Thursday, May 24, 2012

Changes in Construction Contract Law

Most state legislatures make their changes to the law effective on either January 1 or July 1 of each year. Here’s a state-by-state summary of major changes to construction contract law taking effect on July 1, 2012:

California – Forty pages of lien laws will change. Civil Code § 8000 to § 9566 will replace Civil Code § 3082 to § 3267. The 40 pages are completely reorganized. Many sections are changed, including some that affect construction contracts. For example, new Civil Code § 8170 changes disclosures required in contracts for non-residential work. If you need a correlation table that relates old lien law section numbers to new section numbers, drop me a note.

Idaho – Idaho Code § 29-110(1) voids anything in a contract which would shorten the statute of limitations.

Indiana – On a residential job at least partially covered by insurance, Indiana Code § 24-5-11-10 requires that the contract include a notice giving an owner the right to cancel if any part of the claim is denied. There’s more on insurance jobs below.

Maryland – Business Regulation Code § 8-501 requires new disclosures in home improvement contracts.

Tennessee – On July 1, Tennessee code will create four new hurdles for construction contractors:
§ 66-34-103 and § 66-34-104 change retention rules on both private and public contracts.
§ 47-18-104(b) creates additional requirements for home improvement contracts.
§ 39-14-154(b) adds to the list of prohibited acts by home improvement contractors.
§ 62-6-601 to § 62-6-606 require that residential roofing contracts covered at least in part by insurance include a notice of the right to cancel if any part of the claim is denied.

Most of these changes come with heavy penalties for non-compliance. For example, Tennessee § 62-6-606 makes omission of the new right to cancel notice “a deceptive act or practice” under TN consumer protection law and gives owners a private right of enforcement.

Insurance Jobs
On July 1, 2012, Indiana and Tennessee become the second and third states to join Illinois in giving owners the right to cancel a construction contract after an insurance claim is denied. See my blog post of November 28, 2011 for more on the Illinois law. As in Illinois, IN and TN require that multiple copies of a special cancellation form appear in the contract.

The TN law applies only to roofing. Contractors can’t accept a down payment or start work (except for emergency repairs) until the insurance claim has been processed. If any part of the claim is denied, the owner can cancel the entire contract, even for work already completed.

The IN law covers all insured exterior repairs and allows a down payment. If the contractor starts work before the claim is processed, the owner’s right to cancel extends only to the part of the job not covered by insurance. Indiana Code § 24-5-11-10(c)(5). That’s a better outcome for contractors.

If you’re using Construction Contract Writer to stay in compliance with the law in your state, the program will revise automatically when these new laws go into effect. If you’re not using Construction Contract Writer, the trial version is free.