Collect Progress Payments Your Way

I got a good question from a contractor a few weeks ago. I didn’t have an answer. There may not be an answer. But there are good choices and bad choices. Here’s the question:

“I’ve got a good payment schedule in my contract. But the lender won’t pay on my schedule. They have their own schedule. What should I do?”

Background

Any fixed price job that requires weeks of work needs a payment schedule. When are payments due and how much? Most contracts for larger residential jobs specify an initial payment plus progress payments based on completion of job phases. For example:

• 10% when Breaking Ground
• 10% when Foundation is Complete
• 15% when Rough Framing is Complete
• 10% when Rough Plumbing is Complete
• 10% when Doors and Windows are Installed
• 10% when Exterior Wall Finish is Installed
• 10% when Cabinets and Counters are Installed
• 10% when Mechanical and Electrical Pass Inspection
• 10% when Interior Finish is Complete
• 5% when passing Final Inspection

Contractors commonly front load payments – bigger payments during early job phases and smaller payments as the job nears completion. That bumps up working capital during construction. Lenders are leery of front loading. For obvious reasons, some lenders prefer their own back loaded payment schedule -- giving the contractor an incentive to finish work.

Black letter law: Lenders don’t have to pay on your contract schedule. That leaves owners caught in the middle – eager to see the job completed but with little leverage to pry money out of the lender.

So, what’s the answer?

Everyone involved in a construction project wants to see work completed successfully. No lender wants to torpedo a job. So the answer is early disclosure and cooperation. Once work starts, it’s too late to quibble over payment dates and amounts. 

If you have any contact with the proposed lender, ask about release of progress payments. Disclose to the lender your payment terms in the contract. Ask if there’s going to be a problem. Many lenders use fund control by a third party. Others rely on an architect or designer to authorize payments. Get clarity on when payments are due and who has authority to draw down loan proceeds. Don’t rely on the owner to settle payment issues. That’s the least of an owner’s worries.

Anticipate problems

Lenders don’t sign construction contracts. But you can put an owner on notice to resolve progress payment issues before work starts. If the lender has their own payment schedule, get a copy. Can you live with that schedule? An owner who won’t raise payment issues with a lender isn’t a good prospect.

If you use Construction Contract Writer, it’s easy to drop a payment schedule and the following into your agreement:

Progress payments are due as each phase of the Work is completed. Owner will advise any lender for this project of the progress payment schedule in this contract. Before work begins, owner will advise the contractor if a lender is unwilling or unable to release funds in compliance with the progress payment schedule in this agreement.

Is that language enforceable in a court of law? Probably not. But it’s going to head off the worst payment problems.

Ohio’s New Home Improvement Law

Last year I complained about a court decision that crippled Ohio’s home improvement statute. The decision was Beder v. Cerha Kitchen & Bath Design Studio, LLC., decided by Ohio’s Eleventh District Court of Appeals. You can read my critique here.

The Beder court decided that home improvement or repair isn’t “construction” and thus wasn’t covered by Ohio’s Home Construction Service Suppliers Act (HCSSA). I preferred the dissent by Judge Westcott Rice and made a prediction: Ohio’s legislature would revise HCSSA to include home improvement. That’s what just happened. As of September 20, 2024, the law was amended.  “Home construction service” now includes both new construction and repair or improvement of an existing residence. 

Ohio has now joined the list of 22 states (AR, CA, CT, DC, FL, HI, IL, IN, LA, ME, MD, MA, NV, NJ, NY, OH, OR, PA, TN, VA, WV,WI) that require written home improvement contracts with specific notices and disclosures.

What Does This Mean for Ohio Contractors?

Residential contracts for $25,000 or more must be in writing and must include:

1. The contractor's name, physical business address, business telephone number, and taxpayer identification number;
2. The owner's name, address, and telephone number;
3. The address or location of the job site;
4. A general description of the work including labor and materials;
5. The start date and job duration;
6. The total cost;
7. Any category of costs not included in the contract price;
8. A certificate of liability insurance with coverage to at least $250,000;
9. The dated signatures of owner or tenant and the contractor.
10. Initial payment not exceeding 10% of the contract price plus 75% of any special-order materials.
11. The following statement (in caps): IF AT ANY TIME A HOME CONSTRUCTION SERVICE REQUIRES EXTRA COSTS ABOVE THE COST SPECIFIED OR ESTIMATED IN THE CONTRACT THAT WERE REASONABLY UNFORESEEN, BUT NECESSARY, AND THE TOTAL OF ALL EXTRA COSTS TO DATE EXCEEDS FIVE THOUSAND DOLLARS OVER THE COURSE OF THE ENTIRE HOME CONSTRUCTION CONTRACT, YOU HAVE A RIGHT TO AN ESTIMATE OF THOSE EXCESS COSTS BEFORE THE HOME CONSTRUCTION SERVICE SUPPLIER BEGINS WORK RELATED TO THOSE COSTS. INITIAL YOUR CHOICE OF THE TYPE OF ESTIMATE YOU REQUIRE: Check one:  _____ written estimate _____ oral estimate"

If extra cost on the job will exceed five thousand dollars, the owner is due a written or oral estimate, depending on what’s checked above.

