Protect Yourself Legally
There are many legal and protective measures you should take
during a remodeling project. Advice in the following areas appear on
this page:
Change Orders
Permits
Licensing
Lien Waivers
Deliveries
Warranties
Insurance
Final Approval
The best protective measure you can take is to
always get everything in writing and keep a copy in your files.
Every time an agreement is made, you should have a written
confirmation. This means a contract at the beginning and written
change orders, work directives, or confirmation letters when the
scope of the project is altered in any way.
The homeowner and an officer of the contractor's corporation
should sign these items. Changes to the project also should be noted
in any contract with a subcontractor or independent agent.
The time to create the contract and change order procedures, and
to negotiate terms, is before the project begins. Discuss the
contractor's procedure for dealing with changes or special requests
- such as repair work on rooms not included in the main contract or
changes in the specifications - as part of the initial contract
negotiation. This offers two distinct benefits: 1) Protection
against later disputes regarding changes, price or scope of the
project, and 2) An up-front understanding of how changes in the
project are to be handled and what type of charges will, most
likely, be incurred.
All change orders and contracts should be executed before any
work is performed or materials ordered. In addition, copies of all
contracts, work orders or change orders should be available on the
job site for quick reference and clarification.
Generally, a building permit is required whenever structural work
is involved or when the basic living area of a home is to be
changed. For example, if you have a home with an unfinished basement
and would like to finish off a portion of it for a family room, you
would need a building permit in most jurisdictions because you have
changed storage space to livable space. Some jurisdictions have
strict rules and zoning regulations about this kind of change,
others do not. NARI recommends that you do not obtain your own
building permits. In most jurisdictions, the individual who obtains
the permit is considered to be the contractor and is, therefore,
liable if the work does not comply with local building codes. Let
your contractor assume that liability. It is part of what you are
paying for. It is also the only way you can protect yourself.
Other reasons to allow your contractor to obtain the permit
include: Contractors know what is required to get a permit, and how
the fee structure works. Fees for permits vary from state to state
and county to county. For instance, in Arlington, Virginia, a suburb
of Washington, DC, a permit costs 15¢ per square foot of the
project; while Portland, Oregon, charges 0.01375 for each dollar
estimated for the project cost. Chicago, Illinois, charges a set
dollar amount per $1,000 of the project estimate for each area of
the remodeling project: architecture, plumbing, electrical, etc. It
is best to leave these details to a professional.
Some states and even cities require licensing and
registration for contractors. If your state does require a license
to remodel, ask if the contractor is in compliance with the law and
ask for a copy of his or her registration and license-then confirm
the license number with your local jurisdiction. Having a license
number or certificate alone does not tell you whether that license
is currently valid.
Lien waivers are a form of receipt for payment of
services or materials. It protects you from a third party claim on
your home for nonpayment by the contractor and prevents having to
pay for the same services or products twice.
Request a lien release or lien waiver from your contractor for
every subcontractor, vendor and supplier who provides labor or
materials to your project. You will usually receive the waiver upon
completion of the work, or at the time each subcontractor or vendor
is paid. Make sure you receive one before you make your final
payment, or an equivalent document releasing you from any liability.
The law varies from state to state as to who is entitled to place
a lien on your property. However, if someone does place a lien on
your home, it will cloud your title and make it difficult, if not
impossible, to sell the property without a costly and difficult
resolution and removal of the claim. It is worth the extra effort to
track all first-tier subcontractors and suppliers who can prove they
supplied products or services that were used in the completion of
the project and to record payment by the contractor.
Never sign for materials delivered to
your home unless you personally ordered the materials or are
prepared to be liable for them. Materials should be the
responsibility of the contractor. Imagine what would happen if you
accepted and signed for a delivery that was not complete or damaged.
It is much better to leave these details to the professional.
These can be guaranteed problems if you are not
careful. All warranties should be clear and specific. Make certain
that you receive, in writing, what is covered under the warranty,
how long it lasts, who the warranty is for (you or the contractor),
and how to handle claims should something go wrong. In addition to
these safeguards, watch out for these two potentially problematic,
but common, "guarantees":
"Satisfaction Guaranteed"
The law states that what is really
meant is that reasonable satisfaction is guaranteed. The question
is: Reasonable to whom? You don't want to ask a jury to determine
the answer.
"A Lifetime Warranty"
Whose lifetime? Your lifetime, the
contractor's, the appliance's (which would defeat the purpose,
wouldn't it?), or is it the lifetime of the house? It is far better
to get a set period of time for the coverage than a vague offer.
Talk to your insurance carrier about coverage during
your remodel. Your home security may be compromised during
construction-especially if you are tearing down walls for an
addition. Before you begin the remodeling project, you should review
your policy for weather damage, theft, fire and other types of
coverage. Most policies will only cover building materials after
they are installed, so ask your contractor to be responsible for all
products and materials until that time. In addition, you should be
insured for the cost of the construction before any renovations
begin and make certain that your home is currently "insured to
value."
Once the dust settles on your job, ask your insurance carrier to
assess the new value of the home. The remodel will undoubtedly raise
the value of your home and the cost of your insurance premium. Keep
that in mind when you are preparing your long term budget.
At the end of the project, you will be asked to
sign a written document stating that the job was completed on that
date and that all the components of the contract, including change
orders and punch list items, have been fulfilled. This is also when
you will be asked to make your final payment. In your excitement of
a job fulfilled, don't forget to ask for those final lien waivers or
a contractor's Affidavit of Final Release before you pay. |
