How to Write a Home Improvement Contract

INTRODUCTION

A home improvement contract is a written legal agreement between two or more parties.  A well written home remodeling contract will maintain an open line of communication between the contractor and the homeowner. Equally important is the ability of the contract to specify the obligations of both the contractor and the homeowner and,  as a result, avoid the necessity of relying on a court system to resolve issues. The written contract can be the means necessary to confirm that the legal obligation of the two parties is in compliance with the laws of the particular state in which it is written. A well written contract must clearly specify the work to be completed, the time period during which the work will be performed, the materials that will be used to complete the home improvement project, as well as the cost of the materials and the work to be performed.

GENERAL ELEMENTS OF THE HOME IMPROVEMENT CONTRACT

The home remodelling contract must be in writing and be signed by the parties to contract that may include the contractor, the home owner or buyer, as well as any sales person who is a party to the home improvement agreement.  All changes to the contract must also be in writing and signed by all parties to the contract.

A copy of the dated and signed home improvement contract must be provided to all parties to the contract who may include the contractor, home owner or buyer, and sales person.

The contractor is not allowed to demand or accept any payment of any amount other than a down payment until such time as the work specified in the home improvement contract is completed and the materials identified in the contract are delivered. The maximum amount of the down payment is determined by the laws of the individual state in which the home improvement project is performed.  In some states, the amount of the down payment  is the lesser of $1,000 or less or ten percent of the total amount of the contract.

In all instances, any payment to the sales person in regards to the home remodeling project must be made on a pro rata basis and be in proportion to the schedule of payments that will be made to the contractor.

The salesperson’s name and registration number must be included in the home renovation contract.

SPECIFIC ELEMENTS OF A HOME IMPROVEMENT CONTRACT

CONTRACT INFORMATION. The contractor’s name, business address, and license number must be stated in the home renovation contract.  In addition, the name and address must be stated of any sales person that is a party to the contract.

TYPE OF CONTRACT. The terms “Home Improvement” must be stated in the contract.

CONSUMER NOTIFICATION. The statement “You are entitled to a completely filled in copy of this agreement, signed by both you and the contractor, before any work may be started” should appear in the home improvement contract.

DESCRIPTION OF WORK. A description of both the project and the significant materials required to complete the home renovation project as well as any equipment to be installed on the premises must appear in the contract. The material description should include the quality, quantity, weight, color, size, and brand name. All elements of the project should be referenced in the contract including the complete cleanup and removal of any debris or materials. Particular requests should be stated in the contract. Work to be performed by the home owner or buyer should also be documented in the contract.

PRICE. The agreed to price of the home improvement project should be clearly stated and identified by the terms ‘Contract Price’. The price should be stated in dollars and cents.. The home improvement contract price is inclusive of labor, materials and profits but exclusive of finance charges. Any finance charge must be separately stated in dollars and cents and identified by the phrase “Finance Charge’. A specific line item in the contract should reference any dollar amount that is set aside for particular materials, fixtures, or other items that will be selected by the Owner at a future time. The set aside amount will be inclusive of any overhead or profit or taxes that relate to these items.  If the final cost of any item that is included in the items for which dollar amounts were set aside is more or less than the dollar amount specified in the contract, a written change order will be used to increase or decrease the contract price accordingly.

DOWN PAYMENT. The specific amount of the down payment will be stated in the home improvement contract as will the phrase ‘The down payment may not exceed $1,000 or ten percent of the contract price, whichever is less.’

PROGRESS PAYMENTS

A progress payment is a payment in addition to the down payment that must be made prior to the completion of the contract.  The progress payment must be specified in a schedule of progress payments that includes the heading ‘Schedule of Progress Payments’, a statement that pertains to each individual progress payments that includes the dollar and cents value of the payment as well as the specific work or service and the related materials and equipment for which the payment will be made.  The home renovation contract should include the statement “The schedule of progress payments must specifically describe each phase of work, including the type and amount of work or services scheduled to be supplied in each phase, along with the amount of each proposed progress payment. It is against the law for a contractor to collect payment for work not yet completed, or for materials not yet delivered. However, a contractor may require a down payment.”

TIME FRAME. The time period in which the home improvement project will be performed will be addressed by a statement  that specifies what exactly is the indicator of ‘the start of work’, the approximate calendar date on which the work will begin, and the estimated date of which the work will be completed.

COMSUMER NOTICES. The statement ‘List of Documents to be incorporated into the Contract’ should be included in the contract followed by an itemized  list of documents that will accompany the contract. Examples of such documents include notes about extra work and change orders, commercial general liability insurance documents, a workers’ compensation insurance policy,  a performance of extra or change-order work notice, a mechanics’ lien warning, a contractors board notice and a cancellation notice.

BOTTOM LINE. The signature of the contractor, home owner or home owner or buyer and sales person should be affixed to the home improvement contract as well as the date the document is signed.

WARRANTIES BY THE CONTRACTOR. Any contractor warranty should be specified in the contract.

WARNINGS AND EXCEPTIONS. The home owner or buyer must be provided by the contractor a ‘Notice to Owner’ warning about property liens in the home improvement contract if applicable.

WARRANTIES AND EXCEPTIONS. The contractor must provide the home owner or buyer information regarding any mechanics’ lien on the property that relates to any non-payment to a subcontractor or supplier or worker who is not paid for services rendered.

CANCELLATION. The cancellation clause in the home improvement contract pertains to the home owner or buyer’s right to cancel the contract within 3 days of signing the contract. The home owner or buyer must notify the contractor in writing of the intent to cancel the contract.  In turn, the contractor must return all monies paid by the home owner or buyer .  In addition, the contractor must return the property to the state that existed prior to the start of the contract.

ADDITIONAL PROTECTIONS FOR THE HOME OWNER OR HOME OWNER OR BUYER

1. The home owner or buyer should contact the Contractors State License Board to determine the contractor’s standing with the state.

2. The home owner or buyer should  obtain at least 3 references for each contractor that is being considering for the project.

3. The home owner or buyer should view the completed work of each contractor that is being considering for the project.

4. The home owner or buyer should identify the permits that will be required to complete the project.

5. The home owner or buyer should read and understand the contract.

6. The home owner or buyer should determine if the 3-day cancellation right pertains to the proposed project.

7. The home owner or buyer should determine the exact start and end date of the home improvement project.

8. The home owner or buyer should confirm that the contract makes specific statements regarding the work to be done, the material to be used, and the equipment to be installed.

9. The home owner or buyer should ensure your down payment is $1000 or 10% or less of the total contract value..

10. The home owner or buyer should review and understand the schedule of payments
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11. The home owner or buyer should review the ‘Notice to Owner’ that pertains to liens.