Some residential contracts are excluded:

• Contracts for work on 4 or more living units.
• Manufactured housing.
• Mobile homes.
• Public buildings.
• Cost-plus contracts.

Penalty for a Lame Contract

HCSSA has teeth. A defective contract gives an owner the right to:

Cancel the contract, or

• Sue for economic damages (actual losses) plus an extra $5,000 in non-economic damages (i.e. emotional distress).
• Seek a declaratory judgment or injunction to prevent similar acts by the contractor.
• Collect attorney fees if the defendant knowingly violated HCSSA.

Drafting an enforceable Ohio residential contract has never been easy. Now it’s a mine field. Any owner with a gripe about your work is sure to seek HCSSA penalties if your contract isn’t letter-perfect. Word to the wise. Use only contracts that comply precisely with Ohio’s HCSSA.

What’s the easiest way to do that? Construction Contract Writer drafts perfectly legal Ohio contracts. The trial version is free.

Hurricane Damage: Who Pays?

Thousands of homes and commercial buildings have been damaged or destroyed by hurricanes Helene and Milton. More than a few of those were buildings under construction or re-construction when the hurricanes hit. Losses will be major. Any time a project is damaged before final completion, who should pay? The owner or the contractor? Does it make a difference if the work was paid for or not?

What Every Contractor Should Know

As a general rule, any portion of the work completed belongs to the owner. For example, once framing is up, that framing belongs to the owner. Storm damage to any portion completed is the owner’s loss. Not true for a stack of lumber sitting on the job site or contractor equipment left on site. For those, any loss falls on the contractor. It doesn’t make any difference if the work was invoiced or not.

What This Means

• You’re owed for the portion of work completed. Be ready with proof: pictures, receipts, payroll records and expert testimony.
• You have no obligation to repair hurricane damage. That’s the owner’s responsibility – at extra cost.
• You still have a valid contract to finish the job as originally planned. Cancellation would probably be a breach of contract.

Of course, collecting could be a problem if there’s no readily available source of funds. That raises the next issue.

Insurance?

Obviously, it’s better if both owner and contractor are insured. The bad news: The owner’s property insurance probably doesn’t cover work in progress. Neither does your contractor’s liability policy. A builder’s risk policy is designed to fill this gap between owner and contractor coverage. Anyone with a financial interest in the project can buy a builder’s risk policy. But don’t be confused by the name. Builder’s risk insurance should be the owner’s responsibility, not the builder's. Remember the general rule: Any portion of the work installed is property of the owner.

Some builder’s risk (course of construction) policies require a special endorsement for rising water or earthquake. But most other risks are covered: theft, vandalism, fire, lightning, arson, collapse, windstorm, hail, debris removal, back up of sewers or drains. Premium will vary with scope of work. But don’t delay. The costs may be higher if work starts before applying for coverage.

How to Protect Yourself

Make risk of loss during construction part of your standard agreement. Make it clear:

1. The owner is liable for property losses once materials are installed.
2. Require the owner to give notice if not providing builder’s risk insurance.
3. Require coverage for any physical loss.
4. Be sure coverage extends through final completion.
5. Both the prime contractor and subs should be protected.
6. Make the owner liable for any deductible.
7. Policy proceeds should be applied first to rebuilding or repairing the work destroyed.

Occupancy or use of the building before completion should not limit the recovery for any loss. But it’s OK to exclude the value of excavation, backfill, foundations and underground utilities. Sitework and foundations are seldom destroyed.

Add good choices like builder’s risk coverage to your agreements. Savings could be in the thousands. Construction Contract Writer drafts letter-perfect agreements for any state and for any type of project. The trial version is free.

Get It In Writing

 Every residential job deserves a written agreement – for at least three good reasons:

• Written contracts are required in 31 states.
• A good contract can resolve disputes even before they happen.
• A written contract is the only way to guarantee arbitration of disputes.

Why Favor Arbitration?

