Home improvement projects can go very wrong, very quickly. Disagreements between contractors and homeowners can arise at any stage of construction, and parties that were once committed to working together may find themselves on opposite sides of the courtroom. Although it’s impossible to eliminate all potential areas of conflict, there are a number of steps that contractors can take to reduce the areas of potential dispute.
Ensuring that the contractor’s contract with the homeowner complies with the requirements of Massachusetts General Law Chapter 142A, § 2 (Regulation of Home Improvement Contractors in Massachusetts) should be a top priority. Unfortunately, many contractors overlook the requirements of M.G.L. c. 142A, opening themselves up to increased liability in the event the homeowner decides to sue.
Violations of M.G.L. c. 142A are by law, violations of Massachusetts General Law c. 93A (the Consumer Protection Statute). Contractors who fail to comply with M.G.L. c. 142A may find themselves liable for violations of M.G.L. c. 93A and potentially liable for triple damages, as well as the homeowner’s attorney’s fees and court costs.
So what is M.G.L. c. 142A? M.G.L. c. 142A is a law designed to protect both homeowners and contractors from unfair and dishonest practices arising out of residential construction projects. Chapter 142A only applies to home improvement contracts for one to four family residences where the total contract price is greater than $1000.00.
A common mistake contractors make, especially in smaller projects, is entering into a verbal agreement with the homeowners, beginning work, and then sending the homeowners some written description of the work to be done. However, M.G.L. c. 142A makes it clear that if your home improvement contract is for $1000.00 or more, certain pieces of information must be included in the contract and the complete contract must be signed before the contractor can begin work on the project. The following paragraphs provide a guide to the contract provisions required by M.G.L. c. 142A.
Identifying Information. Your Home Improvement Contractor number and/or your Construction Supervisor License number must appear on the first page of the contract. The first page of the contract must also include your name, your business’s name, your Federal Employment ID Number or your social security number, your phone number, the name of any salesperson that was involved in the transaction, and your address. The address on the contract cannot be a P.O. Box, it has to be a physical address. Additionally, the first page must have the date the contract was signed.
Description of Work and Materials. After you lay out all the identifying information on the first page, you can move on to the substance of the contract. Importantly, the contract should include a clear and detailed description of all work to be done on the residence, including materials to be used and should state what, if any, other documents are included as part of the contract. These documents can include materials lists, designs, plans, and specifications.
Dates. There are also important dates that must be included in the contract. Specifically, the contract must state when you are going to start work on the project and when the project will be substantially completed.
Payments. One of the most common problems with home improvement contracts involves the deposit. By law you cannot require the homeowner to pay a deposit of more than one third the total contract price. This means that if your contract price is $15,000.00, you cannot require a deposit of $5,001.00, because that is more than one third the total contract price. There is an exception for custom made materials that have to be ordered before the project begins in order for the project to proceed as scheduled. In those cases, the deposit may be equal to the actual cost of the custom materials if the actual cost of the materials is greater than one-third of the total contract price.
The contract must also include a schedule of when you will be paid. This schedule can be set dates, or it can be based upon when you complete certain portions of the project. Either one is acceptable, but you need to make sure that a payment schedule is included in the contract.
Permits. As the contractor, you are generally responsible for obtaining the permits for the project. Your contract should include a list of all permits that are required for the project and a notice stating that you will be responsible for acquiring the permits. The contract must also include a clause that states that homeowners who obtain their own permits will not be eligible to access the Guaranty Fund established by M.G.L. c 142A, § 5.
Notices. There are certain notices regarding the homeowner’s rights that also must be included in the contract. The contract is required to include a 3-day cancellation notice that informs homeowners of their right to cancel the contract within three business days after signing the contract. Contractors should place the 3-day cancellation notice on a separate page so the homeowner can easily sign the notice and mail back to the contractor should the homeowner choose to cancel.
Additionally, the contract must include a clause that states that all home improvement contractors and subcontractors are required to be registered, and that any inquiries about a contractor or subcontractor relating to their registration, should be addressed to the Office of Consumer Affairs and Business Regulation Home Improvement Contractor Program at 1000 Washington Street, Suite 710, Boston, MA 02118, (617) 973-8787.
The last set of notices should inform the homeowner of all warranties on the homeowner’s rights, and whether any lien or security interest has been placed on the residence as a result of the contract. Even if no lien or security interest has been created by the contract, it is important to include notice of that.
Signature. Something that may seem obvious but can be overlooked in smaller home improvement contracts is the signature. Both the contractor and the homeowner must sign the contract, and a copy of the signed contract must be given to the homeowner before the contractor is legally allowed to begin work on the project. Above the lines for the signatures there must be a notice, in no smaller than 10-point, bold font that states “Do not sign this contract if there are any blank spaces.”
Arbitration. As the contractor, if you want to give yourself the option of taking any dispute that might arise to arbitration, you need to include a separate arbitration clause in the contract. The clause should state
“The contractor and the homeowner hereby mutually agree in advance that in the event that the contractor has a dispute concerning this contract, the contractor may submit such dispute to a private arbitration service which has been approved by the Office of Consumer Affairs and Business Regulation and the consumer shall be required to submit to such arbitration. Note: The signatures of the parties above apply only to the agreement to the parties to alternate dispute resolution initiated by the contractor. The owner may initiate alternative dispute resolution even where this section is not signed separately.”
Both the contractor and the homeowner must sign and date the arbitration clause for it to be valid.
M.G.L. c. 142A is an incredibly significant law for contractors, and it is important for contractors to be aware of the requirements of the law. The law is very specific about what must be included in a contract for the renovation of a one to four family residence. If you have any questions about whether your home improvement contract complies with M.G.L. c. 142A, you should contact an attorney who specializes in construction law who can review the contract and provide you with guidance. Making sure you comply with M.G.L. c. 142A prior to starting work on a project can reduce the areas for possible disagreement later on.