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.

"Legal in All 50 States"

Go browsing on the Web for construction contracts and you'll see braggadocio about some boilerplate contract being "legal in all 50 states."

Claims like this show up on Web sites run by savvy people with good credentials but who should know better. If you've skimmed over any of the earlier entries in this blog archive, you know how foolish it is to claim any construction contract is "legal in all 50 states."

Every state has the right to set unique requirements for construction contracts. And nearly all have.

You can take this to the bank: There's no home improvement contract that's legal in all 50 states. I'll go one step further: There's no contract for residential construction that's legal in all 50 states. You won't even find a contract for commercial construction that's legal in most states. That's not the way it works.

Construction contract law varies from state to state the same way income tax law varies from state to state. Imagine the reaction if you tried to file a New York or Texas income tax return with the Montana Department of Revenue. You'd probably be breaking the law in two states.

It's the same with construction contracts. Nearly all states require specific disclosures, set unique limits or void certain types of clauses in construction contracts. No two states are alike. And most states impose heavy penalties for doing construction work under a contract that doesn't meet state code. Fines up to $1,000 are common, as is the threat of jail time.

Even if you aren't concerned about fines and jail time, consider the impact if you get into a dispute before collecting final payment. The attorney for your client won't be impressed with your "legal in all 50 states" contract. More likely, you'll discover that the contract is either partially or totally unenforceable under state law. Game over! You lose. Run, don't walk, to the nearest exit. You're not going to collect another dime on that contract. If opposing counsel is charitable, you'll escape discipline from the state board. Persist and you'll get an invitation to do the perp walk at a state hearing.

When you see the claim, "legal in all 50 states," I recommend thinking "probably not legal in any state." The latter is far more likely than the former.

So how do you judge if some boilerplate contract is legal? If you're paying the $10 to $150 that most vendors change for a download, you've got the right to know: Is it really legal in my state?

I can recommend a Web site. Construction Contract Writer has legal contracts for every state -- home improvement, residential and commercial construction contracts. The trial version is free.

Oregon's New Construction Contract Law

Legislators in Salem dropped a list of new statutes on Oregon contractors in 2008. Like many other states, Oregon has jumped with both feet into writing residential construction contracts. And, like other states, Oregon imposes stiff penalties on contractors who aren’t paying attention. Most of the new requirements are simple disclosures designed to educate the buyer (home owner) before agreeing to anything.

If the value of a residential job exceeds $1,000, you'll need to supply a notice about construction liens. If the value exceeds $2,000, the contract has to include both a Consumer Protection Notice and a Notice of Procedure. All three of these notices have to be signed by both the contractor and the owner. The contractor has to keep a file copy for two years. The fine for failure to comply is up to $5,000. These three disclosure forms are available from the Oregon Construction Contractors Board at the CCB site. Unfortunately, these disclosures are just the beginning.

Oregon Administrative Rule 812-012-0110 requires that residential contracts explain property owner rights and terms of the contract. Most of what's required is strictly routine -- names and numbers. But some of what has to be in the contract is pretty much off the wall -- a description of the right to file a complaint. The same rule requires a checkbox in the contract disclosing whether arbitration is required to settle disputes. These disclosures are part of the contract. So no separate signature is required. Finally, for residential work, the owner has to receive notice of the right to cancel, using either the federal right of rescission form or an equivalent Oregon form.

More disclosures are required if the project is a new residence (rather than home improvement). As of July 2008, the contractor has to offer a written warranty against defects in material and workmanship. The owner has to acknowledge receipt of that offer and indicate either acceptance or rejection. No separate signature is required because this offer has to be part of the basic contract. Finally, you have to provide a Moisture Intrusion and Water Damage Maintenance Schedule and get the form signed by both the contractor and the owner.

