Are You Complying With The New Home Improvement Contract Requirements?

Are You Complying With the New Home Improvement Contract Requirements?

By

William C. Last, Jr.

Attorney at Law

Effective January 1, 2006, the information that must be included in every California Home Improvement Contract were significantly changed. The law requires a home improvement contract and any changes to it to be in writing and to contain certain information, notices, and disclosures, including a statement that a consumer has a right to cancel or rescind the contract.

Rather than discussing every change, this article will set forth the current requirements. This article will also the discuss the requirements for a "Service and Repair" contract and a Home Solicitation Contract.

Home Improvement Contract Requirements

The statute is located at Business and Profession Code section 7159. For purposes of the statute: ""Home improvement" means the repairing, remodeling, altering, converting, or modernizing of, or adding to, residential property and includes construction, erection, replacement, or improvement of driveways, swimming pools, spas, hot tubs, terraces, patios, awnings, storm windows, landscaping, fences, porches, garages, fallout shelters, basements, and other improvements of the structures or land which is adjacent to a dwelling house. "Home improvement" shall also mean the installation of home improvement goods or the furnishing of home improvement services."

A California Home Improvement Contract must be a readable writing and requires the following:

1. Unless a larger typeface is specified in this article, text in any printed form shall be in at least 10-point typeface and the headings shall be in at least 10-point boldface type. The contract must contain: (a) The name, business address, and license number of the contractor; (b) If applicable, the name and registration number of the home improvement salesperson that solicited or negotiated the contract; and ( c) the following heading on the contract form that identifies the type of contract in at least 10-point boldface type: "Home Improvement."

2. Before any work is started, the contractor must give the buyer a copy of the contract signed and dated by both the contractor and the buyer.

3. The contract must contain on the first page, in a typeface no smaller than that generally used in the body of the document, both of the following: (a) The date the buyer signed the contract; (b) The name and address of the contractor to which the applicable "Notice of Cancellation" is to be mailed, immediately preceded by a statement advising the buyer that the "Notice of Cancellation" may be sent to the contractor at the address noted on the contract.

4. The contract must contain a statement that, upon satisfactory payment being made for any portion of the work performed, the contractor shall, prior to any further payment being made, furnish to the person contracting for the home improvement or swimming pool work a full and unconditional release from any claim or mechanic's lien pursuant to Section 3114 of the Civil Code for that portion of the work for which payment has been made.

5. A change-order form for changes or extra work shall be incorporated into the contract and becomes part of the contract only if it is in writing and signed by the parties prior to the commencement of any work covered by a change order.

6. The contract must contain, in close proximity to the signatures of the owner and contractor, a notice stating that the owner or tenant has the right to require the contractor to have a performance and payment bond.

7. If the contract provides for a contractor to furnish joint control, the contractor shall not have any financial or other interest in the joint control.

8. The contract must contain the following statement in at least 12-point boldface type: "You are entitled to a completely filled in copy of this agreement, signed by both you and the contractor, before any work may be started."

9. The contract must include: (a) the heading: "Contract Price," followed by the amount of the contract in dollars and cents; (b) If a finance charge will be charged, the heading: "Finance Charge," followed by the amount in dollars and cents. The finance charge is to be set out separately from the contract amount; ( c) the heading: "Description of the Project and Description of the Significant Materials to be Used and Equipment to be Installed," followed by a description of the project and a description of the significant materials to be used and equipment to be installed. For swimming pools, the project description required under this paragraph also must include a plan and scale drawing showing the shape, size, dimensions, and the construction and equipment specifications. (Note that if a finance charge is included, the contract must also comply with the Unruh Act beginning at Civil Code section 1801.)

10. If a down payment will be charged, the details of the down payment must be expressed in substantially the following form, and shall include: (a) the heading: "Down Payment;" (b) A space where the actual down payment appears; ( c) The following statement in at least 12-point boldface type:"THE DOWN PAYMENT MAY NOT EXCEED $ 1,000 OR 10 PERCENT OF THE CONTRACT PRICE, WHICHEVER IS LESS."

