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Home Improvement during Covid-19 and Contract Price

Home Improvement during Covid-19 and Contract Price

| Sep 14, 2020 | Firm News

Home improvement projects are on the rise during the pandemic. Covid-19 has pushed people to spend more time at home and set up their offices to work from home. We see our clients investing their time and money into improving their homes.

If you are a homeowner looking to undertake a home improvement project, you must require your Contractor to provide a Contract Price for the work at the time of signing your written contract. The Contract Price is the maximum price that you will be required to pay the Contract for completing the work specified in the contract.

As a homeowner, you may be considering the services of a reputed Architect or a Contractor. At times, the Architect or the Contractor will draft and offer a construction agreement with a budget estimate without a maximum price. Homeowners should be careful about such bad practices that are commonly seen in the construction industry.

To better explain a common pitfall, I would like to illustrate a factual example. Consider a scenario, where you have employed a well-known and reputed Architect for an extensive home improvement project. As is the case generally, the Architect drafts and offers an Owner-Architect Agreement with a Preliminary Budget Estimate.  Let us presume that the offer is  $200,000.00. This includes the cost estimate for the services of the contractor, sub-contractors, and suppliers. The proposal by the Architect further states that the Preliminary Budget Estimate excludes a bulk of material and supplies that must be purchased by the homeowner.

The work progresses over a period of fifteen (15) months, requiring you to make monthly payments. Within four (4) months, the Architect has exhausted the Preliminary Budget Estimate of $200,000.00 and completed only 25% of the total work. At the end of fifteen (15) months, the Architect charges the homeowner a total amount of $750,000.00. The homeowner soon realizes that the Architect grossly misrepresented the budget estimate and charged the homeowner 275% more than the contracted budget estimate. Unfortunately, this is an exceptionally common practice and one that overlooks the protections of Contract Price offered under California Law.

In the above scenario, the Architect’s proposal of a budget estimate did not comply with the legal protections for homeowners. Business & Professions Code Section 7159 clearly states that payments for a project must be mentioned in clear dollar and cents for each work, services, material, and equipment, well in advance. This Contract Price is required under the Business and Professions Code so that homeowners are not duped into making excessive payments for their home project. A Contract Price in a construction contract ensures that the homeowner knows well in advance what they will be paying the Architect and/or the Contractor.

As in the above referenced case, a time and material contract that rests on a budget estimate is not enforceable under California Law for Residential Construction Work. Specifically, section 7159 of the Business and Professions Code excludes “times and materials” contracts because it requires that the contract must clearly state the contract amount for each work, services, material, and equipment. However, the Court may still enforce such contracts if the dispute involves a sophisticated homeowner. To avoid any confusion as to the validity of your written contract and avoid paying high construction costs, a Contract Price is necessary. Thus, it is important that as a homeowner you must receive a specific price for your home improvement project before you sign your written contract.

Disclaimer: Please do not treat this opinion as legal advice as your matter may have other aspects and issues that must be considered by an attorney. To discuss your case, please reach out to us at [email protected] or [email protected].