If you haven't been counting, a total of seven disclosures are required, each with many parts. Obviously, it's easy for an Oregon contractor to make a mistake. And more than a few have. In the last three months of 2008, nearly 600 Oregon contractors were fined by Oregon's Construction Contractors Board. The average fine was about $1,000. Another 218 warnings were issued. Licenses were pulled on 204 contractors. In all, more than 2% of all licensed contractors in Oregon were cited by the CCB. And that was in just three months! Many of these fines were the result of a simple mistake – such as failure to attach a Consumer Protection Notice.

Oregon's seven disclosures add at least four pages to the shortest, simplest home improvement contract you can imagine. I wonder if disclosures aren't subject to the law of diminishing returns. Every additional disclosure form deflates the shock value of disclosures already made. If there's a practical limit to how much disclosure is too much, Oregon may be getting close.

But don't get me wrong. I like disclosures. The more the buyer knows, the better informed the decision. True, the new Oregon rules create a mine field for Oregon residential contractors. You have to be careful. But with one exception, Oregon has resisted the temptation to tip the fairness scale against contractors. That's what Pennsylvania and Texas do -- flatly outlawing some contract clauses or demanding others. Oregon doesn't do that. At least not yet.

The one exception: Oregon Revised Statutes Section 87.037 denies lien rights to prime contractors who do work valued at over $2,000 without a written contract. Think about that. No right to collect on the contract and no lien rights. It's heavy stuff. If you expect to get paid, you better have a written contract.

If you're serious about writing contracts that comply with Oregon law, have a look at the Oregon edition of Construction Contract Writer. The trial version is free.

End of the Texas RCC

The much-maligned Texas Residential Construction Commission Act (TRCCA) is about to fade into the sunset if activists in Texas get their way. TRCCA took root in 2004. The legislated purpose was to (1) promote quality construction by registering home builders, (2) serve as a resource for home owners and (3) offer neutral technical review of alleged construction defects. Sounds good so far.

But the Texas Sunset Advisory Commission has reported that TRCCA isn't working as planned and recommended abolishing the Commission. The national press has picked up on the issue, referring to Texas as "the worst state in the nation when it comes to protecting buyers of new homes." Those are strong words -- and will be the subject of this article.

First, an important clarification. TRCCA covers both new homes and nearly every home improvement project valued at $10,000 or more.

The rap on TRCCA is that the claim process takes too long (5 months) and doesn't resolve enough disputes (only 12%). Worse, TRCCA doesn't give anyone authority to enforce decisions that go against Texas builders (or Texas home owners). Texas can't suspend the license of a truly egregious builder because Texas doesn't license contractors.

The benefit of TRCCA is the follow-up every claim receives. At a cost of $250 to the home owner, a state-appointed inspector visits the site, writes a report and makes a recommendation. If the claim involves a structural defect, the inspector will be a licensed engineer. If the construction defect is a threat to health and safety, the builder has to fix the problem ASAP. If not fixed promptly, the home owner can have another contractor do the work and add the cost to the claim. If the inspector finds in favor of the home owner, the inspector's fee can be charged to the builder. The inspector's decision has to be based on the warranty and building code in effect and must recommend a method of repair.

About half of the TRCCA reports confirm a defect that has to be repaired. The inspector's report becomes evidence if suit or arbitration follows. Either the home owner or the builder can appeal the inspector's decision to a review panel. The panel has to reach a decision in 30 days.

TRCCA also created a mandatory residential warranty that can't be waived. This warranty is not a trivial document – over 100 pages of standards that define in detail what constitutes quality construction. This warranty is used by TRCCA inspectors when deciding what constitutes a defect and what doesn't. Duration of the TRCCA warranty is 1 year on workmanship and materials, 2 years on plumbing, electrical and HVAC, and 10 years on structural components. This is the most comprehensive and detailed residential warranty I've seen. No other state comes close.

TRCCA is stacked on top of remedies home owners had before 2004. If TRCCA doesn't resolve a claim, the dispute drops into the Texas Residential Construction Liability Act of 1989. TRCLA 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 – and sweeten the deal by throwing in attorney fees and the cost of temporary re-settlement if the owner has to relocate during repairs.