11. If any payments, other than the down payment, are to be made before the project is completed, the details of these payments, known as progress payments, must be expressed in substantially the following form: (a) A schedule of progress payments preceded by the heading: "Schedule of Progress Payments;" (b) Each progress payment stated in dollars and cents and specifically describing the amount of work or services to be performed and any materials and equipment to be supplied; ( c) The section of the contract reserved for the progress payments must include the following statement in at least 12-point boldface type: "The schedule of progress payments must specifically describe each phase of work, including the type and amount of work or services scheduled to be supplied in each phase, along with the amount of each proposed progress payment. IT IS AGAINST THE LAW FOR A CONTRACTOR TO COLLECT PAYMENT FOR WORK NOT YET COMPLETED, OR FOR MATERIALS NOT YET DELIVERED. HOWEVER, A CONTRACTOR MAY REQUIRE A DOWN PAYMENT."

12. The contract must state when work will begin in substantially the following form: (a) A statement that describes what constitutes substantial commencement of work under the contract; (b) The heading: "Approximate Start Date;" and ( c) The approximate date on which work will be commenced.

13. The estimated completion date of the work must be referenced in the contract in substantially the following form:(a) The heading: "Approximate Completion Date;" and (b) The approximate date of completion.

14. If applicable, the heading: "List of Documents to be Incorporated into the Contract," followed by the list of documents incorporated into the contract .

15. The heading: "Note about Extra Work and Change Orders," followed by the following statement: "Extra Work and Change Orders become part of the contract once the order is prepared in writing and signed by the parties prior to the commencement of any work covered by the new change order. The order must describe the scope of the extra work or change, the cost to be added or subtracted from the contract, and the effect the order will have on the schedule of progress payments."

16. All of the following notices either in the contract or, if authorized, as an attachement:

(a) A notice concerning commercial general liability insurance. This notice may be provided as an attachment to the contract if the contract includes the following statement: "A notice concerning commercial general liability insurance is attached to this contract." The notice must include the heading "Commercial General Liability Insurance (CGL)," followed by whichever of the following statements is both relevant and correct: (i) "(The name on the license or 'This contractor') does not carry commercial general liability insurance;" (ii) "(The name on the license or 'This contractor') carries commercial general liability insurance written by (the insurance company). You may call the (insurance company) at (telephone number) to check the contractor's insurance coverage;" or (iii) "(The name on the license or 'This contractor') is self-insured.."

(b) A notice concerning workers' compensation insurance. This notice may be provided as an attachment to the contract if the contract includes the statement: "A notice concerning workers' compensation insurance is attached to this contract." The notice shall include the heading "Workers' Compensation Insurance" followed by whichever of the following statements is correct: (i) "(The name on the license or 'This contractor') has no employees and is exempt from workers' compensation requirements;" or (ii) "(The name on the license or 'This contractor') carries workers' compensation insurance for all employees;"

(c) A notice that provides the buyer with the following information about the performance of extra or change-order work: (i) A statement that the buyer may not require a contractor to perform extra or change-order work without providing written authorization prior to the commencement of any work covered by the new change order; (ii) A statement informing the buyer that extra work or a change order is not enforceable against a buyer unless the change order also identifies all of the following in writing prior to the commencement of any work covered by the new change order:(1) The scope of work encompassed by the order, (2) The amount to be added or subtracted from the contract, and (3) the effect the order will make in the progress payments or the completion date; (iii) A statement informing the buyer that the contractor's failure to comply with the requirements of this paragraph does not preclude the recovery of compensation for work performed based upon legal or equitable remedies designed to prevent unjust enrichment

(d) A notice with the heading "Mechanics' Lien Warning." Due to the length of the notice it has been omitted from this article and can be found at the following website (-http://www.leginfo.ca.gov/cgi-bin/displaycode?section=bpc&group=07001-08000&file=7150-7168).