Easy. Contractors usually win in arbitration. Arbitration is faster, cheaper and can keep the job going, even during a dispute.

So, how do you guarantee arbitration? That’s easy too. Add an arbitration clause to your construction contract. Black letter law: Courts won’t allow suit if there’s a written agreement to arbitrate. The August 2024 case of Rose v. Shore Custom Homes proves the rule. 

Attorneys for the owner made the strongest possible case to keep their client out of arbitration. The court wouldn’t buy it. Here’s how the case developed.

Shore Custom Homes wrote a contract to “raise, renovate, and build an addition” to the Rose home in Bayville, NJ. The contract price was $314,800. The contract included an arbitration clause that reads, in part:

In the event any dispute arises between the parties and the dispute is not resolved within thirty (30) business days, [plaintiffs] agree to submit resolution of the dispute(s) to [b]inding [a]rbitration . . .

Rose wasn’t happy with the work Shore Custom Homes did. Ignoring the agreement to arbitrate, Rose filed suit in Ocean County Superior Court. Claims included:

1. Breach of the New Jersey Consumer Fraud Act;
2. Fraud;
3. Breach of contract;
4. Breach of warranty;
5. Breach of the implied covenant of good faith and fair dealing;
6. Breach of the implied covenant that work will be performed in a workmanlike manner;
7. Negligence; and
8. Unjust enrichment.

Shore Custom Homes moved the court to compel arbitration. The court granted the motion. Rose appealed, claiming

• The arbitration provision is defective because it does not clearly and unambiguously convey the rights being waived;
• The arbitration provision is defective because it is unconscionable, goes against public policy, and contains multiple violations of New Jersey’s Truth in Consumer Contract Law; and
• There is no delegation clause that would arguably give the arbitrator authority to resolve issues of arbitrability.

The appellate court didn’t agree. Any contract clause that “clearly and unambiguously evidences a waiver of plaintiffs' right to pursue any claims [in court] obligates plaintiffs to resolve their claims through arbitration.” New Jersey courts were closed to this dispute. An arbitrator would settle all Rose claims.

But Be Careful

All arbitration clauses are not created equal. AAA (American Arbitration Association) is not the best choice for every construction dispute. Many construction disputes can be settled quickly and at modest cost, either by on-site meeting, a Zoom call or even E-mail. To discover the arbitration clause that best fits your jobs, have a look at Construction Contract Writer. The trial version is free.

 

Get Two Signatures on that Contract

Last June I described a solar job that fell off the rails. Leonard signed the agreement as owner. Wife Rhonda didn’t. That left the solar contractor with half a contract. Under New Jersey law, Rhonda wasn’t bound by the contract’s arbitration clause. That made enforcement a true headache – half arbitration, half lawsuit.

Black Letter Law  

If two adults reside in a home, assume both are owners. A signed agreement by one owner doesn’t bind the other. Without signatures from all owners, you’re at a big disadvantage if there’s a dispute. How do you identify each “owner”? Easy. Your county recorder’s web site lists the owner of every property in the county. When in doubt, check the recorder’s site.

Texas puts another spin on this rule of two signatures. Witness Rock Solid Building v. Pounds, decided July 24, 2024.

Robert and Camille Pounds contracted with Rock Solid to install stucco and stone cladding on their new Travis, Texas home. As it turns out, the Pounds didn’t like Rock Solid’s work and refused to pay the contract price. Rock Solid filed a mechanic's lien on the property.

In most states, a mechanic’s lien attaches to the property being improved no matter who the owner may be, even if there’s no written contract. That’s what Rock Solid wanted. It’s easy to understand why. Camile hadn’t signed the contract! Under Texas Property Code § 53.254(c), to "fix a lien on a homestead," written contract must be signed by both spouses.

Did the Pounds have a homestead? In most states, an owner has to file a notice of homestead to have protection of the homestead law. The Pounds didn’t declare a homestead on their new home until more than a year after the Rock Solid agreement was signed.

Texas is famous for its homestead law. Every urban home on 10 acres or less can be protected as a homestead. Texas Property Code § 41.007(a) requires a special notice in every contract for building or remodeling a homestead. Failure to include this notice is a deceptive practice and invalidates any mechanics lien.

Were the Pounds protected by Texas homestead law? Remember, they didn’t declare a homestead until a year after contracting with Rock Solid. And they hadn’t moved in when the contract was signed.

Decision of the Texas Court

1.  In Texas, filing for a homestead is not necessary.
2.  It’s enough to show intent to claim a homestead eventually.
3.  Property intended to become a homestead is legally a homestead from the day of acquisition.
4.  An owner may establish a homestead even before he or she takes up occupancy.

