Maryland Custom Home Contracts

If there's a load limit on construction contracts, Maryland must be getting close. The legislators in Annapolis require 21 distinct notices and disclosures in custom home building contracts. As a class, buyers of custom homes in Maryland must be among the best protected anywhere. Omitting any of these disclosures carries heavy consequences. More on that later.

If you're a custom home builder in Maryland, check your contract against this list of required notices.

• · A draw (payment) schedule – Real Property Code § 10-505(1)
• · The names of the primary subcontractors – Real Property Code § 10-505(2)
• · Notice on change orders – Real Property Code § 10-505(3)
• · Statement of warranty coverage (in bold) -- Real Property Code § 10-505(4)
• · Disclosure on payment of subs & suppliers -- Real Property Code § 10-505(4)
• · Waiver of lien notice -- Real Property Code § 10-505(6)
• · Mechanics' lien laws notice - Real Property Code § 10-506(a)
• · Certification of no judgments or violations - Real Property Code § 10-506(b)(3)
• · Escrow account notice - Real Property Code § 10-506(c)
• · Sales representative notice -- Business Regulation Code § 4.5-307(c-1)

But that's just the beginning. Real Property Code § 14-117(j) is a piece of work. Required notices and disclosures include the following:

• · The builder's registration number.
• · A commitment that construction will comply with the building code.
• · Identification of the performance standards that apply (NAHB or HUD).
• · A buyer's right to receive the Home Builder Registration Act pamphlet.
• · A notice of the maximum loan interest rate acceptable to the buyer.

And then we get to Maryland's New Home Warranty Act, Code of Maryland Regulations § 09.01.09.01 to 09.01.09.09. You have to disclose either participation or non-participation in a warranty plan. If you participate, the buyer may have the choice to opt out. If that's the case, the contract has to include a waiver of coverage notice (Real Property Code § 10-607) as well as a blank rescission of waiver form (Real Property Code Annotated § 10-607(c)). Whether you participate in a warranty plan or don't participate, the contract must include a statement about any known hazardous or regulated materials on site.

It pays to be careful about compliance. Omission of any disclosure or notice required by the New Home Warranties Act can result in a fine of up to $50,000 and two years in prison. Violation of the Act is also treated as an unfair and deceptive trade practice under Maryland's Consumer Protection Act, giving an owner the right to sue for damages and collect attorney fees.

Failure to include an accurate "Certification by Builder" statement in a contract is a felony and makes the contractor eligible for a fine up to $10,000 and 15 years in prison. Omission of any disclosure required by Real Property Code § 14-117(j) or Maryland's Custom Home Protection Act is a misdemeanor punishable by a fine of up to $1,000 and a year in prison. If omitting a disclosure or notice results in a financial loss to a home buyer, a court may order the defendant to stop working as a construction contractor. Violation of the Custom Home Protection Act gives a home owner the right to sue for damages and collect attorney fees.

If you're serious about drafting construction contracts for work in Maryland, I recommend another site.

Construction Contracting in Hawaii

Hawaii has a reputation for making life difficult for contractors who don't toe the line. Sometimes the results border on the ridiculous, at least from a contractor's perspective. Just ask Michael Sakatani, a Honolulu contractor doing business as 808 Development LLC. 

A few years ago Mike's company landed a $1.8 million contract to build a 9,000 SF home at 4902 Kahala Avenue in Honolulu – in the shadow of Diamond Head and just a block from the blue Pacific. That should have been good work for Mike. But costs ran a little more than expected and relations with the owner soured. Payments stopped and you can probably guess what happened next. A team of lawyers stepped in to sort things out. 

The case dragged through Hawaiian courts for several years, eventually landing in the Hawaii Supreme Court. Like many other states, Hawaii requires specific notices and disclosures in construction contracts. What's required depends on the type of work. Mike's Diamond Head job was residential. 

For residential work: · Hawaii Revised Statutes § 444-25.5 voids any contract which omits specific notices and disclosures. · Omission of the same disclosures is also considered a deceptive act under Hawaii Revised Statutes § 480-12, making the contractor liable for a $5,000 fine (§ 444-23). · 

Failure to provide the disclosures required by Hawaii’s Code of Rules, Title 16, Chapter 77, Subchapter 12, § 79 and § 80 can result in suspension or revocation of a contractor's license. That's Hawaii Revised Code § 444-17. · Hawaii’s Contractor Repair Act, § 672E-11, requires that contracts include a notice of the contractor's right to repair construction defects.  

