What should I look for in a contract and binding agreements?
This step helps you understand contract and binding agreements with your contractor.
Here are some precautions to follow while dealing with contracts and binding agreements. A contract is a legal agreement between two or more people. A written agreement is one of the most important communication tools for both you and the licensed contractor. It insures there are no misunderstandings about what a job will include. A thorough contract tells how the work will be done, when it will be done, what materials will be used and how much it will cost.
Disagreements over home improvement projects can cost time and money. Besides producing bad feelings, they can also lead to lawsuits or other legal action. A well-written contract prevents that.
When you need a written contract
In California, there must be a written contract for all home improvement projects over $500 in labor and materials. That contract must include specific information about your rights and responsibilities. In addition, any changes made to that contract must be in writing, be legible, be easy to understand, and inform you of your rights to cancel or rescind the contract. If you are promised something orally make sure that it is included in writing.
Main things to have in a contract
A contract should contain everything agreed upon by you and your licensed contractor. It should detail the work, price, when payments will be made, who gets the necessary building permits, and when the job will be finished. The contract must also identify the contractor, give their address and license number. A good contract also has warnings and notices about the right to cancel, mechanic's liens, and allowable delays.
- Get it in writing. Since a written contract protects both you and the contractor, all agreements should be put in writing. It should be as specific as possible regarding all materials to be used, such as the quality, quantity, weight, color, size, or brand name as it may apply. For example, the contract should say "install oak kitchen cabinets, manufactured by Company XYZ, model 01381A, as per the plan," not just "install kitchen cabinets."
- Don't sign anything until you understand the contract and agree to the terms. Just because it may not look like a contract, doesn't mean that it isn't. Anything you sign as authorization to move forward with the project could become the contract. So, ask questions until you understand and agree to all the terms before signing. You may also wish to review the proposed contract with an attorney.
- Make sure the contract includes everything that is agreed to, up to and including complete cleanup and removal of debris and materials, along with special requests like saving lumber for firewood or saving certain materials or appliances. Also give instructions regarding pets, children or areas where materials may not be stored.
- Never sign a blank or partially blank contract. Once you sign, both you and the contractor are bound by everything set down in the contract, so read it carefully. Make sure to get a copy of the contract, and keep it for you records.
- Always update your contract. Even after you have signed the contract and the work has already begun, you may want to make some changes. If you have added or subtracted work, substituted materials or equipment, changed the completion date, etc. make sure not note it in writing on a "change order," being sure to include any price changes. After a change order is signed, it becomes part of the written contract.
- Verify that you receive a Checklist. As it must be provided in the contract. The checklist specifies how to check out your contractor and how to check out the contract.
- Make sure your cancellation is in writing. You may cancel within three days of signing a contract, but it must be mailed before midnight of the third day.
- Make sure the financial terms are clear. The contract should include the total price, when payments will be made and whether there is a cancellation penalty. You should expect to make a *down payment on any home improvement job. That down payment should never exceed 10% of the contract price or $1,000, whichever is less.
ALERT There is one exception to the down payment rule noted above. That is if the contractor has a "Blanket Performance and Payment Bond" on file with the CSLB. This bond is in the amount of work the contractor does at any one time.
With this bond in place, the contractor can ask you for the entire contract amount up front. Also, they are not required to set-up a schedule of payments and do not have to provide you with information about mechanic's liens. This type of bond does offer consumers a certain level of protection, but are rare. Only about two dozen companies have been approved to use them.
You'll be able to find out if your contractor has this type of bond when you check their license status on this Website.