An Expensive Lesson for Rock Solid

They lost the balance claimed on the contract and had to reimburse $9,523.25 in Pounds’ attorney's fees.

Suggestion: Next time, use a good contract form. Get signatures from all owners. Construction Contract Writer drafts agreements that include all required notices and disclosures, no matter the site or type of job. The trial version is free.

 

Three-Day Right to Cancel in Pennsylvania

All home improvement jobs require the federal 3-day notice of the right to cancel. Each owner has to receive two copies of the form “Notice of Right to Cancel Under Regulation Z”. Once that form is delivered, it’s good professional practice to either:

• Delay the start of work until three days have passed, or,
• Get the owner to sign a waiver of the right to cancel.

The federal right to cancel form is very clear:

You may use any written statement that is signed and dated by you and states your intention to cancel, or you may use this notice by dating and signing below.

Notice the word “written” in the federal form. The best way to cancel under Reg Z: Fill out the federal form and drop it in the mail. An email message is probably just as good. But a phone call doesn’t qualify. Cancellation has to be in writing under Reg Z.

Pennsylvania home improvement contracts require a second notice of the right to cancel. That’s Pennsylvania’s Home Improvement Consumer Protection Act (HICPA). Pennsylvania law doesn’t require a rescission form. But every PA home improvement contract needs the following language:

This contract includes a three-day right of rescission: An individual signing a home improvement contract . . . shall be permitted to rescind the contract without penalty regardless of where the contract was signed, within three business days of the date of signing. 

You don’t see the word “written” anywhere in the HICPA disclosure. Is an oral cancellation enough in Pennsylvania? Some Pennsylvania contractors don’t think so. They simply ignore phone calls from customers trying to cancel. If no written cancellation is in the contractors' office within three days of signing, they start work. No refunds. An owner trying to stop the job after three days is in breach of contract.

Pennsylvania’s HICPA is tough. If the work is more than $500, the contract has to include a long list of notices and disclosures:

• The attorney general's phone number.
• The contractor's street address -- not a P.O. Box.
• Specific start and completion dates.
• A description of the materials to be used and a set of specifications.
• The contractor's property damage and liability insurance limits.
• A list of subcontractors, each with a phone number and street address (no P.O. Box).
• If arbitration of disputes is required, the arbitration clause has to be in 12-point bold caps and must specify (1) whether documents will be confidential and (2) whether the arbitrator's decision is final.
• If the contract price exceeds $1,000, the down payment can't exceed 1/3 of the total price plus the cost of any special order materials – which have to be listed in the contract.

Is oral cancellation enough in Pennsylvania?

If a contractor has to put all these notices in writing, isn’t it fair to require written notice of cancellation from an owner? What’s good for the goose should be good for the gander. 

That isn’t how the court saw it. Commonwealth v. Gillece Services, decided earlier this month. The court ruled that no writing is required to cancel. A contractor must cancel and make a refund "regardless of the medium used by the customer to provide actual notice of cancellation." The result: A phone call can cancel the job under Pennsylvania law even if not under federal law.

The court’s decision makes sense to me. Would you start work after an owner calls to cancel the job? I don’t recommend that. It’s asking for trouble – legal trouble. 

To stay out of legal trouble in any state and on any type of job, work under a good contract. The best contract drafting tool I know is Construction Contract Writer. The trial version is free.

 

Careless Solar Contracting

Most residential solar contractors offer good contracts. Like banks and auto dealers, their model contracts are drafted by attorney specialists. That’s good because most residential solar jobs have a complication -- commercial financing. That’s part of the sales pitch. Savings on the customer’s electric bill might cover most of the monthly finance charge. For PV (photo voltaic) contractors, the primary sales tool is a detailed summary of expected electrical output and monthly savings. Projections like these are developed by highly-qualified electrical engineers. So what could go wrong? 

Plenty, it turns out, at least for one New York PV contractor. The case is Policastri v. Sunco Capital (Sunco Solar), decided last month. Details:

Leonard Policastri and Rhonda Policastri own a home at 133 Monahan Avenue, Staten Island, New York. Leonard agreed to have Sunco install a solar grid inter-tied PV system on his roof. Leonard signed the contract. Rhonda didn’t. That was Sunco’s first mistake. The second: The job site was listed as 131 Monahan Avenue. That’s the address of Leonard’s neighbor. Oops. The third mistake: Leonard’s contract required binding arbitration (rather than a law suit) if necessary to settle a dispute. Again, Leonard signed. Rhonda didn’t. 

