This past week there were three calls from homeowners with issues pertaining to work and guess what? There were no contracts! A contract is a legal agreement between two or more people. A written agreement is one of the most important communication tools for both the contractor and consumer. It helps avoid misunderstandings about what a job will include. A thorough contract tells how the work will be done, when it will be done, what materials will be used and how much it will cost.
In Arizona, a written contract is required for all home improvement projects over $1,000. A home improvement contract and any changes made to that contract must be in writing, legible, easy to understand, and inform the consumer of his/her rights to file a complaint with the Arizona Registrar of Contractors. If you are promised something verbally, make sure that it is included in writing. Don’t sign anything until you understand the contract and agree to the terms.
A contract should contain everything agreed upon by the consumer and contractor.
The contract should describe, in detail, the products to be used and how the work will be performed, i.e., size, color, who will be doing what work, amounts of materials provided, manufacturer model number, etc. There must be a detailed, written payment schedule in the contract. Never make payments to the contractors that have exceeded the value of the work performed.
The contract needs written direction as to who will obtain the necessary permits, and must provide a date of completion. If the contract price or scope of work needs to be changed, it MUST be done with a written “Change Order,” signed by the customer and contractor prior to the change, which then becomes a part of the contract. Also make sure the contract includes details like cleanup and removal of debris and materials, and special requests like saving lumber for firewood. The contract must identify the contractor, his/her business address, and contractor license number.
Be sure to get any warranty offered by the contractor for labor and materials in writing either for work done by the contractor or manufacturer warranties.
As refresher information, if you receive a Preliminary Notice, don’t panic. The Preliminary Notice isn’t a lien; it is a notice that a subcontractor or supplier has provided or will be providing goods and/or services to improve your property and could file a lien claim if he/she is not paid. Don’t expect a Preliminary Notice from a prime contractor. The prime contractor isn’t required to send a Preliminary Notice.
The prime contractor must provide a Preliminary Notice to the construction lender if the contracted project is being financed by a loan. Preliminary Notices allow you to track who has a potential claim against your property. Subcontractors and suppliers must provide you with this notice to maintain their right to file a lien. If they don’t provide you with the notice, they lose their lien rights. Watch the timing. A subcontractor or supplier can give you the Preliminary Notice before delivering supplies or starting work and up to 20 days after delivering supplies or starting work. If the notice is later, the subcontractor or supplier is only entitled to foreclose a lien to recover payments owed 20 days before receipt of the notice and anytime thereafter.
It is important to obtain Conditional and Unconditional releases for progress payments/partial and final payments. The prime contractor has a direct, contractual agreement with the homeowner. If the contractor isn’t paid, he or she can sue on the contract. But subcontractors, workers and suppliers don’t have a contract with the homeowner. A problem can occur when the homeowner pays the prime contractor for all or some of the work, but the prime contractor fails to pay the laborers, subcontractors, and materials suppliers that were hired to do portions of the job. Again, obtain Conditional and Unconditional releases for partial and final payments.
Minimize Risks, Take Steps to Protect Your Home
When you hire a prime (primary) contractor for a construction project at your home, he or she typically hires laborers and subcontractors to do some of the work, and purchases materials for the job from construction suppliers. If the contractor — or subcontractors, workers or suppliers — who provide goods or services to improve your property aren’t paid, they can file what is called a mechanics lien on your property, only if they have supplied you with a Preliminary Twenty Day Notice. Mechanics lien law is complicated and confusing, and there are real risks involved for homeowners. Avoid risking foreclosure of your home, a lien on your property title, or having to pay twice for the same job by preparing for the possibility of a lien, and employing the safeguards of obtaining Releases to protect your home and financial stability.
You can help protect yourself from unwarranted liens by carefully selecting your contractor and responsibly managing your construction project. Thoroughly check your prime contractor’s business and professional work before you sign a contract: Hire only licensed contractors and check the contractor’s license status. Make sure your contractor hires only licensed subcontractors, and check their licenses, too.
Preventing liens before you pay your prime contractor, consider the possibility of a lien being recorded on your property’s title. Keep track of Preliminary Notices so that you are aware of who may file a lien claim on your property.
The release system is designed to allow property owners to track when potential lien claimants have been paid — whether part of a progress payment or upon completion of the entire project. There are conditional and unconditional releases for progress and final payments.
Here’s how the lien release system works: Before you make a payment, you first should get a signed conditional release from the possible lien claimant(s). The prime contractor is required to give you a signed release from potential lien claimants if you request it. After you receive the conditional release(s), make the appropriate payment for the work that was done. After you pay, request that the contractor give you an unconditional release signed by each of the claimants paid for the portion of the job for which they are relinquishing their lien rights. Make sure that the actual claimant signs the unconditional release. By law, you may withhold the next payment until you get the unconditional releases for the previous payment.
Remember to tune in to YCCA’s Hammer Time twice each weekend Saturday and Sunday at 7 a.m. on KQNA 1130 AM/99.9 FM or the web kqna.com. Listen to Sandy and Mike talk about the construction industry and meet your local community partners and contractors.