Avoiding costly home construction litigation


Author’s note:  This was first published in our Vermont and New Hampshire real estate blog, now discontinued. 

 In our office, we frequently have clients who have had work done on their homes–new roofs, additions, renovations, and even new construction–and the work is not satisfactory.  Homeowners are faced with potentially expensive litigation against the contractor to remedy the wrong done to them.  There are legal remedies against a contractor who has not performed his or her job, including claims for breach of contract and consumer fraud claims.  However, litigation is expensive, and collecting your judgment may be problematic. For example, the contractor may be operating as a corporation or LLC, and those entities may have no assets from which to collect the judgment.  In addition, married couples in Vermont are not liable for any sole debts or liabilities, so if all of your contractor’s assets are held with his or her spouse, those assets are not available to you to satisfy a judgment. Finally, not only is litigation expensive, but there are long delays before your case will be heard.   Therefore, it is advisable to do some preventive medicine before the work has begun, so that if the work is substandard, you will have an easier time obtaining compensation for your loss. Here are some things you must do to avoid costly litigation for sub-par work:

1. Have a written agreement prepared and signed by you and the contractor.  This agreement should contain specific provisions outlining what services the contractor will perform, and what materials he will purchase.  The type and quality of the material and the quality of the service should be included. Verbal agreements are legal, but parties may remember differently what the terms of the agreement are.  A clearly written contract will dispel any doubts as to the terms of the agreement.

2. Provisions should be made in the agreement for inspection at regular intervals or when a portion of the project is complete. Depending on the size, cost and type of  project, you should consider using a professional inspector.

3. The agreement should also include a time frame for completion, and specific provisions for payment upon completion and inspection of parts or all of the project.

4. The agreement should include specific costs, with provisions for cost overruns only upon your written consent.

5. The agreement should require proof that the skilled workers on the project have appropriate licenses such as a plumber’s or electrician’s license.

6.  If you are dealing with a small contractor who has a separate corporation or LLC, the contractor should sign the agreement not only as officer of the corporation, but also personally. 

7.  This is important:  you must require proof of liability insurance that will cover reimbursement to you if the work is substandard or incomplete.  Require that the contractor provide you not only with the Insurance declaration page, but the entire policy. You need to make sure the policy covers the contractor’s work, and that there are no exclusions that pertain to your project.  For instance, in some some cases the insurance company refuses coverage because the contractor used subcontractors, which were not covered under the policy.  Depending on the project, it is advisable to request that the contractor obtain a performance bond.

8. Finally, it is advisable to have an attorney prepare the agreement and review the insurance policy or the performance bond before work begins.  This is a good investment to prevent incurring greater attorneys fees in litigation if the contractor breaches the agreement with you. 

Remember, a contractor who is willing to sign a clearly written contract providing for safeguards for the homeowner, and who is willing to provide proof of insurance or performance bond coverage will be more likely to do the job right, thus leaving you satisfied.