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.