Nearly
every state requires notices and disclosures in construction contracts, especially
residential contracts. What’s required varies from state to state. But most states
require at least several of the following:
- A signed and dated written contract
- Contractor license or registration number
- Date when work will start and be finished
- Payment schedule
- Mechanics’ lien warning
- A statement about insurance or bonding
- Three-day right to cancel
What
happens if your contract omits one of these notices and disclosures? In most states,
that’s an invalid contract. It’s enforceable against the contractor but almost certainly
not binding on the owner. A recent Connecticut court decision makes the point: Aqua-Scapes
sued Mason to collect final payment on a pool job. Mason refused to pay, claiming
the contract didn’t comply with Connecticut law. The court (2014 Conn. Super. LEXIS
3819) ruled for Mason:
"There
is nothing dishonest or sinister about homeowners proceeding on the assumption that
there is a valid contract, enforcing its provisions, and later, in defense to a
suit by the contractor, in learning that the contract is invalid, then exercising
their right to repudiate it."
It’s
easy to make Aqua-Scapes’ mistake in a construction contract. What’s required by
state law can vary with the contract price, the type of work (residential, commercial
or insured loss), where the contract was signed (on site or in an office), the number
of payments, when payments are due and even the age of the owner. In the Aqua-Scapes
case, the contract was void because it:
- Omitted the contractor’s registration number
- Wasn’t signed by the owner. The owner gave his OK by email.
- Didn’t include starting and completion dates
- Omitted a notice of the owner’s right to cancel
Take
this as black letter law: If your contract
is a dud, the owner wins every dispute. In most states, you’ll have to jump through legal
hoops to collect anything the owner doesn’t want to pay.
Bad Faith Contracts
Now
go one step further. Suppose the owner spots a defect in your contract right from
the start. Something required by state law simply isn’t there. The owner knows you’ll
have no right to collect if there’s a dispute. But the owner signs anyhow, saying
nothing about the defect – in effect, laying a trap. Heads, the owner wins. Tails,
you flip again.
Oops!
That owner has given the contractor what’s called a bad faith defense. The owner
knew the contractor had no right to collect and went ahead anyhow. That’s bad faith.
But proving it won’t be easy. As quoted in the Aqua-Scapes decision:
“Bad
faith of a nature to preclude enforcement of [The Home Improvement Act] must involve
‘actual or constructive fraud, or a design to mislead or deceive another, or a neglect
or refusal to fulfill some duty or contractual obligation, not prompted by an honest
mistake as to one's rights or duties, but by some interested or sinister motive’.”
Aqual-Scapes
couldn’t meet that challenge. You shouldn’t have to. There’s a better way. Use contracts
that comply precisely with the law in your state, no matter the type of job. The
best way to protect yourself is with Construction Contract Writer. The trial version is free.