None of this would have mattered if Leonard had been pleased with his PV job. He wasn’t.

According to Leonard, he was told the new solar panels would power his 1500 sq. ft home, heat his swimming pool and charge his electric car, if he ever bought one. Leonard claimed Sunco’s salesman projected “a significant reduction” in Leonard’s Con Edison bill once the new system was fully operational.

All this was in spite of what Leonard told the Sunco salesman. Another solar company advised Leonard that his roof was too small for a PV system adequate to power his home. Sunco’s salesman had an answer for that. He claimed Sunco’s panels were the most up to date, efficient solar panels. They would power his entire home, heat his pool, and charge his (future) electric car.

Once installed, Leonard claimed the PV system didn’t produce enough energy to power his home, let alone heat the pool and charge an electric vehicle. Worse, Leonard saw no change in his Con Edison bill.

Leonard filed suit against Sunco, alleging breach of contract, fraudulent conduct, and unjust enrichment. Sunco petitioned the court to halt Leonard’s legal action and compel arbitration. As in every serious dispute, the signed contract now took center stage. But there were three problems.

1. Rhonda never signed the PV installation contract.
2. Rhonda never signed the loan agreement.
3. Rhonda never agreed to arbitrate.

The Court’s Decision

Leonard could be compelled to arbitrate. But he was only a co-owner. Rhonda didn’t have to arbitrate. Any decision in arbitration would affect only Leonard’s interest in their home, not Rhonda’s interest. Sunco was left with two disputes, one in arbitration and one in Richmond County Supreme Court. Claims against Sunco for breach of contract, fraud and unjust enrichment could play out in a court of law, no matter what the arbitrator decided.

A good contract can head off most construction disputes. Not in this case. No doubt, Sunco had a good contract, drafted by legal experts. But sometimes a good contract isn’t enough. No contract can survive faulty execution. And sales staff has to avoid promises about performance. That’s especially important on solar jobs.

Construction Contract Writer doesn’t estimate savings or write warranties for PV systems. But if you need a home improvement contract that complies with the law at your job site, have a look at the free trial version. 

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Are You Ready for the 2024 Storm Season?

The National Weather Service expects an active hurricane season in 2024, including tornadoes, flooding, hailstorms and 4 to 7 major hurricanes. FEMA advises: ”individuals and communities need to be prepared today." For residential contractors, that means you should be getting ready to do storm damage repair work.

Storm repair is different. It’s usually urgent. Top priority may be temporary cover-up to restore habitability. Most jobs include roofing, siding and window repair. Payment is often guaranteed by an insurance carrier. A licensed adjuster may be involved. If you haven’t drafted a contract for storm damage repair, there’s plenty to learn. 

Twenty-one states regulate storm repair work – and require a contract with specific notices and disclosures. AL, AZ, CO, GA, IL, IN, KY, LA, MI, MO, MS, NE, NY, OK, SC, SD, TN, TX, UT, WI, WV. Storm repair law is different in each of these states. But all require a written contract that:

• Includes a specific notice if any part of the work may be covered by insurance.
• Advises owners of their right to cancel the job if any part of the claim is denied.
• Requires a full refund within a certain period if the job is cancelled.

Penalties can be assessed for omitting any of these notices and disclosures.

Most states allow charges for damage mitigation without a written contract – if you get approval in writing from the owner. Some states don’t allow contractors to negotiate with the insurance carrier. A licensed adjuster is required.

Here are some examples:

Arizona – Covers all repairs to a residence damaged by a “catastrophic storm” in a “specific area.” The owner has three days to cancel after an insurance claim is denied. Work can't start until the three-day period has expired. The contract has to include a copy of the repair estimate showing damage to be repaired or not repaired and any emergency repairs already completed. If repair of the roof is included, the contract has to describe the work and how the roof was inspected. The contractor is barred from negotiating settlement of the insurance claim. The penalty for non-compliance is revocation or suspension of a contractor’s license. 

Kentucky – Applies only to repair of the roof system. The owner has five days to cancel after any part of the insurance claim is denied. The contract has to include a detachable notice of cancellation in duplicate. Prohibits any payment before the end of the cancellation period. Work done to prevent further damage is exempt. The contractor is barred from negotiating settlement of the insurance claim. Prohibits reimbursement of the insurance deductible.

Louisiana – Applies only to repair of the roof system. The owner has three days to cancel after any part of the insurance claim is denied. The contract has to include a detachable notice of cancellation in duplicate. Exempts emergency work if acknowledged in writing by the owner. Prohibits doing any work before the contract is signed. Violation of the law risks a fine of up to $1,000 plus costs and attorney fees.

