AVOIDING HOME IMPROVEMENT CONTRACT HEADACHES

The smart home improvement contractor has always been savvy about creating a good, solid contract before setting out on a project with a homeowner. A good contract will make expectations (on both sides of the table), timelines, and budgets (among other important details) clear. It will set the stage for a hassle-free business relationship. Therefore, the number of contractors who don’t comply with the Home Improvement Contractor Act (M.G.L. c. 142A) is quite surprising. Although the Act was passed in 1992, many contractors still are unfamiliar with its requirements or chose to ignore the Act’s pro-homeowner provisions at their peril.

The Act applies to contractors who perform residential contracting services on a one- to four-family, owner occupied residential property in Massachusetts. The Act requires that all home improvement contractors (defined as contractors who solicit, bid on, or perform residential contracting on an existing one- to four-family owner occupied building) register with the Board of Building Regulations and Standards, an agency within the Executive Office of Public Safety.
The Act next requires that all contracts for residential contracting services in excess of $1,000 be in writing and include the following provisions:

• Full name, social security number, address and registration number of the contractor;
• Name of any sales person who solicited or negotiated the contract;
• Date the contract was executed by the parties;
• Date the work is scheduled to begin and when it is to be substantially completed;
• Detailed description of the work to be done and the materials to be used;
• Total amount agreed to be paid for the work;
• Time schedule of payments and each amount stated in dollars, including any finance charges;
• Contract may not require a deposit in excess of one-third of the total contract price or the actual cost of any materials or equipment of a special order or custom-made nature which must be ordered in advance of the work to insure that it will proceed on a timely basis;
• No final payment can be demanded until the contract is completed to the satisfaction of the parties;
• All contracts must be signed by the parties;
• The contract must contain a clear and conspicuous notice of the following:
  1. that all contractors or subcontractors must be registered and any inquiries regarding the contractors or subcontractors should be directed to the Director of BBRS,
  2. the registration numbers of the contractors and subcontractors;
  3. the homeowner’s right to cancel the contract within three days of its execution if it is not executed at the contractor’s place of business;
  4. all warranties and owner’s rights provided under the Act;
  5. a notice (in ten-point bold type or larger) that homeowners should not sign the contract if it contains any blank spaces; and
  6. notice of any liens or security interest placed on the property as the result of the contract;
• The contract must be the complete agreement between the contractor and homeowner and must contain all other agreements between the contractor and homeowner as well as a clear description of any other documents incorporated into the contract and any other provision required by Massachusetts law;
• The contract may not contain an acceleration clause whereby the contractor who becomes insecure demands the balance due on the contract;
• A contractor who reasonably believes he is insecure may demand that the homeowner pay the remaining balance into an escrow fund as a prerequisite to continuing work;
• The owner must be given a copy of the executed contract and no work may commence prior to the execution of the contract;
• The contract must list all necessary permits, that it is the contractor’s obligation to obtain the permits, and that homeowners who secure their own permits will be excluded from collecting under the fund set up by the Act.

Failure to comply with the terms of the Act may subject a contractor to the loss of its registration certificate, administrative and civil fines, as well as criminal penalties. A contractor’s failure to comply with the Act is also a violation of the Massachusetts Consumer Protection Statute, M.G.L. c. 93A, which permits a homeowner to recover from a contractor a minimum of two and up to three times the amount of the homeowner’s actual damages, plus attorneys’ fees. It is also extremely important for contractors to know that the Act makes them personally liable for violations of the Act and that the usual protections given to those who form corporations or partnerships may not be available to them under the Act. In lieu of filing a Court action, the Act also permits an aggrieved homeowner to proceed to arbitration against contractors, which is administered through the American Arbitration Association in Boston.

Finally, the Act establishes a State Residential Contractor Guarantee Fund to pay an aggrieved homeowner up to a maximum of $10,000 if the homeowner is unable to recover from a contractor on a meritorious claim. Contractors must be aware that any payment by the Fund to an aggrieved homeowner for substandard work may subject the contractor to a collection action by the Attorney General for repayment of those funds into the Fund.

Compliance with the terms of the Act may be difficult, but it is good business practice. Contractors should at the very least keep a written record of all change orders, attempt to carry sufficient insurance to cover liability under the Act where possible, and use a form contract that complies with the Act. There is a sample contract online, which can be accessed at www.state.ma.us/consumer, then click on “Business” at the home page, then click on “Sample Contract” under “Home Improvement Contractor.” The contract itself has marginal references indicating how it needs to be completed. If it is fully completed, a contractor will be in compliance with the Act. That page also provides information for contractor registration. Failure to register can result in administrative penalties and fines, as well as imprisonment.

Shawn P. O’Rourke is an attorney and managing shareholder at Barron and Stadfeld of Boston, where he has handled numerous cases involving contractor disputes. He is also vice chairman of the Board of the Smaller Business Association of New England. He can be reached for questions at spo@barronstad.com or (617) 531-6583.

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