Once Mike's lawyers took over, they discovered a problem. One of Hawaii's required notices was missing from Mike's contract -- the mechanics' lien notice in § 444-25.5. Mike claimed the lien notice had been delivered as part of the contract. But he couldn't find a copy and neither could the property owner. So the contract was void under Hawaii law. 

 In most states, that leaves the contractor with two choices. Either collect under the theory of "unjust enrichment" or file a mechanics' lien. Neither will get you the full contract price. But at least Mike could recover his sunk costs. And that's what Mike's legal team argued. In their words, anything else would be "absurd and unjust." That's not how Hawaii's Supreme Court saw it. No matter how absurd and unjust, a contractor who omits even one required notice from a construction contract has no right to collect, period. When it comes to construction contracts, Hawaii takes no prisoners. 

If you plan to collect, the contract better be perfect. But the court's decision wasn't all bad news for Mike. He wasn't assessed the $5,000 fine, didn't have his license revoked and didn't have to pay the owner's attorney fees. And if he ever finds that missing mechanics' lien notice, the court offered to reconsider their decision. That was in 2006 (808 Dev., LLC v. Murakami, 111 Haw. 349). There's no later appellate decision. So I guess Mike is still looking for that missing lien notice. 

If you make a living as a construction contractor in Hawaii, here's the best tool available for drafting Hawaiian construction contracts. The trial version is free.

Sunset of the Texas RCCA

The Texas Residential Construction Commission Act (TRCCA) has joined the Alamo as a memorable episode in Texas history. Like defenders of the Alamo, defenders of TRCCA went down swinging. But the result was about the same: A commendable effort that came up a little short.

TRCCA was basically a good idea: Provide every new home and every home improvement project over $10,000 with a detailed statutory warranty against defects – what's covered, what's not covered and for how long. Get an independent third-party opinion if the property owner and the contractor can't agree on a defect claim. Then identify what a contractor has to do about any true defect.

The essential element in this scheme was the TRCCA performance standards – 47 pages developed by knowledgeable professionals with the help of the Construction Science Department at Texas A&M. These standards took most subjective opinion out of the equation, leaving less room for dispute. I like that. And courts do too – freeing up dockets for more important work.

The rap on TRCCA was that the claim process took too long (5 months) and didn't resolve enough disputes (only 12%). Worse, TRCCA didn't give anyone authority to enforce decisions that go against Texas builders (or Texas home owners).

Like defenders at the Alamo, the Commission is gone. They aren't accepting new complaints, aren't making inspections and aren't registering builders and remodelers.

But even with TRCCA gone, Texas still has plenty of construction defect law on the books. The Texas Residential Construction Liability Act of 1989 gives builders the right to inspect and repair after a claim of defect. There's a heavy incentive for builders to make a reasonable offer of settlement. If the dispute ends up in court, Texas may throw in attorney fees and the cost of temporary re-settlement if the owner has to relocate during repairs.

I believe the legacy of TRCCA will be their performance standards. These standards won't be the law in Texas after August 31, 2010. But they're still the best authority on residential construction defects. Texas is the only state that's made a conscientious effort to develop residential performance standards. Expect to see these standards recycled the next time legislators in Austin re-visit ways to protect Texas home owners.

With TRCCA gone, Texas builders and remodelers need to make a few changes in their contracts. Title 16 notices and disclosures are obsolete. These include registration (§ 420.001), registration number (§ 420.002), arbitration (§ 420.003) and dispute resolution (§ 426). But the right to repair notice in Texas Property Code § 27.007 must now appear in residential contracts because the exemption in Texas Property Code § 27.007(c) no longer applies. And, of course, the statutory TRCCA warranty is now optional.

If you need a little help sorting all this out, the Texas edition of Construction Contract Writer drafts post-TRCCA contracts. If you've already installed Texas Construction Contract Writer, the update is free. Click Help on the program Menu bar. Then click Check for Updates.

Checklist for New York Contractors

Staying legal in the New York construction contracting business begins with licensing.