Texas – Storm repair contracts covered by insurance have to include a specific notice in 12-point bold type making the owner liable for any insurance deductible. A contractor or supplier who pays, waives or absorbs the insurance deductible is guilty of a Class B misdemeanor. 

Wisconsin – Insured jobs require a notice: three days after denial of any part of the claim, the owner can cancel the job and get a refund. Refunds have to be made within 10 days after cancellation. A contractor can still collect for emergency services acknowledged in writing. Contractors can’t offer to rebate the insurance deductible.

It’s easy to be sure your contracts comply with storm damage repair law. Get Construction Contract Writer. The trial version is free. If you’re already using Construction Contract Writer, your program will update automatically when changes in the law affect your jobs.

Arbitrate Your Construction Dispute

Many times I’ve recommended inserting an arbitration clause in your construction contracts. Why? It’s conventional wisdom:

• Vendors usually win in arbitration.
• Arbitration typically costs far less than a court case.
• Courts won’t touch a dispute if the contract requires arbitration.
• Most arbitration awards are final, not subject to court review.

Of course, there are exceptions. One happened last month, in New Jersey. Here are the details.

Frank Garvey agreed to have Oliver Building Contractors remodel his Strathmere, New Jersey home. The contract price was $389,796. Six months into the job, work was thirty percent complete. But Garvey had paid almost the full contract price. A month later, Oliver sent an invoice for an extra $176,377, claiming higher costs:

• Floor joists ran in the opposite direction shown on the plans.
• Garvey’s planner delayed the job by not having plans ready for the building department.
• Winter weather delayed work even more.
• The cost of construction materials increased while work was halted.

Garvey didn’t agree but paid the $176,377 into his attorney’s trust account. Then he asked Oliver for a meeting on site. Oliver agreed to a walk-through but didn’t show up at the scheduled time.

With no payment, Oliver stopped work. Garvey and Oliver were at an impasse. Their contract called for arbitration of disputes. Oliver filed a demand for arbitration alleging breach of contract. Garvey counterclaimed, alleging violations of New Jersey’s Consumer Fraud Act (CFA) and Home Improvement Practice Regulations (HIPR)"

The Arbitration

After a six-day hearing, the arbitrator found no actual fraud by either Garvey or Oliver. But the arbitrator awarded Oliver $48,396, reasoning that Garvey’s failure to hire a contract administrator created a culture and environment ripe for CFA and HIPR violations. The arbitrator blamed Garvey’s for the confusion. Garvey had to pay.

Now, that’s interesting. New Jersey HIPR was enacted to protect owners. Here, the arbitrator used HIPR to reward the contractor!

Garvey had a few complaints about the arbitrator:

• Interrupted Garvey’s witnesses;
• Criticized Garvey for not hiring a professional to review the contract;
• Questioned whether CFA and HIPR applied;
• Prevented Garvey from fully testifying about defects in Oliver’s work;
• Fell asleep during Garvey’s presentation;
• Ignored the CFA and HIPR;
• Coached Oliver’s attorney;
• Suggested Garvey’s architect was "not trustworthy" and
• Complimented Oliver’s representative for being a hard worker.

Garvey filed suit to vacate the arbitration award. As noted earlier, courts seldom do that. Bias of the arbitrator isn’t enough to vacate an arbitration award. But misapplying the law is a fatal flaw. The court vacated the arbitrator’s decision. In the court’s opinion, nothing required Garvey to hire a professional to manage his project. The CFA and HIPR "place the burden of eliminating informal and confusing communications between a homeowner and a . . . home improvement contractor squarely on the contractor." Oliver, not Garvey, had to be sure the scope of work was clear and change orders were signed. The arbitrator imagined a requirement that simply doesn't exist under the law. The arbitrator's interpretation "turn[ed] the purpose and intent of the [CFA and HIPR] on its head."

Oliver appealed. The appellate court affirmed the trial court’s decision and made a recommendation. Get a different arbitrator when the case goes back to arbitration. Good advice.

Take Aways for Garvey v. Oliver

1. As the contractor, it’s your job to prevent misunderstandings. A good contract resolves disputes before they start. The best contract drafting tool I know is Construction Contract Writer.
2. If you want to require arbitration, it has to be in your contract: who does the arbitration and what rules apply? There are many choices. Some good and some bad. Construction Contract Writer lays out the options.

