Thursday, June 11, 2009

"Legal in All 50 States"

Go browsing on the Web for construction contracts and you'll see braggadocio about some boilerplate contract being "legal in all 50 states."

Claims like this show up on Web sites run by savvy people with good credentials but who should know better. If you've skimmed over any of the earlier entries in this blog archive, you know how foolish it is to claim any construction contract is "legal in all 50 states."

Every state has the right to set unique requirements for construction contracts. And nearly all have.

You can take this to the bank: There's no home improvement contract that's legal in all 50 states. I'll go one step further: There's no contract for residential construction that's legal in all 50 states. You won't even find a contract for commercial construction that's legal in most states. That's not the way it works.

Construction contract law varies from state to state the same way income tax law varies from state to state. Imagine the reaction if you tried to file a New York or Texas income tax return with the Montana Department of Revenue. You'd probably be breaking the law in two states.

It's the same with construction contracts. Nearly all states require specific disclosures, set unique limits or void certain types of clauses in construction contracts. No two states are alike. And most states impose heavy penalties for doing construction work under a contract that doesn't meet state code. Fines up to $1,000 are common, as is the threat of jail time.

Even if you aren't concerned about fines and jail time, consider the impact if you get into a dispute before collecting final payment. The attorney for your client won't be impressed with your "legal in all 50 states" contract. More likely, you'll discover that the contract is either partially or totally unenforceable under state law. Game over! You lose. Run, don't walk, to the nearest exit. You're not going to collect another dime on that contract. If opposing counsel is charitable, you'll escape discipline from the state board. Persist and you'll get an invitation to do the perp walk at a state hearing.

When you see the claim, "legal in all 50 states," I recommend thinking "probably not legal in any state." The latter is far more likely than the former.

So how do you judge if some boilerplate contract is legal? If you're paying the $10 to $150 that most vendors change for a download, you've got the right to know: Is it really legal in my state?

I can recommend a Web site. It's free. Construction-Contract.net has a good selection of state-specific home improvement, residential and commercial construction contracts. Even better, the site lists laws in each state that set minimums for construction contracts. Before buying any boilerplate contract or contract package, compare what the law requires in your state with what the vendor is offering. If the vendor's contract comes up short, save your money.

1 comment:

  1. I give this speech about mechanics liens all the time, so it's nice to see it reflected here about contracts. Something I would add is that, even if a contract works reasonably well in multiple states, the underlying framework of state law changes, so even if the contract is "legal" in more than one state, it's a different kind of legal - and the contractor doesn't necessarily know what that means.

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