General Information on Contracts

By definition, and as contractors already know, contractors contract. It is an essential part of what contractors do. And the essential meaning of contract is "to agree upon." A contract is an agreement between two or more people that the law will enforce.

That is why the Contractors State License Board says that a home improvement contract is one of the most important tools a contractor uses. It is a tool to ensure that all parties to the contract agree. When contractors and consumers disagree, it is timely and costly to all involved.

Home improvement contracts are a tool to ensure that contractors and consumers agree on the work to be performed: how it will be done, when it will be done, what materials will be used, and how much it will cost. A well written contract is also a tool that helps ensure enforcement of the agreement, if necessary. Like most other tools, a contract should be top quality and well constructed, with all working parts.

A contract can be oral or written. For home improvement contracts over $500, they must be written. In most cases, it is a good idea to put a contract in writing. It shows that there was a contract, and it proves what things you and the other party agreed to do. The old axiom is true;  "A verbal contract is as good as the paper it's not written on."

This information will describe what ALL home improvement contracts MUST have all the pieces of the puzzle, so to speak and then other information contractors should know. It also includes a "top ten" list of contract problems to watch out for, as well as a checklist of the essential elements of home improvement contracts. Finally, a resource list of where contractors can obtain standard contract forms is included.

Home improvement is the repairing, remodeling, altering, converting, modernizing or adding to residential property.

Examples of home improvement are the construction, erection, replacement or improvement of:

• driveways
  
• swimming pools, including spas and hot tubs
  
• terraces
  
• patios
  
• awnings
  
• gazebos
  
• storm windows
  
• landscaping
  
• fences
  
• porches
  
• garages
  
• basements
  
• other structural improvements on land adjacent to a dwelling

A home improvement contract is an oral or written agreement BETWEEN a contractor or sales person AND either a residential owner or a tenant for the performance of a home improvement.

Here are some more specific examples of what home improvement IS, and what it IS NOT

"Top Ten" Problems with:
Home Improvement Contracts

In no particular order, here are frequently seen problems with home improvement contracts.

1. Notice regarding registrar's address missing
2. Excessive down payment requested
3. Equipment to be used or installed not detailed, and materials to be used not described specifically enough
4. Notice to owner regarding liens not included
5. Job to be completed is not clearly stated and described
6. Right to cancel notice missing
7. Bid not figured out carefully and/or completely
8. Change orders not included   
9. Old notices used with old addresses and non-compliance language
10. Notice regarding owners right to require a performance and payment bond not included

If the total cost of the project exceeds $500, by law the contract MUST be in writing. The total cost includes labor, services, and materials.

"Time and materials" contracts must be put in writing with a fixed price whenever it is anticipated that the cost might exceed $500.

A home improvement contract must include elements specified in Business and Professions Code section 7159 and elsewhere. This information outlines those elements.

Business and Professions Code 7151.2

Laundry list of items required by law
in home improvement contracts

For a clean contract, here is a laundry list of each item that state law requires be in home improvement contracts. Contractors are also required to provide specified notice(s) to consumers PRIOR to Entering Contracts.

Informing

• Contractor's name, address and license number
  
• Name and registration number of salesperson (if applicable) who solicited or negotiated the contract
• Statement regarding where to file a complaint
  
• Arbitration Notice if the contractor is requiring private arbitration

Scheduling

• Approximate starting and completion dates
  
• Notice of consequences if contractor fails to substantially commence work within 20 days of start date without lawful excuse
• Statement of what constitutes substantial commencement of work

Describing

• Description of the work to be done, including materials and equipment to be used or installed
• For swimming pools: plan and scale drawing show shape, size, dimensions and construction and equipment specifications for a swimming pool
• Any changes or change orders after the original contract has been signed
• Clear description of any other matters agreed to by the parties

Paying 

• Price agreed upon to do the work
  
• Down payment is only 10 percent of the total cost of the project or $1,000, whichever is less (2 percent or $200 for swimming pools)
• Schedule of payments in dollars and cents
  
• Notice to owner regarding Mechanics' Liens
  
• Contractor statement regarding lien releases upon satisfactory payment for work performed
• Notice to owner requiring right to a bond or joint control