architectural plans that the project is based upon should be listed in the agreement.
  5. A provision providing that payment should be made when specific observable milestones are reached. (Many contractors ask for payment on a regular periodic basis, like monthly, based on a percentage of completion of the project. Unless you have an independent construction professional, such as an architect or inspector or construction manager who has a duty to represent your interests, you likely won’t be able to evaluate the percentage of completion and will just have to take the contractor’s word for it).
  6. A provision that all change orders must be in writing and signed by both parties.
  7. A provision that the remodeling contractor cannot stop work without cause.
  8. A provision that the contractor will provide you with lien waivers from all subcontractors for all amounts due to subcontractors at each payment.
  9. A provision requiring that the contractor provide you with evidence of general liability insurance in an acceptable amount and making sure you are identified as an “additional insured” on the contractor’s insurance policy for your project.
  10. A provision with a specific date of completion of the work and specific damages reducing payments if work is delayed. We like to escalate these damages so that for a short delay, daily damages may be only $50.00 per day for the first week, but quickly rise to much higher amounts for longer delays.
  11. Detailed description of the work to be performed including specification of all materials to be used, appliances or equipment that will be installed. This can be done through sufficiently detailed architectural drawings, but if the drawings don’t include all these details they need to be specifically listed in the contract.
  12. A provision that if there is a dispute the prevailing party’s legal fees and expenses of litigation will be paid by the party who does not prevail.

While these may be the initial provisions that a homeowner and contractor will want to consider, each project is different and the above items may not address all of the particular concerns or issues that are involved in your project.

Contact O’Leary Law Firm

We talk to homeowners, building owners and contractors about remodeling contracts all the time. If you have questions about your project and what terms you need in your remodeling contract to protect you and your property, or if you would like to have your contract reviewed, call us. We would be happy to talk with you.