New York State licenses only asbestos contractors. But that doesn't make licensing a trivial issue in New York. Cities and counties in New York are free to require a license for any type of construction activity. And many municipal governments do exactly that. For example, New York City licenses home improvement contractors. The site is here.

A word to the wise. Don't sign a contract or begin work without checking into license requirements. New York State may be a little casual about licensing of contractors. But New York courts are ruthless in enforcing licensing laws. Where a contracting license is required, unlicensed contractors may have no right to collect for work completed. Nassau County and Westchester County enforce their license laws by impounding construction vehicles.

But even if you don't need a license, New York State jumps with both feet into your construction contracts. You need to know about several statutes.

If the contract price is $150,000 or more for commercial work or if the job is a larger residential project, New York's Construction Contracts Act dictates many key terms: payment dates for both contractors and subcontractors, grounds for stopping work, termination of contract and arbitration (required). That's New York General Business Law § 756-a. But that's just the beginning. New York General Business Law Section 756-b sets penalties for violation of Albany's contract terms – maybe not what you wanted at all.

New York General Business Law, Section 771 is even more explicit on what has to be in residential construction, home improvement and home repair contracts.
(1) The name, address, telephone number and license number, if applicable, of the contractor.
(2) The dates when work will begin and be completed, including any contingencies that could delay completion.
(3) A description of the work including makes and model numbers
(4) A disclosure in bold type that subs and suppliers have lien rights.
(5) A notice that the contractor has to deposit payments in a trust account or supply other security for payment of subcontractors and suppliers.
(6) A progress payment schedule by job phase in dollars and cents.
(7) A 3-day right to cancel.
For technical violations, the penalty is $100. For substantial violations, the penalty is the greater of $250 or 5% of the contract price up to $2,500.

New York General Business Law, Section 771 also requires the same information in every amendment to a residential construction, home improvement or home repair contract. That makes for lengthy change orders.

New York General Obligations Law Section 5-322.2 requires that every construction contract for residential work of less than five units (1) identify who owns the property and (2) include a property address adequate for lien law purposes. Subcontracts have to include the same information.

If you have better ways to spend your time than deal with all this legal gibberish, I can recommend a couple of web sites.

Construction Contract Writer drafts letter-perfect New York construction contracts and subcontracts for residential and commercial work. The trial version is free.

Directions to the New Jersey Supreme Court

Not many home improvement contractors get their day at the supreme court. But it happened in New Jersey earlier this year. And there's a lesson here for residential contractors in many other states. I'll explain.

Jo Anne and Tom Heath selected Czar, Inc., a Patterson, NJ cabinet shop, to install kitchen cabinets and woodwork in their new home. The Heaths weren't happy with the cabinets Czar installed and refused to pay. Czar filed suit to collect. To this point, it's a story you've heard many times. But this is where the case got interesting.

The Heaths knew a thing or two about New Jersey home improvement contract law. They knew Czar didn't have a legal contract. They didn't have to complain about the job. Instead, they could counter-claim over the contract. The Heaths filed suit in Morris County for damages, alleging violation of the Home Improvement Practices Act.

New Jersey Administrative Code sections 13:45A-16.1 to 16.2 (Home Improvement Practices) and New Jersey Administrative Code sections 13:45A-17.1 to 17.14 (Home Improvement Contractor Registration) require that all home improvement contracts for more than $500 be in writing and include very specific disclosures. Failure to include those disclosures in the written contract is a violation of New Jersey's Consumer Fraud Act. Penalties include a full refund (New Jersey Statutes Annotated Section 56:8-2.11) or treble damages plus legal fees (New Jersey Statutes Annotated Section 56:8-19).

The Heath's counter-claim put the case under New Jersey's Consumer Fraud Act. The Heaths were in line to collect treble damages and their attorney fees – not because of any defect in the cabinets but because of a defect in the contract.

What should have been in that contract?

• The legal name, business address and registration number of the contractor.
• A certificate of commercial general liability insurance.
• The total price including any finance charges.
• A notice of the right to cancel.
• Disclosures: start date, finish date, phone numbers, etc.

Omit any of those from a home improvement or home repair contract and you've dropped into New Jersey's Consumer Fraud Act: full refund, triple damages plus attorney fees.