(e) The following notice must be provided in at least 12-point typeface: "Information about the Contractors' State License Board (CSLB): CSLB is the state consumer protection agency that licenses and regulates construction contractors. Contact CSLB for information about the licensed contractor you are considering, including information about disclosable complaints, disciplinary actions and civil judgments that are reported to CSLB. Use only licensed contractors. If you file a complaint against a licensed contractor within the legal deadline (usually four years), CSLB has authority to investigate the complaint. If you use an unlicensed contractor, CSLB may not be able to help you resolve your complaint. Your only remedy may be in civil court, and you may be liable for damages arising out of any injuries to the unlicensed contractor or the unlicensed contractor's employees. For more information: Visit CSLB's Web site at http://www.cslb.ca.gov/ Call CSLB at 800-321-CSLB (2752) Write CSLB at P.O. Box 26000, Sacramento, CA 95826."

(f) Unless the contract is negotiated at the contractor's place of business a "Three-Day Right to Cancel" notice. Due to the length of the notice it has been omitted from this article and can be found at the following website (http://www.leginfo.ca.gov/calaw.html).

(h) A "Seven-Day Right to Cancel"shall be provided to the buyer for any contract that is written for the repair or restoration of residential premises damaged by any sudden or catastrophic event for which a state of emergency has been declared by the President of the United States or the Governor, or for which a local emergency has been declared by the executive officer or governing body of any city, county, or city and county. Due to the length of the notice it has been omitted from this article and can be found at the following website (http://www.leginfo.ca.gov/calaw.html).

It should also be noted that a Home Improvement Contractor must also attach to their bid or contract at the time it is given to the homeowner or renter a Home Improvement Checklist that has been prepared by the Contractor State License Board. That checklist can be found on the Contractor State License Board website.

Home Solicitation Contract

The requirements for a Home Solicitation Contract came into the existence during 1971. They were implemented to protect consumers from unscrupulous home improvement salesman. Home Solicitation Contracts must include the same three day and seven day cancellation notices that are required for Home Improvement Contracts. Thus, you will be in compliance with the Act if you are in compliance with the Home Improvement Contract requirements.

A Service and Repair Contract

The new law added a Service and Repair Contract. If you are eligible to enter into a Service and Repair Contract a Three Day Of The Right to Cancel need not be given the homeowner or renter. However, many of the other requirements for a Home Improvement Contract are required if you enter into a Service and Repair Contract.

A Service and Repair Contract "means an agreement between a contractor or salesperson for a contractor, whether a general contractor or a specialty contractor, who is licensed or subject to be licensed with regard to the transaction, and a homeowner or a tenant, for the performance of a home improvement that conforms to the following requirements: (a) The contract amount is $750 or less; (b) The prospective buyer initiated contact with the contractor to request the work; (c) The contractor does not sell the buyer goods or services beyond those reasonably necessary to take care of the particular problem that caused the buyer to contact the contractor; and (d) No payment is due, or accepted by the contractor, until the work is completed. A Service and Repair Contract can be entered into by a bona fide service repairperson employed by a licensed contractor or subcontractor.

The statute requires that every service and repair contract include, or otherwise comply with, all of the following:

1. The contract, any changes to the contract, and any attachments must be in writing and signed or acknowledged by the parties as set forth in this section, and must be written in the same language (for example Spanish) as principally used in the oral sales presentation.

2. The writing must be legible.

3. Any printed form must be readable. Unless a larger typeface is specified, the text must be in at least 10-point typeface and the headings must be in at least 10-point boldface type.

4. Before any work is started, the contractor must give the buyer a copy of the contract signed and dated by the buyer and by the contractor or the contractor's representative.

5. The writing must have the name, business address, and license number of the contractor.

6. The writing must have the date the contract was signed.

7. The writing must have a notice concerning commercial general liability insurance and concerning workers' compensation insurance in the same format as required for a Home Improvement Contract.

