New Laws Will Affect Home Builders

Residential contracting is a highly regulated industry. To stay in business, contractors have to comply with state and federal law. That’s not easy, at least partly because new laws are piled on every year. Right now, legislatures in twelve states are considering bills that would affect home builders and home improvement contractors. Nearly all of these bills add to your cost of doing business or risk of making a mistake.

Here’s my state-by-state rundown of residential contracting bills introduced in the last few months. Expect many of these bills to become law before too long.

• Connecticut – Senate Bill 319 would prohibit mandatory arbitration in home improvement and home construction contracts.
• Hawaii – Senate Bill 1077 will require residential owner-builders to deduct withholding tax and provide workers’ compensation insurance for anyone working on the job who isn’t a licensed contractor. (Effective 7/1/13)
• Iowa – Senate Bill 497 would require that contractors buy a $50,000 surety bond before agreeing to do any home improvement work. (Passed the Iowa Senate)
• Massachusetts – House Bill 194 would limit the down payment on most residential jobs to one-third of the contract price and require that the contract include a payment schedule.
• Maine – Senate Bill 459 would require that all residential contractors be licensed.
• New York – Assembly Bill 459 would require that home improvement contractors have a license and a surety bond. Assembly Bill 1081 would levy a $5,000 fine for violating the Home Improvement Contracts Act. Assembly Bill 1903 would allow owners to withhold up to one-third of the contract price until 15 days after completion of home improvement work.
• New Jersey – Senate Bill 2658 would make failure to complete a home improvement project a crime. Home improvement contractors would need a $25,000 surety bond.
• Pennsylvania – Senate Bill 686 and House Bill 1543 would permit time and material (cost-plus) home improvement contracts.
• Kentucky – House Bills 180 and 249 would set standards for all home improvement contracts. Any contractor who charges more than four times the fair price or misrepresents or conceals a material fact would be guilty of home improvement fraud.
• Kansas – House Bill 2065 creates the crime of home improvement fraud. (Passed the House)
• Wisconsin – Assembly Bill 81 gives owners the right to cancel contracts for insurance repair work if any part of the insurance claim is denied. Wisconsin and Utah will become the fourteenth and fifteenth states to enact laws requiring disclosure of the right to cancel a contract for insurance work if the claim is denied. For the first thirteen states, see my blog of November 30, 2012.

Even if your state isn’t on the list, be forewarned. New law is headed your way. To be sure your contracts meet standards that apply in your state, have a look at Construction Contract Writer. The trial version is free.

Changes in Construction Contract Law

Twenty-five states have made changes in the last few months. Highlights follow. As you read down the list, keep a tally. How many of these changes make it easier to do business as a construction contractor?

Alabama – Owners have ten days to cancel residential roofing repair contracts if any part of the insurance claim is denied. Work can’t start until the claim is settled. Contractors are barred from negotiating the settlement. Effective August 1, 2012

Arizona – Contracts for repair of storm damage require specific notices and disclosures. Owners have three days to cancel after any part of the insurance claim is denied. Work can’t start until the claim is settled. The down payment can’t exceed 50% of the contract price. Enacted April 2012.

California -- No matter what the contract says, a 2% per month penalty plus attorney fees applies on retention wrongfully withheld. Operative July 1, 2012. Licensed contractors and subcontractors are prohibited from inserting into any contract either an indemnity clause or a waiver of lien rights which would be void under California law. Operative July 1, 2012. Residential construction consultants need a contracting license and have to comply with construction contract law. Effective January 1, 2013.

Delaware – Home construction fraud is now considered either a class B, D, or G felony or a class A misdemeanor. Approved July 20, 2012.

Idaho – Any contract clause which limits the right to sue in Idaho or limits the time to bring suit is void. Enacted April 5, 2012.

Indiana – On public works contracts, claims of subcontractors and suppliers to retained funds are barred once the public agency has settled with the prime contractor. Effective July 1, 2012. Pay-if-paid clauses in subcontracts will be enforced. Court decision on May 11, 2012.

Iowa – Contracts for residential work must include a specific lien notice. Omitting the notice voids all lien rights of the prime contractor. Effective January 1, 2013.

Kentucky -- Owners have five days to cancel residential roofing repair contracts after any part of the insurance claim is denied. The right to cancel has to be disclosed in the contract. Work can’t start and no payment is allowed until the claim is settled. Effective July 12, 2012.

Louisiana – Owners have three days to cancel residential roofing repair contracts after any part of the insurance claim is denied. The right to cancel has to be disclosed in the contract. Effective August 1, 2012.

Massachusetts – No claim for extras on public works projects will be approved without prior notice to the comptroller. Effective January 1, 2013.

Nebraska -- Owners have three days to cancel contracts for repair of residential roofing after any part of the insurance claim is denied. Contractors can’t offer to rebate any part of the deductible. Effective July 19, 2012

North Carolina –Submitting a false statement of charges for home improvement work is a misdemeanor and grounds for license revocation or suspension. Effective January 1, 2013

Ohio – The limitation period for making contract claims is reduced from fifteen years to eight years. But claims for defective work under a construction contract retain a ten-year limitation. Effective Sept. 28, 2012.

South Dakota – Owners have three days to cancel contracts for repair of storm damage to residential roofing after any part of the insurance claim is denied. Contractors can’t offer to rebate any portion of the insurance deductible. Effective July 1, 2012.

How many of these changes are contractor-friendly? None, in my opinion. All make it harder to do business. But there’s an easy way to stay legal, no matter what changes come your way. Have a look at Construction Contract Writer. The trial version is free.