Get Written Contract for Addition

QUESTION: We plan to add two rooms and a bath to our house. What protection should we include in the contract with our architect and contractor?

ANSWER: This is an area where an ounce of prevention can make a significant difference to the homeowner, and yet it always amazes me that homeowners will hire contractors for major renovations having only a loosely written one-page “letter agreement” or nothing in writing at all.

It is absolutely essential to have a written contract with your home-improvement company (the contractor) that spells out all of the terms and conditions of the proposed renovation.

We lawyers have to be concerned with the “horrible hypothetical,” because all too often these turn out to be real situations. If they are anticipated, homeowners can avoid unhappiness and extra expense.

Ask every contractor you interview for references. You also should inspect the contractor’s previous work to assure yourself that he or she is right for you. It is also important to make sure that the contractor is licensed in your jurisdiction.

Once you have selected a contractor, it is extremely important to enter into a contract spelling out in detail all of the terms and conditions under which the remodeling or renovation job will be done.

Do not rely on good faith, promises or a handshake.

Here are some suggestions for mandatory provisions in any contract that you may sign:

--Do not sign the typical one-page proposal submitted by your contractor. Although this is a contract--legally binding on you--these one-page proposals unfortunately provide very little, if any, protection for the homeowner.

The American Institute of Architects sells standard form contracts that you should use in your dealings with a prospective contractor.

You may contact the American Institute of Architects at (202) 626-7332, and ask for AIA document A107, entitled “Abbreviated Owner-Contract Agreement Form for Small Construction Contracts.” It is available to non-AIA members at a small cost.

--The contract should contain a payment schedule that has been carefully worked out. Regardless of whether you or your bank will be making the actual payments, it is recommended that at least 15% of the payment be retained until the job is completed.

All too often, a contractor will leave a job unfinished after he has been paid in full, and homeowners are caught in a double bind because there is no money to pay anyone, including subcontractors, to finish the task.

--What kind of warranty is the contractor willing to provide? This should be discussed in detail with the contractor before you sign, and the exact terms of the warranty should be spelled out in the contract itself.

--The contract should state that “time is of the essence.” One common problem with remodeling contracts occurs when the contractor is unable to finish the job within the estimated time.

It is also suggested that the contract provide for a daily penalty from the contractor for each day the work is not completed after the time specified for completion in the contract.

This provision will give the contractor a real incentive to complete the work within the promised time period. As an additional incentive, many homeowners offer a bonus to the contractor for early completion.

--Are you properly insured against possible claims by workers who may be injured on the job?

--Arbitration must be provided for in the contract. You should not have to go to court to resolve any disputes that may arise. Legal fees, court costs and the time involved can be a deterrent to a prompt resolution of your dispute.

Your contract should provide that all disputes be resolved through binding arbitration under the rules of the American Arbitration Assn.