 

Painful Lesson in Pennsylvania

Ty and Carissa Schott planned to add a pool in the back yard of their Allegheny County Pennsylvania home. Country Pools bid $53,160 for the work and got the job. The Schotts advanced $26,580 as a deposit. To get their backyard ready for the pool, the Schotts paid separate contractors over $20,000 to install a retaining wall and perimeter fence.

Before signing the contract, the Schotts asked Country Pools whether permits were required from their municipality, Franklin Park Borough. Country Pools suggested that “no permits would be necessary until installation of the swimming pool." After completion of the retaining wall, the Schotts applied for their permits. Surprise! Franklin Park's zoning regulations prohibit construction of their swimming pool. The Schotts applied for a zoning variance. No luck. Application denied. The Schotts weren’t going to get their pool.

The Schotts demanded a full refund, including money spent on the retaining wall, fence and permit fees. County Pools refunded $20,429 but refused to refund the remaining $6,151.

The Schotts filed suit and made three claims:

1. Unjust enrichment for the $6,151 Country Pools refused to refund.
2. Omission of contract terms required by Pennsylvania's Home Improvement Consumer Protection Act (HICPA).
3. Fraudulent or deceptive conduct in violation of Pennsylvania’s Unfair Trade Practices & Consumer Protection Law. UTPCPL allows the court to award three times actual damages plus attorney fees. The Schotts claimed actual damages of $32,000.

You decide.

Should County Pools be responsible for the Schotts’ loss, including triple damages and attorney fees?

We don’t know the answer yet. Pennsylvania’s appellate court ruled last month that County Pools’ liability insurance doesn’t cover the loss. “"The purpose and intent of such an insurance policy is to protect the insured from liability for essentially accidental injury to the person or property of another rather than coverage for disputes between parties to a contractual undertaking."

The case goes back to the trial court to decide how much County Pools owes the Schotts. But this is clear. A few minutes of contract drafting could have saved County Pools thousands in legal fees and damages.

First, An extra sentence in County Pools’ contract with the Schotts could have headed off this dispute:

Except as provided elsewhere in this agreement, owner will secure all approvals for the project that are required by government authority, including planning, easements, remediation, environmental, and zoning approvals.

This clause makes it clear. The owner is responsible for approvals that have nothing to do with construction. Every pool contract needs a sentence like this.

Second, every Pennsylvania residential contractor needs to know HICPA. Work valued at $500 or more on any existing residential property requires a written agreement with specific notices and disclosures. The definition of “home improvement” includes just about every type of repair, replacement or installation, including swimming pools. The act applies to work on a single unit in a multi-family residence (such as a rented apartment or condo) or a duplex, even if the owner doesn’t reside on the premises. Ignoring HICPA makes the contract void and unenforceable. Worse, violation of HICPA is automatically a violation of Pennsylvania’s UTPCPL.

Protect yourself. Construction Contract Writer drafts residential agreements that comply perfectly with Pennsylvania law – and the law in any other state, no matter the type of work or the site. The trial version is free.

Collection Made Easy

 Does this sound like any job you’ve had?

Tim Clancey’s Indiana home needed repairs. Clancey signed a contract with Terry’s Discount Windows to do the work. On completion, Clancey had some complaints and refused to make the final payment -- $13,530. When Terry’s demanded payment in full, it got ugly. Clancy, the homeowner, filed suit, claiming fraud, negligence, breach of contract, and non-compliance with Indiana’s Home Improvement Fraud Act, Home Improvement Contract Act, and Indiana Consumer Protection Act.

To collect the last payment, Terry’s had no choice. He filed a counter-claim for $13,530. At this point, Terry’s contract with Clancy took center stage.

After a jury trial, Terry's won. Clancy got nothing. But the trial court denied Terry’s post-trial motion for attorney fees and interest. True, the signed contract included a clause on attorney fees and interest on the delinquent account. But the trial court judge didn’t see it that way. Terry’s counsel considered that a mistake. And it made a big difference. Attorney fees and interest were far more than the $13,530 awarded at trial. Terry’s appealed. And here’s where Terry’s contract saved the day.

Most state courts won't award attorney fees if there is no written contract -- or if the written contract doesn’t cover the subject. So, what did Terry’s contract say?

In the event that Terry's is required to so initiate legal proceedings, Terry's shall additionally be entitled to recover all costs and attorney fees incurred in connection with such collection proceedings, as well as interest on the contract balance outstanding and unpaid at the rate of 1% per month.