Unfortunately for contractors, New Jersey isn't unique in this respect. Many states give owners the right to collect for a defective home improvement or home repair contract: Texas, Oklahoma, Arkansas, Illinois, Indiana, Tennessee, Ohio, Maryland, Pennsylvania, Connecticut and Massachusetts come to mind.

As for Czar, Inc. I doubt they got much satisfaction out of their day at the Supreme Court. The Heaths won, of course. It was an expensive lesson for Czar, Inc. Legal fees on the way to the New Jersey Supreme Court can run many times the cost of kitchen cabinets. Which proves a point I've made more than once on these pages: When a job goes bad, you better have a good contract.

What to do? Easy. Construction Contract Writer drafts home improvement and repair contracts that comply precisely with New Jersey law. The trial version is free.

 

Checklist for Florida Contractors

I'm asked occasionally to recommend a simple 2-page construction contract.

"Where can I get a contract like that?"

If you see one of these two-page wonders, you can be sure it's junk – at least in the State of Florida. The legislators in Tallahassee have seen to that. Every valid Florida construction contract will include several pages of notices and disclosures required by Florida law.

If you've been using a two-page contract for residential construction in Florida, here's a handy guide to what you're missing.

Opportunity to Repair (Florida Statures Chapter 558.005)

Every construction contract in Florida (except public transportation projects) must include the "notice of claim" statement.

CHAPTER 558, FLORIDA STATUTES, CONTAINS IMPORTANT REQUIREMENTS YOU MUST FOLLOW BEFORE YOU MAY BRING ANY LEGAL ACTION FOR AN ALLEGED CONSTRUCTION DEFECT. SIXTY DAYS BEFORE YOU BRING ANY LEGAL ACTION, YOU MUST DELIVER TO THE OTHER PARTY TO THIS CONTRACT A WRITTEN NOTICE, REFERRING TO CHAPTER 558, OF ANY CONSTRUCTION CONDITIONS YOU ALLEGE ARE DEFECTIVE AND PROVIDE SUCH PERSON THE OPPORTUNITY TO INSPECT THE ALLEGED CONSTRUCTION DEFECTS AND TO CONSIDER MAKING AN OFFER TO REPAIR OR PAY FOR THE ALLEGED CONSTRUCTION DEFECTS. YOU ARE NOT OBLIGATED TO ACCEPT ANY OFFER WHICH MAY BE MADE. THERE ARE STRICT DEADLINES AND PROCEDURES UNDER THIS FLORIDA LAW WHICH MUST BE MET AND FOLLOWED TO PROTECT YOUR INTERESTS.

The contract is still valid if you omit this statement. But the fine for leaving it out is $500 under Florida Statutes § 775.08(3).

Buyer's Right to Cancel (Florida Statutes § 501.031)

Unless the deal was closed at a state fair, at your office or after an express invitation to visit your client at home, residential contracts have to give notice of the buyer's right to cancel.

BUYER'S RIGHT TO CANCEL. This is a home solicitation sale, and if you do not want the goods or services, you may cancel this agreement by providing written notice to the seller in person, by telegram, or by mail. This notice must indicate that you do not want the goods or services and must be delivered or postmarked before midnight of the third business day after you sign this agreement. If you cancel this agreement, the seller may not keep all or part of any cash down payment.

If the deal was closed, for example, over lunch in a restaurant, on the phone, by email, on a golf course or at an architect's office, it's a home solicitation sale. I know that doesn't make sense. But it's Florida law. The notice is required. Omission of the notice is a first degree misdemeanor punishable by up to a year in prison and a $1,000 fine under Florida Statutes § 775.082 and § 775.083.

Florida Construction Lien Notice (Florida Statutes § 713.015)

This notice has to appear in all residential prime contracts valued at $2,500 or more if work is either new construction or improvement of a building with four units or less. The notice has to be in 12-point bold caps and either on the front page of the contract or on a separate page. If the notice is on a separate page, this statement has to be signed by the owner and dated.

