Many home renovation projects begin as seemingly unattainable fantasies. Years go by, you continue to save where you can, and suddenly, that idea becomes a legitimate possibility. The material samples you’ve secretly been accumulating in your drawers suddenly cannot be stuffed away any further, and it’s time to finally order renderings and bring your project to life.
Whether your plans include upgrading the worn carpet, wooden cabinets, the old laminate countertops, or the addition of an entirely new room to your home, this project is your child. As such, that project deserves to be executed the right way.
After months (or even years) of research, you finally settle on the contractor that appears to be the perfect fit for the job. You sign the seemingly straightforward contract covering all of your must-have details, and everything feels like smooth sailing from here on out. Then, in the blink of an eye, the nightmare begins. Your contractor stops showing up, presses you for more money, and threatens to slap a lien on your house. You thought you had prepared for every obstacle and hiccup, but you were never prepared to fight your own contractor.
If you want to protect your investment and avoid the legal pitfalls that can quickly submarine a home renovation project, you need to consult with an attorney before the first hammer hits a nail. Breaking up with your contractor is never easy, and trying to do so when your contract never had your back is even harder. When homeowners approach us while in the midst of a dispute with their contractor, we examine two important pieces of the puzzle: (1) communications with the contractor prior to construction beginning; and, (2) the construction contract itself.
In this post, we’ll review key points for finding and deciding on the right contractor, as well as seven “must-haves” for your construction contract. Your dream project deserves to be handled by the right person, and you deserve to be protected in case anything goes wrong.
Contractor Speed Dating
Before “drilling down” on must-have provisions for your construction contract, it’s important to first explore how to find the right contractor for your project.
1) Take Your Time: It’s critical to not rush the process. Many home improvement projects that end up in a legal battle are those involving homeowners who have been planning and saving for years, carefully detailing and refining their vision for how they may want to remodel the kitchen or expand the master bathroom.
If you’ve spent years preparing for your renovation, why would you not be just as patient when selecting your contractor? After all, they are going to transform your vision into a reality. Consult an attorney, interview multiple contractors, and prepare the plans to your exact specifications. If you come prepared to your interviews with a clear, “this is what I want” vision and attitude, prospective contractors will have a crystal-clear vision of what the finish line looks like. Clarity up front fends off chaos down the road.
2) You Don’t Owe the Contractor Anything: Many contractors have a knack for creating a sense of urgency, applying subtle pressure points to convince homeowners to move quickly. Lines like “it’s already January and you want to be in this kitchen by June?” create unrealistic timelines and a sense of urgency that has no place in your home. Yes, you need the contractor to complete your project. But that contractor needs you, too.
3) Perform Your Due Diligence on the Contractor: Though this seems like an obvious point, you would be surprised at how many homeowners don’t take the time to properly vet construction teams being handed the keys to their house. If you’ve been saving up for your big project for years, you probably want your contractor to be insured in case of any unexpected mistakes. Proper licensing with the State of Georgia helps too. And, while it’s not your job to plan for doomsday (that’s my job!), it doesn’t hurt to run a quick check online to see whether your prospective contractor is subject to any pending litigation. If they can’t check all of these boxes, it’s time to look for someone else.
4) Assume the Timeline and Price Are Going to Change: Never assume that the estimated six-month timeline is going to be accurate. To save yourself some stress on the back end, mentally build in an additional 2-3 months to your timeline. Change orders are common and will inevitably increase the price of your project. Supply chain issues must be anticipated, and with that a fluctuation in price of materials. A good rule of thumb is to fork away an additional 10% of total project cost for unexpected setbacks or mistakes. This will provide peace of mind knowing you have reserves at the ready for common issues that might arise.
5) Don’t Get Bullied: Remember – this is your project, not your contractor’s. Your chosen contractor will undoubtedly (and hopefully) take charge, but you are a team. If a prospective contractor attempts to create a power imbalance off the bat, kindly move on to your next candidate. If a contractor is already giving you a hard time before the contract is even signed, you’re virtually guaranteed to find yourself in a sticky situation months down the road.
Must-Have Contract Terms
Assuming you found a reliable, trustworthy contractor, let’s move on to the “must-haves” for the construction contract itself:
1) Change Orders: Change orders are common and nothing to worry over. That said, change orders must be in writing and mutually agreed upon. Your contract should reflect this concept and explicitly prohibit verbal change orders or any prior agreement or representation made by either party. Playing the “he said, she said” game over an alleged $30,000 change order is not fun and can derail your entire project.
2) Include Indemnification Provisions: You may be a model citizen and timely submit every payment to your general contractor, but did they pay their subcontractors? Indemnification provisions are incredibly important and will help shield you from a subcontractor slapping a lien on your home and creating all sorts of other legal headaches.
3) Clearly Spell Out Payment and Draw Schedules: Each phase of your renovation project should be clearly identified within your construction contract, detailing what work will be performed and when that work will be completed. Whether or not you took out a loan to fund your project, a draw schedule for each phase of the project should be just as clearly identified within your contract. Oftentimes, construction contracts will require that final payment be submitted “upon substantial completion.” This phrase shouldn’t worry you, so long as you’ve spelled out what that phrase means. Far too many otherwise frictionless projects fall apart at the “substantial completion” phase. By simply being a little wordier, you can avoid a fight at the finish line.
4) Require Inspections Before Draw Requests: In addition to a clear, detailed construction schedule, you have to build in a mechanism to confirm that each phase of work has been completed per your design plans and per local code. If you took out a loan, your lender will typically provide and require that inspections take place after each phase of construction and prior to a draw request being processed. Regardless of whether you took out a loan, it’s best practice to hire a third-party inspector to sign off on and verify that each phase of construction was performed correctly. Equally important is building in language to your construction contract that establishes procedures in the off chance that your contractor fails a periodic inspection. If your contract doesn’t provide clarity here, you may risk your contractor walking off the job following a “failed” inspection, and even worse, demanding payment for work performed regardless of inspection results.
5) Build In a Permit Transfer System: If your relationship with your contractor goes south and you need to bring someone else on to finish the job, it’s important that you be able to effortlessly switch any active permits to your new contractor. A good contract will include language on how permits should be handled if the parties go their separate ways. If you can tighten up this language up front, you may be able to dodge a significant bullet down the road.
6) Ensure Warranties are Included: You can’t force a contractor to warrant their work for 25 years, but you do need some protection against issues of workmanship that may arise at your project’s conclusion. Warranties can be both express and implied, and you want to make sure your contract allows for both.
7) Dispute Resolution Procedures: Even if you craft the greatest construction contract of all time, disputes may still arise. Far too often, I read construction contracts that do not clearly spell out what happens when issues come up before, during, and after construction. A good construction contract should clearly identify what steps must be taken by each party in the event of a disagreement. “The parties will submit to mediation” simply won’t cut it. Vague language within dispute resolution provisions leads to more fighting about fighting, which doesn’t bring you any closer to resolution.
All of these tips are just a starting point and are best managed by an experienced real estate attorney who can cover all the ins and outs of your next home renovation project. To learn more about our real estate contract drafting service, click here.