A clause like this raises the stakes when there’s a dispute. An owner with frivolous claims or a weak defense has reason to pay up without a fuss. But every state has different law on the award of attorney fees. For example:

California -- The right to collect attorney fees is reciprocal. If a contractor can collect attorney fees after winning a contract dispute, an owner has the same right. California Civil Code § 1717.

Arizona -- Courts can award "reasonable" attorney fees to the successful party in any contract dispute. Arizona Revised Statutes § 12-341.01

Connecticut -- If a contractor has the right to collect attorney fees, a homeowner is given the same right. Connecticut General Statutes § 42-150bb.

Georgia – Better to leave attorney fees out of the contract. Official Code of Georgia Annotated § 13-11-8 gives contractors the right to collect attorney fees if the dispute is over delinquent payment.

Appellate Court Decision

Earlier this week the Indiana Appellate Court came to Terry’s rescue.

1. Parties to litigation pay their own attorney fees unless their contract says otherwise.
2. Terry’s contract provided for an award of fees and interest on the money owed.
3. A trial court judge has an obligation to rule on the award of attorney fees.
4. Judges, not juries, decide what constitutes a reasonable attorney fee.

The appellate court sent the case back to the trial court to calculate attorney fees and interest due. Conclusion: Terry’s was saved by a good contract.

Protect yourself. Write contracts as professional as your work. No matter the state, no matter the type of job, Construction Contract Writer drafts agreements that can save thousands when a job turns bad. The trial version is free.

More on HomeAdvisor (ANGI)

If you’re a residential contractor, you’ve probably been solicited by HomeAdvisor, better known as Angi or Angi’s List. HomeAdvisor was back in the news last week. A federal court certified a class of “service providers” authorized to bring suit against HomeAdvisor. If you’ve paid HomeAdvisor for annual membership or leads in the last 20 years, you may have skin in this game. But don’t expect a windfall from the suit. I’ll explain.

Angi’s business is connecting contractors with owners who need home services – “selling leads” in the vernacular. Angi is a big fish in this business – sales of over $100 million a month – with an advertising budget to match. Call centers in 6 states cover the nation. Some home improvement contractors get several calls a month.

HomeAdvisor’s contract includes an annual membership fee (typically several hundred dollars), a fee for each lead (up to $100), a monthly “help desk” charge of $60 and a cancellation charge (as much as 35% of the annual fee). According to the plaintiffs, HomeAdvisor’s “brand promise” is that these leads are from legitimate, real homeowners serious about getting work done. Plaintiffs claim many HomeAdvisor leads had no value: wrong or disconnected phone numbers, wrong contact information, people who never heard of HomeAdvisor, didn’t own a home or completed their project months or even years ago.

According to plaintiffs, HomeAdvisor knew it was deceiving subscribers:

(1)  HomeAdvisor's call tracking system could connect with only 14% to 30% of leads.

(2)  64% of members tried to stop auto payments to HomeAdvisor.

(3)  80% of HomeAdvisor members dropped out annually.

(4)  HomeAdvisor's top management admitted that many leads were “garbage.”

(5)  HomeAdvisor retained profile pages of former members on its website and falsely represented that the member was no longer in business or not accepting new clients.

Under the first four points (“deceptive practices”), plaintiffs claimed money damages for fraud, presumably at least a partial refund. For the fifth point (“misappropriation”), plaintiffs asked for an injunction to stop the practice but no money damages.

The Upshot

The court refused to certify a class for the deceptive practice claims. Fraud statutes in each member’s home-state had to govern any decision. And fraud statutes vary too much from state to state. Claims made about HomeAdvisor sales practice might be fraud in some states and not in others. A class action suit was a poor way to resolve these claims.

The court certified a class for the misappropriation claims. That litigation will go forward. But there won’t be a payout to former members. That’s a big win for HomeAdvisor.

Still, HomeAdvisor has been under pressure to change their sales pitch. Last April, HomeAdvisor reached an agreement with the Federal Trade Commission to refund over $3 million to 110,372 businesses who bought HomeAdvisor memberships. The FTC complaint charged HomeAdvisor with making false, misleading or unsubstantiated claims about the quality and source of their leads. If you signed a HomeAdvisor contract and have a claim number, use this link to apply for a refund. The application deadline is February 24, 2024.

My Advice

HomeAdvisor has plenty of competition: Houzz, Porch, Thumbtack, Yelp, Bark and Google. Before making any commitment to buy leads, consider the options. No matter the choice, you’ll have to sign the vendor’s “standard contract”. You can’t write that agreement. But you can draft the contract for any of your construction projects. Use Construction Contract Writer to draft letter perfect agreements for any type of work in any state. The trial version is free.