Important Tips and Safeguards for Home Improvement Contracts And Renovations

Anthony T. Ballato, Esq

Wednesday, May 20, 2015

Renovations and improvements to homes are often very expensive and complicated matters involving contractors, architects and/or engineers, surveyors, suppliers and other vendors and professionals. While most every homeowner knows to consult with an attorney before buying or selling a home or other real estate, it is quite surprising how few people think of consulting with an attorney before entering into agreements with contractors or subcontractors involving even substantial renovations, additions or improvements to their residence. The failure to plan ahead and have a clear, detailed and written agreement with the general contractor, subcontractors, architect or engineer and others is too often a recipe for disaster.

There are countless stories of homeowners who have given substantial cash deposits to contractors or scam artists who fail to return to begin or complete the construction project or are faced with incomplete, defective or shoddy labor, materials or supplies or other disagreements involving the scope of the work, quality or quantity of the materials, or otherwise invite disputes involving costs for extras, damages for delay or other material matters such as liens by unpaid subcontractors, all of which could have been avoided or mitigated by proper advance planning, caution and having a detailed written agreement and providing for furnishing of insurance, surety or completion bonds, written lien releases, building inspections and certificates of completion, etc.

That while the topics briefly discussed herein could be addressed in a volume of books if fully explored, and therefore cannot be any more than summarized in this introductory article, the key points shall be addressed and the reader urged to do their homework in advance, engage in competitive shopping and consult with competent independent architects or engineers and attorneys in advance of beginning any major home improvements or renovations. Even simple or inexpensive home improvements or repairs should involve a written agreement in any event in advance to avoid any later disputes or adverse consequences.

The New York State Attorney General’s office on its website at www.ag.ny.gov/consumer-frauds/home-improvement-fact-sheet provides the following list of recommendations:

Know what work you want done.
Know what permits are needed.
Shop around.
Get references and check them.
Get proof of insurance.
Check licenses.
Never pay the full price upfront.
Put it in writing.
Know where your payments are going.

Never do business with a contractor who is unwilling to abide by any of the conditions above. Also, never proceed on a handshake or mere verbal agreement.

In addition to the recommendations of the Attorney General, the various local county and New York City offices of Consumer Affairs provide further and other tips to homeowners and consumers, and it is most important that the consumer, homeowner, or tenant only hire licensed contractors who are also insured after verifying same with the local office of Consumer Affairs. Since only such licensed contractors are required to maintain insurance, pass certain testing, are much less apt to be unscrupulous or con artists than unlicensed contractors, and the Offices of Consumer Affairs has the power to suspend or revoke licenses of such contractors, that provides an additional greater level of security and protection than when dealing with unlicensed individuals or companies who disregard the law. Moreover, within the City of New York, there is a fund for compensating homeowners who were damaged or bilked by licensed contractors. Performing “home improvements” as defined by statute without a license is unlawful and a crime which can be prosecuted by the District Attorney and/or fines assessed by the local Consumer Affairs office. Moreover, the law further provides that unlicensed home improvement contractors shall not recover payment from the customer which is a defense to any claim or lawsuit by the unlicensed contractor for alleged monies due. This is a complex area of law with certain exceptions and loopholes that must be carefully examined in specific cases.

Do not merely rely upon a business card, proposal or advertisement that the contractor is “licensed and insured” without verifying the existence of the licensewith the Office of Consumer Affairs and further requesting a current certificate of insurance from the contractor listing the homeowner or customer as an “additional insured”. Only this way can the customer seek compensation from a third-party insurance company in the event of damages caused to the residence, contents and/or persons by the negligence or misconduct of the contractor. A common example involves when during construction the contractor fails to properly tarp the roof or replace the roofing material and then a rainstorm comes along causing substantial water damage to the premises and the contents, and the contractor fails to repair the damages or even return to the job. In such event, the owner can make a claim with the insurance carrier for the contractor directly that may otherwise be denied by the typical home insurance policy. In addition to insurance, substantial jobs may also require surety and/or performance bonds.

Another common problem arises when a contractor or general contractor hires other individuals or companies known as subcontractors to provide labor and/or materials and after being paid by the homeowner, the general contractor fails to pay those other companies or individuals, who may in turn seek to file amechanic’s lien against the property and/or sue the homeowner for their unpaid goods or services. That while such conduct of the general contractor is inappropriate and unlawful, it still does not completely relieve the customer of potential double liability or at least the trouble and expense of defending an improper lawsuit. All too often the general contractor fails to place the homeowner’s advance payments into an escrow account as is required by the lien law trusts statute. These headaches and expenses could be avoided by requiring complete disclosure of any and all subcontractors or the prohibition of employment of same and requiring that the contractor provide written executed lien releases of all subcontractors before making further progress payments or final payment on the job.