8. The writing must have the following notice of the type of contract in at least 10-point boldface type: "Service and Repair;"

(b) The writing must have a notice in at least 12-point boldface type, signed and dated by the buyer: "Notice to the Buyer: The law requires that service and repair contracts must meet all of the following requirements: (i) The price must be no more than seven hundred and fifty dollars ($ 750); (ii) You, the buyer, must have initiated contact with the contractor to request the work; (iii) The contractor must not sell you goods or services beyond those reasonably necessary to take care of the particular problem that caused you to contact the contractor; and (iv) No payment is due and the contractor may not accept any payment until the work is completed."

(c) The writing must have a notice in at least 12-point boldface type: "Notice to the Buyer: You are entitled to a completely filled in and signed copy of this agreement before any work may be started."

(d) If applicable, the there must be a heading "List of Documents to be Incorporated into the Contract," followed by the list of documents to be incorporated into the contract.

(e) Where the contract is a fixed contract amount, the contract must have a heading: "Contract Price" followed by the amount of the contract in dollars and cents.

(f) If a finance charge will be charged, it must have the heading: "Finance Charge" followed by the amount in dollars and cents. The finance charge is to be set out separately from the contract amount. (Note that the contract will also have to comply with the Unruh Act at Civil Code section 1801.)

(g) Where the contract is estimated by a time and materials formula, it must have the heading "Estimated Contract Price" followed by the estimated contract amount in dollars and cents. The contract must disclose the set rate and the estimated cost of materials. The contract must also disclose how time will be computed, for example, in increments of quarter hours, half hours, or hours, and the statement: "The actual contract amount of a time and materials contract may not exceed the estimated contract amount without written authorization from the buyer."

(h) The contact must have the heading: "Description of the Project and Materials to be Used and Equipment to be Installed" followed by a description of the project and materials to be used and equipment to be installed.

(i) The contact must have the statement: "The law requires that the contractor offer you any parts that were replaced during the service call. If you do not want the parts, initial the checkbox labeled 'OK for contractor to take replaced parts."'

(j) The contact must have a checkbox labeled "OK for contractor to take replaced parts."

(k) If a service charge is charged, the contract must have the heading "Amount of Service Charge" followed by the service charge, and the statement "You may be charged only one service charge, including any trip charge or inspection fee."

(l) The contract, or an attachment to the contract, must include, in immediate proximity to the space reserved for the buyer's signature, a notice of right to cancel, in a size equal at least to 12-point boldface type, which shall be dated and signed by the buyer: Due to the length of the notice and other related requirements it has been omitted from this article and can be found at the following website (http://www.leginfo.ca.gov/calaw.html).

Conclusion

In this author's opinion the increased obligations a contractor incurs as a result of the new contract requirements are too stringent and impractical. Nonetheless, until the Legislature revisits the issue, Home Improvement Contractors and Service and Repair Contractors will have no choice but to comply with the statute.

The changes in the Home Improvement Contract and the creation of a Service and Repair Contract essentially require all Home Improvement Contractors to revise their contracts. If you are using a pre-printed Home Improvement Contract you should review it to determine if it is compliant.

While the current law would not bar a contractor who does not use the correct form of Home Improvement Contract from recovering for the performed work, the Contractors State License Board can institute disciplinary proceedings against a contractor who is using a non-conforming contract.

This article, ©2006, was written by William C. Last, Jr. Mr. Last is an attorney who has been specializing in Construction Law for over 27 years.. In addition to belonging to a number of construction trade associations, Mr. Last holds a California "A" and "B" license. He can be contacted at 415-764-1990 or 650-425-7679. A number of his past articles can be found on his website (lhfconstructlaw.com). This bulletin is published periodically to provide general information about current legal issues. The articles are not intended to be a substitute for the advice of an attorney as to a specific problem. If you have a specific legal question or need legal advice, you should contact an attorney.