Thursday, March 10, 2011

California Home Improvement Contracts

We can agree that consumer protection laws serve a useful purpose. But laws too complex invite evasion. California’s home improvement contracting law is a poster child for that proposition. Most contractors don’t comply simply because they can’t figure out what the law requires. California’s CSLB assesses fines (“civil penalties”) against contractors who don’t comply – but does very little to make compliance easy.

Making It Easy
I’ve listed below everything California requires in a home improvement contract. Any residential job (including painting, landscaping and yard improvements) for more than $500 that’s done for an owner or a tenant occupying a residence needs these notices and disclosures. If you’re interested, required notices and disclosures make up 18 pages of this 21-page contract.

The entire contract has to be in writing, legible and in at least 10 point type.
Page 1 -- The title "Home Improvement Contract" in boldface type.
Page 1 -- The statement: "Any Notice of Cancellation can be sent to this address."
Page 1 -- The name and the address of the contractor.
Page 1 -- Name and registration number of any salesperson.
Page 1 -- The date the contract was signed by the owner.
Page 1 -- In 12-point bold type: "You are entitled to a completely filled in copy. . .”
Page 2 -- The contract price in dollars and cents.
Page 2 -- An approximate date when work will begin.
Page 2 -- What constitutes substantial commencement of the work.
Page 2 -- An approximate date of completion.
Page 2 -- The heading “List of Documents Incorporated into this Contract.”
Page 3 – The down payment can’t exceed $1,000 or 10%, whichever is less.
Pages 3 and 4 -- A payment schedule showing the amount due by job phase.
Pages 4 and 5 – California’s Mechanics’ Lien Warning.
Page 5 -- A statement on release of lien in exchange for payment.
Page 6 -- Confirmation that the contractor carries (or doesn’t carry) liability insurance.
Page 6 -- The name and phone number of the insurance carrier.
Page 6 -- Information about the Contractor's State License Board.
Page 8 -- The statement on performance and payment bonds.
Page 8 -- Notice of California’s 3-day right to cancel.
Page 9 -- A checklist for homeowners.
Page 10 -- Information about commercial general liability insurance.
Page 11 -- A change order form incorporated into the agreement.
Page 11 -- Notes about extra work and change orders.
Page 11 -- A statement on requirements for a change order.
Page 12 -- Receipt acknowledging delivery of the California’s 3-day right to cancel.
Pages 13 and 14 -- California 3-day Notice of Cancellation.
Pages 18 and 20 -- Federal right of rescission (Reg Z) notice.
Pages 19 and 21 -- Explanation of the effects of rescission.
In the specs -- A description of the site and significant materials to be used.
In the specs -- Brand names if brands were mentioned during negotiations.

Add if the job includes a residential swimming pool:
Page 9 -- Checklist for homeowners -- swimming pools.
Plans and specs -- A plan and scale drawing of the pool.

Add if the job includes structural pest control:
Page 3 -- A reference to the structural pest control inspection report.
Page 7 -- A lien notice for the owner in Bus and Prof Code section 8513.
Page 7 -- Right to contract for pest control, B and P Code section 8514.5.

Add if the job includes thermal insulation:
Page 15 -- Disclosure of insulation material, R-value and coverage area.

Add if arbitration is required to settle disputes (residential):
Page 5 -- A disclosure that disputes must be settled by arbitration.
Page 6 -- Initialed consent that disputes will be settled by arbitration.

Add if the contract includes a credit term (retail installment contract):
Page 6 -- California security agreement notice and disclosures.
Pages 16 and 17 -- Federal Truth in Lending disclosures.

Easier Still
Craftsman's Construction Contract Writer drafts perfectly legal construction contracts for every state: residential and commercial prime contracts and subcontracts, cost-plus (time & material) contracts, green LEED contracts (commercial, IT or gut-rehab), home improvement contracts, pool contracts and construction management (consulting) contracts. The trial version is free.

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