California Business and Professions code section 7159 comprises eight pages of small type covering home improvement contracts, which makes it difficult for contractors to always follow the letter of the law.
“There are so many very technical requirements in 7159, including type size and placement of various provisions within the contract document, that even a conscientious contractor might miss them,” says Kevin P. Cody, a partner at Ropers Majeski Kohn & Bentley PC.
Smart Business spoke with Cody about construction contracts and how companies can avoid problems that void agreements.
When do contract problems arise?
Obviously, if construction goes well, the contract typically isn’t brought up. But when there is a problem, the homeowner or his or her attorney will search the contract for defenses. For example, the entire contract can be voidable or unenforceable if the contractor hasn’t complied with all of the requirements of section 7159, which are numerous and pretty detailed.
California law gives particular protection for home renovation projects because it’s frequently a one-on-one relationship between an inexperienced homeowner and a contractor. Prior to enactment of 7159, a homeowner might find himself or herself in a position where substantial upfront payments had been made, the contractor would only be partway through with work, and all of a sudden the homeowner couldn’t find the contractor. In a commercial setting, where you’re dealing with people who are quite sophisticated and savvy, they do not require the same degree of protection.
However, strict compliance with 7159 will not always work as a defense for the homeowner. A landscape designer/contractor client didn’t strictly comply with all code provisions, and a homeowner, because he was dissatisfied with a few things, hired an attorney and decided not to pay. The homeowner filed a lawsuit, claiming the contractor’s failure to strictly comply with 7159 justified nonpayment. In spite of the landscape designer/contractor’s failure to strictly comply, the court sided with the designer/contractor and awarded it all of the money the homeowner had withheld.
How detailed are the code provisions?
A window company wanted contracts prepared for installations it was going to be doing. On the first page of the contract, you have to mention the date the buyer signed, there has to be a notice of cancellation and a heading that says ‘home improvement’ in at least 10-point, bold face type — that comes straight from the statute. There are a lot of other very detailed requirements.
What should you do to draft contracts that are compliant?
Most contractors already have contracts that comply in certain areas, but in many instances they haven’t updated them. An attorney can go through and make recommendations. In addition to compliance with the technical requirements of 7159, there are other statutes with provisions that the contractor may not appreciate fully, e.g., those dealing with attorney’s fees, or with provisions that have changed in the last few years, e.g., indemnity.
For example, Civil Code section 1717 states that if a contract provision allows one party to recover attorney’s fees, it will be reciprocal to the other party. Without knowing about 1717, the contractor may want an attorney’s fees clause in the contract that only allows the contractor to recover fees if it has to sue to collect payment. But what happens if there is litigation and the other party can recover attorney fees, even if it isn’t mentioned? It becomes an issue of whether the contractor really wants the clause because it might engender litigation.
Similarly, while the law with respect to what general contractors can be indemnified for recently changed to limit indemnity rights, there still are ways to improve the situation. Though a general contractor cannot be indemnified for its active negligence, it typically has leverage over subcontractors to request that the general contractor is named as an additional insured on the subcontractor’s insurance.
It’s a good idea to update your contracts every two or three years with an attorney who specializes in construction contracts. The cost will be relatively modest in the long run, especially considering the benefits of that review.
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