Legal Bits: Nuts & Bolts Advice About Your Remodeling Contract Part #2

Contracts are funny things. Until a problem surfaces, people don't really read them — and then each word is put under a microscope. You can save yourself a lot of expensive headaches by having the proper wording in your contracts to cover the myriad of situations that may get you into trouble as a remodeler. The purpose of this series of articles is to provide you with suggested contract language to protect yourself. I welcome any feedback or suggested clauses that you may be using in your contracts; your words might benefit other remodelers.

Today's Topic: Chapter 2, Hard Knocks

All experienced remodelers have clauses in their contracts that were learned in the School of Hard Knocks. Here are more clauses I have included in my own contracts to deal with the creative problems clients have conjured up through the years.

1. "Can I hire your electrician to put in some additional outlets in the rooms next to the kitchen you are remodeling?"

This type of request is particularly dangerous. There is a real potential for liability if one of these "side deals" causes a fire, flood or other serious problem down the road. Here's the scenario: Three or four years after a project is completed, the house burns down. The fire is a result of an outlet installed during the remodeling — in one of those rooms outside of your scope of work. The owners most likely will not remember they contracted your electrician separately for that outlet. They will come directly after you as the general contractor and "your" electrician.

Answer: "Contractors have the sole right and responsibility for and the authority to contract with any and all subcontractors. Owners shall refrain from soliciting changes, additional services, and requests for extra work beyond what is specified in the contract from subcontractors and any of their personnel. All such issues must be discussed directly with Legal Eagle Contractor's owner directly."

2. "Thank you for spending hours typing up the specifications and designing the project for me. Unfortunately for you, I'm going to have someone else build the project, but we will put your specifications and ideas to good use."

Your clients have no idea how much work — and skill — it takes to put all their design ideas into organized specifications. An engineer or architect would never give that information away for free — but we remodelers do it all the time. Protect your design product by copyrighting your specifications, and prohibit its use by other contractors.

Answer: Copyright notice: "These specifications are the proprietary intellectual property of [ABC Remodeling Co.], copyrighted on the date at the top of this contract by [your name]. The owners agree that the design information contained in contractor's estimate and plans shall remain the property of the contractor. Use of these specifications by other contractors for bidding or any other purpose is strictly prohibited and will result in a specification preparation fee charge of (e.g. $750.00) immediately payable by owners to contractor if these specifications are shown to other contractors, or used in the design and construction of the project by the owners or other contractors or subcontractors. This restriction on use applies whether or not owners sign this contract. The intellectual property covered by this paragraph includes but is not limited to the scope of work, the specifications, the drawings and plans, budget documents, and any other work product created by the contractor."

3. "I never agreed to upgrade to granite countertops—that was my wife's idea. Just because she signed doesn't mean I agreed to it. We will not pay for this."

Answer: "If owners are married or otherwise partners, the owners agree that the signature of one shall be binding on the other for all purposes on this and any documents pertaining to this project."

4. " Swear it's my bank's fault! I don't usually bounce this many checks in a row!"

If you've never dealt with a bounced check, you will. They are a headache for you and cost your company money. Clients typically make good on replacing their bad checks, but if your checks end up bouncing as a result, the clients should cover your bank charges. I suggest having a set policy in the contract so resulting expenses are covered. You have the right to charge a fee for reprocessing the check, but talk with your attorney to be sure you are not getting into any usury (charging an illegally high interest rate) problems. Rules about this differ in different states.

Answer: "Returned Check Policy: In the event Owners bounce a check (or checks) to Contractor the following will occur: 1) Contractor will promptly notify Owners. 2) Within 24 hours, Owners will deliver (not mail) to Contractor's office a cashier's check covering the sum of these four items: a) the amount of the bounced check(s), b) all Contractor's bank charges for processing the bad check(s), currently around $25, c) any and all bank charges from any checks written by Contractor that bounce as a direct result of Owner's bad check, and d) a processing fee of $25 to over our administrative expenses.

I know many of you may already have clauses like this in your contract. Of course, you should revise these clauses to fit your business and your jurisdiction. It would be wise to take your attorney to let your attorney read them over to be sure they work in your area.

If you have interesting contract clauses resulting from the school of hard knocks, please e-mail them to me. I collect them! There will be more coming in future articles. Stay tuned.

Dan D. Bawden, CGR, GMB is president of Legal Eagle Contractors Co. in Houston. He was voted Texas Remodeler of the Year for 2000.