XYZ CONSTRUCTION, INC.
xxxxx Address – Santa Sierra, CA 90000 – License #012345 (C-12 Earthwork and Paving)
CONSTRUCTION CONTRACT (Home Improvement)
This Construction Contract (“Contract”) is entered into by and between XYZ Construction, Inc.
(“Contractor”) and ____________________ (“Owner”), whose residence address is ________________________, and project address is ________________________.
1. DESCRIPTION OF WORK (Full detail of project) 2. DESCRIPTION OF MATERIALS AND EQUIPMENT (Include raw material descriptions, quantities, etc., and equipment or appliances) 3. CONTRACT PRICE (Detailed breakdown of all costs and compensation) 4. PAYMENT SCHEDULE (Identifies payments to be made at specific segments or intervals of the project) 5. START AND COMPLETION OF WORK (Identifies start and end dates) 6. PERMITS AND TESTS (States who will pull building department permits and/or schedule operational tests) 7. PERMISSIBLE DELAYS (Identifies potential delays that are acceptable) 8. EXTRA WORK (Additional work requires change orders that must be written and signed by all parties.) 9. NOTICE OF MECHANICS LIEN 10. RELEASE OF MECHANICS LIENS (Conditional and unconditional release forms available on CSLB website) 11. ATTORNEY FEES (Outlines expectations in the event of a dispute) 12. CONTRACTORS REQUIRED TO BE LICENSED (Identifies state law requirement for contracting) 13. COMPLETE AGREEMENT (Describes the overall contract obligations of each party) 14. OWNER’S RIGHT OF CANCELLA TION (Explains parameters of cancelling the contract)
By: ____________________________, Arnold W. Mason, President xxx CONSTRUCTION, INC. DATED: _________________________ _______________________________ [Property Owner’s Name] DATED: _________________________
Money – The Bottom Line
Price All contracts must include the agreed-to price.
Any job costing $500 or more (combined material and labor) needs a written home improvement contract.
By law, the job must be completed for the agreed-upon contract price.
If the contract price needs to be changed, it MUST be done with a written change order that becomes a part of the contract.
If the contract calls for a down payment before work starts, the down payment cannot be more than $1,000 or 10 percent of the contract price, whichever is less, for a home improvement job or swimming pool, excluding finance charges.
There are no exceptions for special order materials. There is a down payment exception for about two dozen licensees who carry special bonds to protect consumers, known as blanket performance and payment bonds. These exceptions are noted on CSLB’s website.
Schedule of Payments
A home improvement contract must include a payment schedule. It should show the amount of each payment and explain what work, materials or services are to be performed for that particular payment. Payments to the contractor cannot exceed the value of the performed work.
A final swimming pool contract payment may be made at the completion of the final plastering phase of construction (provided that any installation of equipment, decking, or fencing required by the contract also is completed).
Finance Charges If applicable, finance charges must be calculated and laid out in detail, separate from the contract amount.
If the contract provides for payment of a salesperson’s commission as part of the contract price, that payment must be made on a pro rata basis in proportion to the schedule of payments made to the contractor.
Salespersons A salesperson cannot legally sign a home improvement contract for the contractor unless he or she is a valid, CSLB-registered home improvement salesperson (HIS).
Mechanics Liens Consumers are required to receive a “Notice to Owner” warning about property liens. Anyone who helps improve property, but is not paid, may place what is called a mechanics lien on the property. A mechanics lien is a claim made against the property by the person who was not paid, and is recorded with the county. Even if the contractor is paid in full, unpaid subcontractors, suppliers, and laborers involved in the project may record a mechanics lien and sue the property owner in court to foreclose the lien. A property owner could be forced to pay twice or have the court sell the home to pay the lien. Liens also can affect a consumer’s personal credit rating, and affect his or her ability to borrow and refinance.
Consumers can protect themselves from liens by getting a list from the contractor of all subcontractors and material suppliers who will work on the project, along with the dates they will start and finish the work. Material suppliers and subcontractors are required to give the property owner a “Preliminary Notice” of their right to file a lien within 20 days of delivering products/materials or 20 days of beginning the work. Have subcontractors sign lien releases when their portion of the work is completed. Another option for consumers is to pay with a joint check that is payable to both the contractor and the subcontractor or material supplier.
Canceling the Contract
Three-Day Right to Cancel
The Home Solicitation Sales Act requires a seller of home goods or services to give the buyer three (3) business days to think about whether to buy the offered goods or services. To cancel, the buyer need only give the contractor written notice of his or her intent not to be bound by the contract—there is no penalty or obligation on the part of the buyer. Under state law, when the contract is canceled, the seller is required to return any money that was paid within 10 days of receiving the cancellation request. The consumer/buyer must return any materials to the contractor that were applied to the contract. The purpose of the three-day right to cancel is to protect consumers from the pressure they often feel from in-home solicitors. If the contract is negotiated at the contractor’s place of business, the three-day right to cancel does not apply.
The Contract Exception Service and Repair Contracts One major exception to the three-day right to cancel is a “service and repair” contract that covers emergency repairs or services that are requested by the consumer on short notice. The right to a three-day notice is automatically canceled the moment the contract is signed and the contractor begins working on a service and repair contract.
Building Permits A construction or building permit is a required document in most jurisdictions for a large range of project types, including new construction or adding to pre-existing structures, major renovations, heating and air-conditioning repairs, and installation of water heaters and swimming pools. Permits are issued by the local building department. Generally, the new construction must be inspected during construction and after completion to ensure compliance with national, regional, and local building codes. Failure to obtain a permit can result in significant fines and penalties, and even demolition of unauthorized construction if it does not meet code requirements.
A Word About Insurance Does your contractor have employees? Workers’ compensation insurance is required by law if the contractor has employees or workers. Check the CSLB website, www.cslb.ca.gov or www.CheckTheLicenseFirst.com to make sure the workers’ comp policy is current. Although not required, it’s also a good idea to ask whether the contractor carries general liability insurance in case your property accidentally is damaged during the project. You might consider contacting your homeowner insurance carrier to find out if it would be advisable to take out a temporary “rider” to your insurance policy, which is extended coverage for a determined period of time or for a particular use.