Homeowners and smaller contractors are often tempted to skip recommended practices when undertaking a small renovation. In many cases, little thought is given to the contract (and in some cases the only document is an invoice) and there is no attempt to comply with the Builders Lien Act.
Although it is understandable that the parties will look to minimize costs when embarking on a small renovation, it should be kept in mind that a small upfront expenditure can often prevent the much more substantial cost (and time and stress) associated with a dispute during or after construction.
The starting point is the agreement between homeowner and contractor(s). This article cannot cover the myriad of issues that arise when litigating construction disputes, however, I can identify a number of the major issues that I see again and again when dealing with disputes.
A general description with a single price on a one page document is begging for the future involvement of a construction litigator. At a minimum, the parties should write down a relatively precise description of the work to be performed. If there are drawings, plans or building permits, reference those documents to provide a baseline understanding of the work. Costs should be broken down by item unless there is a fixed price for all of the work. Discuss whether the price is a binding quote or an estimate. Discuss and document what would cause the price to increase and what sort of communication should be provided in advance of work being performed at higher than expected costs. Is there an important deadline that has to be met and would permissibly change that deadline? Is the contractor entitled to charge a percent fee on material and work and if so should there be any limits on what triggers a profit or overhead surcharge? Finally, what would entitle either party to terminate the contract and what amounts would then be owing?
Disputes often arise because the parties were not on the same page at the start of construction – asking even the simple questions above and writing down your agreement will give you a better understanding of your obligations. Unlike other contractual relationships, a partial renovation does not lend itself to simply “walking away” from the relationship when you aren’t on the same page. One or both parties will likely suffer meaningful loss at that point and will look to the other side for compensation. At that point litigation counsel becomes involved and costs are likely to spiral out of control, especially relative to the amounts at issue.
After forming the contract, compliance with the Builders Lien Act helps reduce and eliminate disputes in a cost effective manner. As an initial point, I often see terms in small renovation contracts where the contractor tries to have the homeowner agree the Builders Lien Act does not apply and that there won’t be a holdback. This is not effective – the parties cannot contract out of the Act.
Ultimately the Act has some technical features that may not always apply to small renovations. However, a brief summary of some key features and how they protect/assist with small renovation disputes include: (a) the 10% holdback ensures there is some money held back for subcontractors or material suppliers and allows an owner to discharge subcontractor liens using the holdback; (b) in the event of a lien, the Act sets out how to arrange for the lien’s discharge – and informal agreements can then accomplish this at a cheaper cost than going to court; (c) deadlines are set for the filing of liens and for the release of the holdback – ensuring certainty for homeowners and lenders (as a side note, many people wrongly understand the deadline to start when the specific contractor finished on the site. This is incorrect, unless there is a certificate of completion, which is rare with small renovations, the lien deadline starts upon completion of the head contract or the project itself. A trade who finished on the first day has a lien right that survives until 45 days after the project itself is complete); and (d) the Act sets out the liability of a non-contracting owner (for example a landlord whose tenant engages a contractor) and how that owner can minimize or eliminate their liability.
In sum, spending some time up front documenting your project and understanding how the Builders Lien Act works can save significant time and cost down the road. Just because a renovation is “small” doesn’t mean the problems will be small (or cheap) if disputes arise.
The information provided above is for educational purposes only. This information is not intended to replace the advice of a lawyer or address specific situations. Your personal situation should be discussed with a lawyer. If you have any questions or concerns, contact a legal professional.