NOTICE OF FLORIDA'S CONSTRUCTION LIEN LAW

ACCORDING TO FLORIDA'S CONSTRUCTION LIEN LAW (SECTIONS 713.001-713.37, FLORIDA STATUTES), THOSE WHO WORK ON YOUR PROPERTY OR PROVIDE MATERIALS AND SERVICES AND ARE NOT PAID IN FULL HAVE A RIGHT TO ENFORCE THEIR CLAIM FOR PAYMENT AGAINST YOUR PROPERTY. THIS CLAIM IS KNOWN AS A CONSTRUCTION LIEN. IF YOUR CONTRACTOR OR A SUBCONTRACTOR FAILS TO PAY SUBCONTRACTORS, SUB-SUBCONTRACTORS, OR MATERIAL SUPPLIERS, THOSE PEOPLE WHO ARE OWED MONEY MAY LOOK TO YOUR PROPERTY FOR PAYMENT, EVEN IF YOU HAVE ALREADY PAID YOUR CONTRACTOR IN FULL. IF YOU FAIL TO PAY YOUR CONTRACTOR, YOUR CONTRACTOR MAY ALSO HAVE A LIEN ON YOUR PROPERTY. THIS MEANS IF A LIEN IS FILED YOUR PROPERTY COULD BE SOLD AGAINST YOUR WILL TO PAY FOR LABOR, MATERIALS, OR OTHER SERVICES THAT YOUR CONTRACTOR OR A SUBCONTRACTOR MAY HAVE FAILED TO PAY. TO PROTECT YOURSELF, YOU SHOULD STIPULATE IN THIS CONTRACT THAT BEFORE ANY PAYMENT IS MADE, YOUR CONTRACTOR IS REQUIRED TO PROVIDE YOU WITH A WRITTEN RELEASE OF LIEN FROM ANY PERSON OR COMPANY THAT HAS PROVIDED TO YOU A "NOTICE TO OWNER." FLORIDA'S CONSTRUCTION LIEN LAW IS COMPLEX, AND IT IS RECOMMENDED THAT YOU CONSULT AN ATTORNEY.

Omitting this notice is a non-criminal violation punishable by a fine of up to $500 under Florida Statutes § 775.08(3) and may make it difficult for a prime contractor to enforce lien rights.

Construction Industry Recovery Fund Notice (Florida Statutes § 489.1425)

This notice is required in all residential repair, restoration and improvement contracts valued at over $2,500.

FLORIDA HOMEOWNERS' CONSTRUCTION RECOVERY FUND

PAYMENT MAY BE AVAILABLE FROM THE FLORIDA HOMEOWNERS' CONSTRUCTION RECOVERY FUND IF YOU LOSE MONEY ON A PROJECT PERFORMED UNDER CONTRACT, WHERE THE LOSS RESULTS FROM SPECIFIED VIOLATIONS OF FLORIDA LAW BY A LICENSED CONTRACTOR. FOR INFORMATION ABOUT THE RECOVERY FUND AND FILING A CLAIM, CONTACT THE FLORIDA CONSTRUCTION INDUSTRY LICENSING BOARD AT THE FOLLOWING TELEPHONE NUMBER AND ADDRESS:

DIVISION OF PROFESSIONS, CONSTRUCTION INDUSTRY LICENSING BOARD, 1940 NORTH MONROE STREET, TALLAHASSEE, FL 32399, PHONE: 850.487.1395, EMAIL: CALL.CENTER@DBPR.STATE.FL.US

Omission of this notice is punishable by a fine of up to $500 for the first offense and up to $1,000 for a second or subsequent offense.

The Home Improvement Sales and Finance Act. (Florida Statutes § 520.73)

If a home improvement contract includes a finance charge, Florida law requires a statement in 10-point bold type directly above the owner's signature.

Notice to Owner. Do not sign this home improvement contract in blank. You are entitled to a copy of the contract at the time you sign. Keep it to protect your legal rights. This home improvement contract may contain a mortgage or otherwise create a lien on your property that could be foreclosed on if you do not pay. Be sure you understand all provisions of the contract before you sign.

Omission of this notice requires a credit of all delinquency fees charged, plus attorney fees and costs.

If your Florida contracts fudge on these notices, you have an excuse. Some of these notices are new. The right to repair notice became effective October 1, 2006. The lien notice law became effective in the present form on July 1, 2007.

This checklist covers only notices required by Florida law. Of course, all Florida contracts have to comply with Federal law – the 3-day right to cancel (12 C.F.R. 226.15 ), Federal Truth in Lending (15 U.S.C. 1601) and insulation disclosures (16 C.F.R. 460). If you do home improvement work in zips between 33010 and 34141, Miami-Dade Municipal Code § 10-33 requires additional disclosures.