If the builder's offer isn't "reasonable," the home owner can claim: (1) the cost of repairs, (2) the cost of replacing or repairing anything damaged as a result of the construction defect, (3) engineering and consulting fees (4) temporary housing during the repair period, (5) loss of market value after the defect is repaired, (6) attorney fees.

If the cost of repairs is extensive, the builder can elect to re-purchase the home at the original purchase price plus closing costs plus attorney fees plus expert witness fees plus the cost of any improvements plus the cost of moving. In essence, it's a money-back guarantee.

But Texas doesn't stop there. TRCCA and TRCLA are stacked on top of remedies provided by the Texas Deceptive Trade Practices Act (DTPA). This is where home owners with construction defect claims want to be. DTPA dates from 1973 and gives buyers of construction services a private right to collect triple damages plus attorney fees for misrepresentation or breach of warranty.

Taken together, TRCCA, TRCLA and DTPA offer Texas home owners a triple canopy of protection, including independent third-party inspection, a 100-page written warranty, money-back guarantee and triple damages.

Even trivial errors by a Texas contractor can earn heavy penalties:

--- Omitting the contract notice required by Texas Property Code § 41.007(a) is a violation of DTPA and qualifies an owner to collect triple damages plus attorney fees.

--- TRCCA voids any arbitration clause in a contract which fails to make specific disclosures in 10-point bold type.

--- Omission of disclosures required by TRCCA makes the contract unenforceable.

--- TRCLA gives an owner the right to recover $500 from a contractor if the contract omits a specific statement.

Is Texas the worst state in the nation when it comes to protecting buyers of new homes? Exactly not, in my opinion.

Can a residential contractor still make a living in Texas? Of course. One place to start is with the Texas edition of Construction Contract Writer. You'll find a good tool for drafting contracts that comply with Texas law. The trial version is free.

California Business and Professions Code § 7159

If you're a licensed contractor in California, you probably know all about Cal B&P 7159. It's caused more than a little grief for more than a few California contractors, some of them now former California contractors. Cal B&P 7159 is Sacramento's effort to rewrite every contract for home improvement, remodeling and repair work throughout the state – adding about eight pages to even the shortest agreement.

If there was an award for legislative ineptitude, California would be among the prime contenders. Their $billion budget deficits put California in a class by itself. But this legislature that can't shoot straight has no trouble targeting home improvement contractors. Cal B&P 7159 is the result.

A California contractor put it to me this way: "I'm a contractor. I'm not a lawyer. I shouldn't have to hire a lawyer before taking on a kitchen or bath job. I value my reputation as a builder and have nothing but satisfied clients. That's the best any contractor can do. But those guys at the state license board are looking for a way to pull my ticket. Until that happens, I'm going to go on doing business on a handshake – and keep my fingers crossed."

I can empathize – on two grounds. First, nothing the California legislature has done will add to the list of good, reputable, honest home improvement contractors. Second, I'm a California attorney and I agree completely – the crew for a kitchen or bath job shouldn't require a lawyer.

My impression is that many – perhaps most – California residential contractors simply ignore the law, like my friend who's keeping his fingers crossed. Their feeling: "The law is simply too complex and asks too much. Only a few dozen contractors get their license suspended each month. My chance of skating by is pretty good."

True. But there's another perspective. Suppose your homeowner client turns out to be a real nutcase. Or, suppose your client is a perfect angel but runs short of cash before the job is done. What then? Most likely, your dispute will end up on the desk of two attorneys, yours and your client's.

When a job goes bad, your contract better be good.

Anything less and your client’s attorney is going to turn you every which way but loose. Doing home improvement work without a letter-perfect contract is like driving without a license. Nothing bad happens until something goes wrong. Then it can go very wrong.

If you don't like the idea of finishing jobs and not getting paid, my advice is simple. Get your client's signature on an enforceable contract before breaking ground. There’s no better tool for drafting legal California contracts than Construction Contract Writer. The trial version is free.

