Is Your Home Improvement Contract Legal? – Real Estate and Construction

In an effort to protect homeowners, California has set out
extensive requirements for the form and content of home improvement
contracts. California Business and Professions Code Section 7159 sets out these requirements in
painstaking, and sometimes pain-inducing, levels of detail. The
unfortunate result for contractors tends to be confusion and
avoidance.

Many contractors operate with noncompliant contracts, or have no
formal contract and simply operate on the basis of a bid
submission. The consequences of doing so can include disciplinary
action by the Contractors State License Board (CSLB), fines,
and an unenforceable agreement. It is worth the time and effort for
a contractor to bring his or her contracts into compliance. To that
end, the following is an attempt to cover many of the requirements
of Section 7159, although this list is by no means exhaustive.

When is a Contract Necessary?

In general, a home improvement contract is needed for repairs or
alterations to residential property. According to California
Business and Professions Code Section 7151, this includes “the
construction, erection, replacement, or improvement of driveways,
swimming pools, including spas and hot tubs, terraces, patios,
awnings, storm windows, landscaping, fences, porches, garages,
fallout shelters, basements, and other improvements of the
structures or land which is adjacent to a dwelling house.” A
very broad range of construction activity is thus covered. Section
7159 does not apply to new construction or projects under $500,
however.

Basic Contract Requirements

As to basic format, any writing in the contract must be legible.
Type must be no less than 10-point anywhere, with 12-point type
being required in certain places. The contract must say “Home
Improvement” in 10-point type. The first page of the contract
must indicate the date the buyer signed the contract. The first
page must also indicate the name and address of the contractor,
following a statement indicating that this is the address to which
a notice of cancellation should be sent.

The contractor must give a copy of the agreement, signed and
dated by both parties, to the homeowner before work begins.
Accordingly, the contract must contain the following statement in
12-point type: “You are entitled to a completely filled in
copy of this agreement, signed by both you and the contractor
before work is started.” Similarly, change orders can only be
incorporated into the contract if in writing and signed prior to
work beginning. The contract must include the overall price,
finance charges if any, and a description of the project and
materials to be used, with separate headings for all three. As with
all construction contracts, the contractor must include their
license number.

A heading must be included for the approximate date of
commencement, followed by the approximate date of commencement,
with a statement explaining what constitutes substantial
commencement. A separate heading for completion is required,
followed by an approximate date of completion.

What Must Be Said About Payments

If a down payment will be charged, there must be a down payment
heading followed by space to indicate the amount of the down
payment. This must be followed in 12-point, boldface type with:
“THE DOWN PAYMENT MAY NOT EXCEED $1,000 OR 10 PERCENT OF THE
CONTRACT PRICE, WHICHEVER IS LESS.”

If progress payments are to be charged, there must be a heading
for them, and a list of payments to be made in dollars and cents
with reference to corresponding work and materials. The section
must contain the following notice: “The schedule of progress
payments must specifically describe each phase of work, including
the type and amount of work or services scheduled to be supplied in
each phase, along with the amount of each proposed progress
payment. IT IS AGAINST THE LAW FOR A CONTRACTOR TO COLLECT PAYMENT
FOR WORK NOT YET COMPLETED, OR FOR MATERIALS NOT YET DELIVERED.
HOWEVER, A CONTRACTOR MAY REQUIRE A DOWNPAYMENT.” The contract
must also explain that a lien release must be made for progress
payments before any additional payments can be required.

Other Notice Requirements

Section 7159 also spells out various notice requirements.
Contractors must indicate whether they carry liability insurance
and workers’ compensation insurance. A CSLB notice including
contact information and available services is also required. The
HIC must also make clear the homeowner’s right to cancel within
a certain number of days. For contracts negotiated at the home,
there is a 3 day right to cancel, or (new in 2021) a five day right
to cancel for senior citizens. For property destroyed in a sudden
or catastrophic emergency for which a state of emergency is
declared, the window to cancel is 7 days. The possibility of a
mechanics lien being placed on the property must also be spelled
out, and with specific language provided in Section 7159.

Originally published February 3, 2021

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.