As you contemplate your forthcoming renovation with excitement, the last thing on your mind is entering into litigation with your contractor. However, the reality is that homeowners must protect themselves and their assets through well written construction contracts, as the process of renovations is rife with risks and potential legal pitfalls. Knowing your legal rights and the laws of your state are critical to crafting and signing a legally binding agreement that will protect your interests.

Here are the key components of a renovation contract that should always be included and supported with explicit details. As questions arise during contract negotiations, be sure that they are unambiguously answered within the written contract. If necessary, an addendum to the contract can be used for this purpose.

1. Scope of Work

Define your scope of work clearly and carefully to eliminate questions or ambiguity once your project begins. Define terms when necessary.

Example:  The homeowner defines the area outside the Master Suite doors as a “balcony”. Is this the same as “porch”, as defined by the Contractor?

To reduce disputes where one party infers something or has tacit knowledge that is not obvious to the other party, craft an easy to understand scope. The Scope of Work should also be specific about: materials used; services which will be provided; and services that will not be provided. Get as granular as possible, especially when you know what you want. Define brands, material types and product numbers when available and known. Also be sure to incorporate any key features that may have been casually confirmed as “of course” in-scope, no matter how small.

Light switches are a perfect example of requirements that need precise details, as there are a wide range of price points and features to choose from. Without explicit specifications, the contractor can legally state that the completed work met the requirements of the contract. Paint selection and expectations are another good example.

Example: Only Dunn Edwards Spartawall Interior Flat Paint to be used. Each room must have a minimum of two full coats of Dunn Edwards DE2221 Flat Acrylic paint.

Contracts should clearly state which items will be the responsibility of the homeowner or the contractor, for selecting and purchasing.

Example: Contractor will be responsible for purchasing all bedroom doors, homeowner will be responsible for purchasing all door hardware and accessories this includes but is not limited to rails, hinges, door handles deadbolts, etc.

The best Scope of Work documents that we have seen usually have an appendix set up as a matrix with all of the items listed. Responsibility for each item is clearly defined with an “X”. When all is said and done, any item beyond a well-documented Scope of Work should be considered a Change Order, for which a process should also be established to handle.

Also make sure to include a clause that states that work must be performed in accordance with local Building Code Laws and Ordinances. Specify who will be responsible for pulling any necessary permits. If your local jurisdiction allows either the homeowner or contractor to pull permits, be sure to understand the implications of this assignment of responsibility. Specify that any work that does not pass the building inspector’s review must be re-worked until the job is approved by the city. For more information on permits, see Renovation Permits 101.

A well written Scope of Work should leave nothing to question.

2. Payments

Construction contracts are typically paid out when certain agreed upon milestones are met, as a percentage of completion, on a cost-plus percentage basis or at the end in a lump sum, once the work is completed. How, when and how much you should pay the contractor should be explicitly defined in the contract. The list of payment dates and corresponding milestones is referred to as the Payment Schedule. Make sure that you are invoiced at each interval and that the receiver of the payment signs off upon receipt of each payment. A good practice is to take a photo of each check. Make sure that you understand your state’s or local municipality’s rules regarding mechanics lien laws and address the payment of subcontractors in your contract.

In many states, the amount a contractor can request upfront as a down payment is limited. Be sure to check local laws pertaining to the allowed amount and corresponding calculation. A request for an unusually large amount may be illegal, and is a sign that the contractor may be experiencing financial difficulties. For more tips on how to detect inferior contractors, read Signs of a Bad Contractor Before You Sign a Contract.

3. Indemnification

Indemnity in its simplest terms means “to hold harmless” and is intended to provide protection to a specified party against damages and exempts them from liability caused by their own actions. An indemnity clause may protect a homeowner from liability should someone become injured on his property during the construction project. It is common practice for a construction contract to include a clause to “indemnify” the homeowner against claims and liability. Check your state laws for the rules on construction contract indemnification provisions.

4. Schedule of Work

Defining a start date and the duration of a project is important for establishing expectations so that your contractor has an idea of the schedule you have in mind. Always include an agreed upon start date and an approximate end date for the project. Understandably, inclement weather may cause you to add a few days for exterior projects. Unforeseen acts of nature might also cause the schedule to slide, but maintain an approximation of your timeline to protect against “no shows”.

5. Warranty

A professional contractor should have no issue standing behind his work product. Always include a reasonable warranty section within a contract to make sure that the work is performed as expected. An example would be a clause for the waterproofing of a deck. In states such as California, the rains fall only during the winter months. A newly waterproofed deck would not be thoroughly tested if it were built in the spring. As a homeowner, you would be reasonable to request a one-year minimum warranty to cover defects for the contractor’s work. Should the contractor deny this request, it would be wise to move on and find one who would accommodate your concerns. Keep in mind that fair minded contractors may be willing to offer extended warranties, at a reasonable cost. For more information on warranties, read Key Concepts of Construction Warranties.

6. Dispute Resolutions

In the event there is a dispute about your contract or the project, it helps to have an agreed upon process to remedy the situation. An agreement to arbitrate with a mutually agreed upon mediator and venue should be included in the contract.

7. Insurance

It is imperative to ask for proof of liability and workers compensation insurance from both the general contractor and all subcontractors working on your property. For more information on insurance requirements, see How to Select a Qualified and Trustworthy Contractor.

8. General

All miscellaneous items can be captured in a General Clause. Any items that are unique to your property should be captured here. Below are some examples:

 

General Clause Examples:
Start and stop times for each work day
Actual days of work including holidays such as Good Friday or Easter Monday
Requirements for daily clean up and securitization of equipment
Parking of employees e.g. do not block driveways or mailboxes
Bathrooms will not be provided by homeowner; contractor is required to rent a portable facility/restroom facility for employee usage
Any HOA Restrictions
No smoking on the premises
Employees are only allowed to enter through the north west kitchen door
Gates surrounding the property should be secured and padlocked at the end of each work day

 

Related Articles

Signs of a Bad Contractor Before You Sign a Contractor
How to Choose a Trustworthy Contractor
How to Start Your Renovation
Renovation Permits 101
Key Concepts of Construction Warranties
When to Sign Your Project Completion Form
Home Improvement Findings in the Consumer Complaint Survey

3rd Party Resources

Fannie Mae Sample Renovation Contract (PDF)
State of California Guide to Home Improvement Contracts (PDF)
State of Massachusetts Home Improvement Sample Contract (PDF)
State of Oregon Sample Renovation Contract (PDF)
HomeAdvisor Sample Construction Contract Large Project (PDF)
HomeAdvisor Sample Construction Contract Small Project (PDF)
Canada Mortgage and Housing Corporation Sample Renovation Contract (PDF)