3 tips to avoid getting burned by a contractor.
Useful legal information when building or remodeling.
Jim and Pam have come into our office to talk about their legal options regarding a dispute with their contractor. Six months ago, they hired a contractor to finally do the remodel Pam had been dreaming of. They got the contractor’s name from a friend who had heard good things about this contractor. The contractor had been in construction for years, but recently started his own company and was willing to do jobs for a lot less than other guys. Jim and Pam got the contractor’s number and set up a meeting with him.
The contractor said “no problem” and gave them a page from his notebook where he had written “Halpert Kitchen Remodel Estimate” listing an overview of the things they discussed with an estimated total of $38,000. Jim and Pam were excited about this price—it was well within their budget. The contractor explained that he would need 50% up front and then some additional payments over the course of the project and a final payment after the job was completed. They shook hands and the contractor said he’d be back the next week get started.
Unfortunately, the contractor’s representations did not turn out the way he had assured Jim and Pam that they would. It is now six months later, Jim and Pam have paid the contractor $35,000, but their kitchen is nowhere near finished. The contractor has stopped returning their calls and they recently received notice from Schrute Materials, the granite supplier, that it was putting a lien on their home because the contractor had not paid for materials used on their project. Jim and Pam also found out that the contractor had not pulled a permit for the work that was performed, including some electrical work that he had done. In reviewing the situation, we also discover that the contractor was not even licensed to do electrical work. We discuss Jim and Pam’s options, including suing the contractor and his bond but we also warn them that they could spend thousands of dollars on legal fees and still never recover all of the money they lost. This is a bad situation, but unfortunately, it is not uncommon.
Here are three steps that Jim and Pam could have taken to avoid this frustrating and expensive situation:
1. Check Washington’s online system to make sure a contractor is licensed, bonded, insured and has no cited violations.
Is your contractor licensed and bonded? Not sure? This is a simple but important step in the process of contracting to have work completed.
To get started, check out: https://secure.lni.wa.gov/verify/
Contractors are required to be licensed and bonded. The Washington State Department of Labor and Industries maintains a complete list of the contractors and subcontractors who are licensed.
Find your contractor’s name and review the site to confirm the type of work they are licensed to perform (general or specialty), whether they have had any claims made against their bond, or have been cited for violating safety laws. Before jumping into a contract with someone to work on your home, make sure the contractor is properly licensed, bonded and insured.
Some people want to save money by hiring an unlicensed contractor. It is true that under Washington’s restrictive laws pertaining to contractors, an unlicensed contractor has no legal right to place a lien on your property. In addition, contractors who knowingly hire unlicensed subcontractors to complete work on your project can be fined. However, while this might all sound very beneficial for the homeowner, there are still serious downsides to hiring an unlicensed contractor. What happens if an unlicensed contractor is injured on the job or if the unlicensed contractor does poor work? What if the unlicensed contractor skips the “permitting process” and proceeds with no permit? Homeowners not only risk being held legally responsible for an unlicensed contractor’s injuries on the job, but often have no means to recover for faulty or unpermitted work.
Moral of the story? The risk is simply not worth a lower bid. The lower price tag might sound like a good deal at the beginning, but the potential risks involved are significant. Avoid the risk, hire a licensed contractor, and if there are any bumps in the road, call one of our experienced attorneys to help you navigate the process.
2. Get it in writing.
Once you have found the right contractor and verified that they are licensed, bonded and insured, you should put your agreement in writing. This seems like common sense, but so often people will be encouraged by a meeting with the contractor and think that they can trust them to do the right thing and that they don’t need a written agreement. However, without the proper written documentation, that quick phone call or text message could turn into a legal disaster.
In Washington, if you believe a contractor has not fulfilled the promises they made at the outset, you can file a lawsuit against them. However, in order to enforce your rights, you must first prove that there was an enforceable agreement. While oral contracts can be valid, the simplest and most efficient way to make sure that any agreement is enforceable is to have a written document that specifies
- who the parties are making the agreement,
- a reasonably detailed description of the work to be done, and
- the cost of the work.
Generally, it is a good idea to include other provisions including working with subcontractors, attorney fees related to enforcing the terms of the contract or for defective work, and any guarantees made by the contractor related to the work. Without a written agreement it is much more difficult to prove what you are entitled to and why the contractor should have to pay. The bottom line is that you should put the agreement in writing.
3. Get Lien Releases in Exchange for Each Payment
A contractor, subcontractor or someone who supplies material for the project (like cabinets, tile, granite, fixtures, etc.) may have the right to put a lien on your property if they do not get paid. A lien against your home encumbers your property in the amount of the lien. It can interfere with your ability to transfer, sell, or even refinance your property. Here is a link to the chapter on lien laws in Washington (RCW 60.04) https://app.leg.wa.gov/rcw/default.aspx?cite=60.04
A homeowner may not even know that a subcontractor was working on the project, because the general contractor is the one who hired the sub and coordinated the work. That is another reason why it is important to properly document the agreement as outlined above. To avoid having a lien placed on your property, you can make the check payable to both the general contractor and the sub or supplier. You can also require the contractor and any subs to sign a lien release in exchange for payments. If it is a larger job and you are making progress payments, you can request a partial lien release- that is, a release for work performed up to the point of payment. If the project is complete, you can request a final lien release in exchange for the final payment. Washington State L&I has a sample form at https://lni.wa.gov/forms-publications/F625-029-000.pdf
As the owner of the property that is being improved, you should take steps to make sure that anyone who does work or provides materials for the job is properly paid. If you do have a lien placed on your property you should speak to an attorney about your options for addressing the issue. There are specific rules that contractors, subs, and supplier must follow in order to properly lien property.
Moral of the story? Before hiring a contractor, you need to take steps to evaluate the contractor, put your agreement in writing, and then make sure anyone who provides work or materials for the job gets paid.
Nervous about entering a contract without fully understanding all of the terms? Our experienced attorneys at Wolff, Hislop & Crockett can assist you in understanding the terms of a contract before you enter into it. A little bit of time and money spent at the beginning of a project to make sure you are protected will save you a lot of frustration and money in the long run.
If you are already in a sticky situation involving a contractor or a lien, our attorneys at Wolff, Hislop & Crockett are experienced in assisting both contractors and homeowners in understanding and enforcing their legal rights.
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