With regard to payments, typically the more complex and expensive the job, the greater the number of payments that should be provided in a detailed written agreement between the parties. In small construction jobs or repairs, there may be only one payment required on the completion of the job, or with modest jobs typically three (3) payments of one-third (1/3^rd) each upon signing the contract, commencing the job and/or delivering certain materials and the balance upon completion of the job. Larger and more complex home improvements or renovations may involve perhaps five (5) to ten (10) payments with typically ten (10%) percent or more being held as retainage until issuance by the local building authority of a certificate of completion or certificate of occupancy and the general contractor’s completion of all punch list items. Failure to specify such conditions for payment and requirements of the contractor is a big mistake as is having substantial work or renovations done to a residence without appropriate building permits, inspections by the Building Department and issuance of the final certificate of completion or certificate of occupancy and perhaps also an electrical inspection certificate or what is also known as a fire underwriter’s certificate.

It is also very important to clearly specify with details in an agreement, and not merely a short proposal by the contractor, all of the quantities, qualities and types of materials, fixtures and the like to be provided. In simple repairs or renovations, all goods and materials should be clearly defined in the agreement, and in more complex home improvements or renovations where an architect and/or engineer provides plans, the homeowner should insist that their professionals provide a detailed specification list in the plans as to what is required and those plans should be referenced and incorporated into the parties’ agreement and the plans or drawings should be signed and dated by the parties to insure that everyone is in agreement and that the job is performed according to the plans. For example, in a kitchen renovation the owner would certainly want to specify that a “particular type of granite countertop” has been agreed to be furnished and installed and not merely that countertops are to be provided, which could be inexpensive Formica or other lesser products could be provided. Likewise, it is not sufficient to say that in remodeling a kitchen that lighting will provided, but specify what type of lighting, the location and quantity of the fixtures as well as the manufacturer. In other words, a consumer doesn’t want a few cheap and inadequate lighting fixtures installed in perhaps the wrong location, but rather reduced to writing in a clear fashion precisely what you expect to get out of the job and consult with your independent architect or engineer about same in advance and not merely rely upon what a contractor may provide. I say “independent” since many times using the general contractor’s architect is a conflict of interest and a mistake.

From the beginning to the end of the home improvement project or renovations, the homeowner or customer should take detailed, dated and clear photographsshowing all areas of the subject premises before the project begins, at all times during the work and at the end, especially showing all defective or incomplete items to be included on a punch list in advance of any disputes that may arise. The old adage that “a picture is worth a thousand words” should suffice to summarize the importance of taking and maintaining photographs of the entire project.

I also recommend getting at least three (3) to five (5) written estimates or proposals from different licensed contractors. You can learn a lot in the process as each will offer different opinions and advice and the price differences can be substantial. You should also ask for and actually check all references and see prior projects either in person or photographs and do searches on the internet for any ratings and reviews of the contractors in consideration before hiring any.

Unfortunately, you cannot rely upon the contractor or the workers to do their jobs properly or completely, nor should you leave them unsupervised. I have been astonished over the years with the stories told to me by clients and even witnessed myself in my own major home renovations as to the great degree of negligence, lack of concern, inadequacy and even dangerous behavior of contractors and their employees that could result in serious personal injuries or even fatalities on the job, electrical fires, leaking pipes, gas explosions and other avoidable catastrophes. For example, I have witnessed workers carelessly working around gas pipes, propane lines and propane tanks that could have resulted in fires or explosions had they not been stopped from their reckless behavior, carpenters quickly installing sheetrock on walls where the plumbers had failed to solder new plumbing or heating pipes, siding subcontractors and roofing contractors using the wrong size nails that were way too long that would have pierced plumbing pipes and/or electrical, alarm or other wires within the walls had they also not been stopped and required to use the correct shorter length of nails, closing up walls without properly securing a new staircase and an endless list of mistakes that really requires a knowledgeable homeowner or hired independent expert or architect or engineer to constantly supervise the job to ensure the protection of persons and property and proper performance of the job as well as using the specified and correct materials.

Perhaps one of the worst examples that I recall occurred in the late 1970s at the former Sunrise Mall in Massapequa, New York where a negligent worker while using an air-powered nail gun at an adjoining store missed the stud and shot through sheetrock sending a nail into the head of a young employee at the adjoining store. Miraculously, she survived. History does indeed repeat itself and I witnessed the same irresponsible behavior by carpenters at my own home where I had to put an immediate stop to their activity and summons the general contractor to the job. I could go on and on, as could my clients, with examples of gross negligence or incompetency of workers. Instead I will share with you a phrase that I coined years ago that “I would rather undergo major surgery without anesthesia than living through another major home improvement.” In other words, the workers can’t be trusted and it is too inconvenient, messy and dangerous to live in a home while it is under reconstruction or major improvements. This is not to say that all contractors or workers are bad, certainly they are not and I know and have represented some very fine ones, but unfortunately there are too many unskilled or uncaring laborers in the workplace that warrant extra care in the supervision and management of the project and too many unscrupulous individuals and companies that require the foregoing and other advanced planning, detailed written agreements and safeguards to minimize the damages and disputes that would otherwise occur.

Please therefore consult with independent architects, engineers and attorneys before you begin any major home improvements or renovations and think carefully ahead and review this and other helpful articles for even the smallest of jobs in your home. Also check with the other resources and government offices mentioned above for licensing, insurance and complaints.