Massachusetts Home Improvement: The Spirit of '76

The Commonwealth has been marching to its own drummer since Revolutionary times. So it was probably inevitable that Massachusetts would go its own way in handling grievances against home improvement contractors.

Massachusetts Office of Consumer Affairs and Business Regulation (OCABR) runs a home improvement arbitration program designed to keep construction defect claims out of Massachusetts courts.

The Massachusetts program is generally acknowledged to have done what the politicians in Boston intended. OCABR arbitration is quick (typically 90 days or less), cheap (about half the cost of AAA arbitration) and not overtly biased. An arbitrator appointed by the state visits the site, listens to both sides and writes a decision. A counterclaim, such as by the contractor, is allowed. So arbitration should be able to resolve all issues that grew out of a home improvement project.

So what's so bad about OCABR arbitration? As it turns out, there's plenty. It's another case of a state weighing in against construction contractors. I'll explain.

First, arbitration is automatic for home owners. All a home owner has to do is fill out a form. Not so for contractors. A contractor can't initiate arbitration without consent of the home owner (either at the time of application or via a waiver in the original contract).

Second, Massachusetts arbitration is an exclusive remedy until the arbitrator's decision is final. Theoretically, contractors can still sue to collect, such as in small claims court, or could file for arbitration under rules of the American Arbitration Association. But few courts and no private arbitrator will touch a suit for collection once OCABR arbitration has started. So contractors are left with no remedy in court and no private arbitration until a home owner's case is decided in OCABR arbitration.

Third, the entire premise of OCABR arbitration is one-sided. The unspoken threat is that a contractor's registration could be revoked. Homeowners in arbitration don't run the risk losing anything more than their time and trouble. As a result of arbitration, a contractor can be deprived of the right to make a living in Massachusetts. That's heavy stuff.

Finally, a homeowner who wins in arbitration and doesn't collect can recover from the Residential Contractors Guarantee Fund. The Fund then has a claim against the contractor. Massachusetts makes no guarantee when a contractor wins in OCABR arbitration.

If you feel uncomfortable about what Massachusetts does to home improvement contractors, there are good ways to push back. I'll name a few.

First, get pro-active. Be sure your contracts include a Massachusetts arbitration clause signed by the homeowner. That gives you the same access to OCABR arbitration that the homeowner enjoys.

Be sure your contracts are letter-perfect under Massachusetts law. If a job goes bad, you need a contract that's good as gold. If there's a defect anywhere in the contract, the attorney for the other side is sure to find the flaw and hammer away relentlessly. Under Massachusetts law, the contractor, not the home owner, is responsible for every defect in a home improvement contract. Sign a boilerplate agreement, such as an A.I.A. form, and you're a sitting duck.

To be valid, a Massachusetts home improvement contract needs eighteen distinct disclosures: (1) Your name and street address (not a mail drop) and phone numbers, (2) Your SSAN (or federal employer ID), (3) Your Massachusetts Home Improvement Contractor Registration number and expiration date, (4) The name of the salesperson, if other than the contractor, (5) The date when work will start and when work will be substantially complete, (6) A detailed description of the work to be done and the materials to be used, (7) An advance payment of no more than one-third of the contract price plus any special orders, (8) A payment schedule which shows the amount due by job phase, (9) A list of building permits required, (10) A statement that it's normally the obligation of a contractor to pull the permit, (11) A statement that homeowners who secure permits for work on their own homes don't qualify for recovery from the Residential Contractors Guaranty Fund, (12) Seven more short statements covering subjects from the phone number of the Director of Home Improvement Contractor Registration to warranties to mechanics' liens.

Omit any of these disclosures in the contract and you risk (1) suspension of registration, (2) a fine up to $2,000, and (3) imprisonment for up to one year. Doing business on a defective home improvement contract is also an unfair or deceptive act under Massachusetts law and gives the owner the right to seek triple damages and attorney fees.

The OCABR offers a home improvement contract on the Web that touches all the bases.

Unfortunately, that contract doesn't comply with federal law and exposes you to heavy fines.