Even if you're not concerned about the threat of fines and jail time, there are good reasons to keep your contracts legal under Florida law. Get into a dispute on any job and the attorney for the other side will hammer away at every little flaw and blemish in your contract. You could be left with no way to collect.

Need help sorting all this out? I think every contractor does. Construction Contract Writer drafts agreements that comply perfectly with Florida law. The trial version is free.

What Connecticut Home Builders and eBay Have in Common

July 1, 2009 was a red letter day for residential contractors in Connecticut. The Nutmeg State adopted a protocol that eBay, Amazon, and others have used for years. These Web vendors make it easy for customers to know who they're dealing with. eBay calls it their "Feedback Profile." Click the link and you'll see ratings and comments about a particular vendor. Starting July 1, Connecticut requires about the same thing – but not on the Web. Connecticut wants a feedback link embedded in residential construction contracts.

Customer feedback makes sense. For Web vendors, organizing Web feedback is both easy and effective. Potential customers get unvarnished opinions from users who (supposedly) have no financial incentive to exaggerate. That's a rare treat in our plugged-in culture. For Connecticut, this is simply more avant-garde legislation. Connecticut has been famous for that since colonial times. Remember, Connecticut is the "Constitution State."

So what does the new law require of builders and remodelers in Connecticut? First, understand that legislators in Hartford are throwing the book at residential contractors who aren't paying attention. A home improvement contract that doesn't comply with Connecticut law can't be enforced against the property owner. With an illegal contract, you have to turn beggar to collect anything. But that's just the beginning. Most violations are class B misdemeanors punishable by a fine of $1,000 or six months in prison, or both.

For the full text of the law, you'll need to see:

• Connecticut's Home Improvement Act (CHIA), General Statutes §§ 20-418 to § 20-432
• Connecticut's Home Solicitation Sales Act (CHSSA), General Statutes §§ 42-134a to 42-141
• Connecticut's Unfair Trade Practices Act (CUTPA), General Statutes §§ 42-110a to 42-110q
• Connecticut's New Home Construction Act (CNHCA), General Statutes § 20-417a to § 20-417j

If you aren't acquainted with these abbreviations, I'll summarize:

CHIA applies to every construction job valued at over $200 on any residential property with six units or less, including alteration, remodeling, and repair, such as painting or roofing. Also included: yard work such as pools, fences, walls, walks, driveways and patios.

If CHIA applies to a project, CHSSA also applies. A home improvement contract which does not meet CHSSA qualifies the contractor for a fine of up to $500 or imprisonment for up to 90 days, or both.

Violation of Connecticut's CHIA or CHSSA is also a violation of CUTPA. A willful violation of CUTPA (such as failure to offer or honor the 3-day notice of cancellation) is punishable by a fine of up to $5,000. In addition, an owner who suffers a loss as a result of any unfair trade practice may bring suit to recover actual damages. A court can also award punitive damages and attorney fees to the property owner.

CHIA excludes work done by professionals licensed in Connecticut so long as work done is within the licensed trade description. Licensed professionals include electricians, glaziers, plumbers, fire sprinkler, heating, piping, cooling and sheet metal installers. CNHCA applies only to new home builders -- single-family, two-family or condominium.

Doing the eBay Thing

Whether the job is home improvement or new home construction, the contract is illegal and unenforceable if it fails to disclose the name of every residential construction company the contractor has had an interest in for the last five years. Starting July 1, 2009, CNHCA requires that contractors (1) offer prospective owners a list of customers over the last two years and (2) suggest that the prospect discuss quality issues and timely completion with those references. The construction contract has to (1) advise the customer that others may call to inquire about work of the contractor and (2) offer to withhold the customer's name from others on written request.

In effect, Connecticut requires that residential construction contracts include what Web vendors offer routinely on their Web sites. That's breaking new ground for construction contracts.

Is customer feedback an appropriate topic for construction contracts? I'm not sure. But until Hartford repeals CHIA, CHSSA, CUTPA and CNHCA, your residential contracts have to comply. Click here for a tool that writes letter-perfect Connecticut construction contracts. The trial version is free. All meet requirements of the new Connecticut law.