For better Massachusetts contracts, including home improvement contracts with a contractor-bias, have a look at ConstructionContract Writer. The trial version is free.

Illinois Home Repair and Remodeling Act

Cory and Angela Bogard needed more space in their Casey, Illinois home. In the fall of 2004, Dan Smith of Dan R. Smith Building Services offered to put a 26' x 20' addition on the Bogards' living-room for "$20,000 or less". 

Cory and Angela accepted Dan's offer and he started work the following month. By February, Dan had pocketed $15,000 in progress payments and was nearly done. His final bill was $10,515, bringing the total cost of the job to $25,515. That was a little over budget. But at $49 per square foot, Cory and Angela got a pretty good deal. Unfortunately for Dan, that wasn't the end of it.

The Bogards weren't satisfied. They refused to pay, claiming more work was needed. Dan didn't agree. Months passed. It was too late for Dan to file a mechanics' lien. By October, Dan still didn't have his $10,515. So he filed suit.

Dan's fate was now on the desk of two Illinois attorneys, both looking for ways to blast the other side.

The Bogard's attorney had high caliber ammunition, courtesy of the lawmakers in Springfield. The labels were HRRA, CFA and HRFA. If you make a living in residential construction in Illinois, you need to know these acronyms:

• HRRA -- Home Repair and Remodeling Act
• CFA -- Consumer Fraud and Deceptive Business Practices Act
• HRFA -- Home Repair Fraud Act

HRRA requires a written contract for just about every residential remodeling or repair job over $1,000. The builder and the homeowner have to sign and date the contract and a brochure, 'Home Repair, Know Your Consumer Rights'. That was Dan's problem. No contract, no brochure and no way to collect. The court didn't award Dan a dime for his trouble, leaving him $10,515 short on the Bogard job. But it could have been worse, as I'll explain.

The enforcement teeth for HRRA are in Illinois' Consumer Fraud and Deceptive Business Practices Act (CFA). Operating a home improvement business under an assumed name can earn a $2,500 fine and a year in prison. Dan had no problem there. He was doing business under his own name, Dan R. Smith Building Services. But failure to complete work on time gives owners the right under CFA to demand a full refund. What if the Bogards had demanded a refund a week or two after Dan pulled off the job? Under CFA, Dan would have had 10 days to return the $15,000 in progress payments to that point. The penalty under CFA for failure to make a full refund: Suspension of the right to do business and a fine of up to $50,000.

Illinois' Home Repair Fraud Act (HRFA) threatens contractors with up to a year in jail and a $2,500 fine for making false promises, misrepresenting a material fact about the job, charging more than four times fair market value for any work, making false excuses for non-performance, failing to employ qualified personnel or violating the building code. Wow!

But, as I said, Dan got off easy. He got tripped up by HRRA and lost ten grand. A mistake under CFA can be (much) more expensive. Consider the case of Joe and Chris Taylor. They agreed to pay Father and Sons Inc. $40,000 for an addition to their home in LaGrange Highlands. The job went bad and ended up in arbitration. On a $40,000 job, the Taylors got an award under CFA of $40,000 for design defects, $22,006 for consultants, $75,000 for attorney fees, $1,400 for arbitration expenses and a discharge of all mechanics liens filed by Father and Sons Inc.

The moral of these stories: When a job goes bad, your paperwork better be good. If it isn't, you've written a blank check that's going to be cashed by an attorney for the other side.

Do yourself (and your bank account) a favor. Push back against consumer protection laws that back contractors into a corner. You're liable for everything that's either in or omitted from your contracts. Why not draft agreements that bend the bias in your favor? There's nothing illegal about that.

If your client suggests using an A.I.A. form or some other boilerplate contract, explain that the document offered is unlawful for home improvement work in Illinois. Using an unlawful contract would be a deceptive act under HRRA and CFA and could land you in jail. Instead, offer an agreement that you drafted and that complies with Illinois law.

If you make a living as an Illinois contractor, have a look at this site.