It can be an exciting to construct or renovate a home or business, but unfortunately, these undertakings are complicated. Our Pittsburgh lawyers represent both property owners and contractors when disputes occur. We have experience and insight from both perspectives.
Litigation is common for disputes between the property owner and contractor (or builder) with regard to commercial or home improvement. This article addresses both home improvement and commercial projects. Then, we will answer (below) the common questions in these areas of law.
First, let’s talk about residential improvement.
I. HOME IMPROVEMENT
The law makes a distinction between whether you are building a new home versus home improvement to an existing structure. Such improvements include adding or changing: a bathroom, porch, plumbing, deck, kitchen, garage, flooring installation, roof installation or repair, electrical work, new baby or mother-in-law suite, or demolition.
With regard to home improvement, in 2009, Pennsylvania passed the Home Improvement Consumer Protection Act (“HICPA”), 73 P.S. § 517.1, et seq. Click here for the actual text of the statue. This brought major changes to home improvement contracts. HICPA took effect on July 1, 2009. Importantly, again, HICPA only applies to home improvement, not commercial jobs, and not new home construction.
HICPA’s Requirements For the Contract to Be Enforceable
For any contract for home improvement between a home owner and contractor after July 1, 2009, the home improvement agreement or contract must:
- Be written and not merely oral.
- Include the start date, end date, contract price, plus a description of the work,
- Also include the name of the contractor, his (or her) registration ID and numerous other items of information,
- Include a notice of rescission that expressly allows the owner three business days to back out of the agreement.
- Be given to the home owner, meaning, the home owner must receive a copy of the contract and notice of rescission before commencing the work;
- Importantly, any modification of the home improvement contract must be in writing and expressly agreed to be the home owner (this addresses the common scenario where the contractor falsely claims that some “new event” or discovery or unforeseen requires the consumer to pay more. Sometimes, these “change orders” are legitimate based on a good faith assertion of a change in circumstances, but not always. Many contracts are underbid with the intent to approach the property owner for money money. This can occur under the guise of a “changed” circumstance. Either way, any modification to the original agreement must be in writing to be enforceable relative to home improvement.
Absent the above, the contract is not enforceable against the home owner, except the contract may be paid for the actual value of work (not the contract price) performed correctly, discussed below. Moreover, the contractor is also liable for any damages he or she caused, times three plus attorney fees, as discussed below.
Can the Contractor Still Get Paid if He Violates HICPA?
The short answer is: yes.
Keep in mind: the Supreme Court of Pennsylvania has determined that the contractor may seek a recovery for the value of services rendered, which also called “quantum meruit,” even if the contractor is in violation of HICPA. See Shafer Elec. & Const. v. Mantia, 96 A.3d 989 (Pa. 2014). This is based on fairness and the concept of “unjust enrichment.”
This is important, because if the contractor violated HICPA, he cannot expect to get paid the entire price of the contract. Rather, he can only get the “value” of services rendered, which opens the door for the home owner to argue that the work performed was low value and not worth the contract price. This can deprive the contractor of the right to be paid the contract price. Challenges are common where the contract had been overpriced or, more commonly, the contractor had cut corners on the job, making the “value” of the performance on the contract relatively low.
Plus, there could be a mechanic’s lien against the home by the contractor or any subcontractor or supplier not paid by the contractor, subject to limitations, as discussed below.
HICPA’s Effect on Mechanic’s Liens
A mechanic’s lien is where the contractor — or sub-contractor or supplier of materials on a job — can take a “lien” against the property, if not paid for his or her work or materials. We talk about mechanic’s liens, generally, right here, in detail, regarding Pennsylvania’s mechanics’ lien law, 49 P.S. § 1101, et seq. For example the Party asserting the lien must get the claim properly served via sheriff.
Even if the contractor failed to comply with HICPA, he can still take a lien against the property, but only for the value of services rendered, not for the contract price.
Why is this the case? This is very technical, but bear with us. Here, even if HICPA sets aside the express contract, an implied contract at law still remains. A mechanics’ lien can result from a contract that is express or implied. See 49 P.S. § 1201 (defining “contractor” as one who, “by contract with the owner, express or implied, erects, constructs, alters or repairs an improvement . . . or furnishes labor, skill or superintendence . . . or supplies or hauls materials, fixtures, machinery or equipment reasonably necessary for and actually used . . .”) (emphasis added).
Note, however, that the home owner’s payment in full of contract price (to the general contractor) will bar liens by the sub-contractors, if they’re not paid. Click here for more.
Other Forbidden Conduct Under HICPA
A home improvement contractor may not include an attorney fee provision in the home improvement agreement. This is because the home owner cannot be made responsible to pay the contractor’s attorney fees regarding a dispute. Nor may the contractor may include an arbitration clause in many instances, or engage in other acts, such as accepting payment greater than 1/3 upfront of the contract price, exclusive of costs.
The contractor must also carry liability insurance of at least $50,000 for the job. Note, however, this covers resulting damage and not the failure to complete or perform the job, as discussed below.
Harsh Penalties Under HICPA
A contractor who fails to comply with key provisions of the Act may suffer the following:
- Liability for damages, times three (or treble damages), if the home owner sustained damage from the contractor’s work, such as having to pay another contractor to finis the work or repair damages from the original contractor’s negligence, such as a tipped over paint can, to damages to landscaping or other things that could have been prevented with due care. The home owner can also get an award for not only treble damages, but also attorney fees, under HICPA, because, by statute, any violation of the Act is, by definition, also a violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“the UTPCPL”);
- Criminal penalties and imprisonment, if the contractor engages in misrepresentation or accepts more than one third of the contract price upfront (exclusive of material costs).
- The Act is a consumer protection law. The Commonwealth of Pennsylvania maintains a database for every violation of the act of non-compliance that results in a civil judgment. Plus, the contractor can lose his license for failure to comply with the Act.
Exclusions from HICPA
All home contracts for home improvement between home owners and contractors are covered under the Act, unless expressly excluded, such as:
- Contracts entered into before July of 2009 (the Act took effect on July 1, 2009, and thus it governs contracts entered into on or after July 1, 2009);
- Emergency work; this can be a key exception as many contractors doing home improvement will try to characterize it all as an “emergency,” such as home improvement following a storm, even if the work need not be done imminently;
- Contracts for less than $500;
- New Construction of a Home; this is an another significant exception, as noted; and
- Certain types of plumbing.
II. BUILDING A NEW HOME
As mentioned, HICPA does not apply to the building of a new home. Thus, the home building contract may include an arbitration clause, requiring all disputes to go to arbitration, which is fairly expensive compared to court. Nor is there a requirement for the builder to have liability insurance or a limit on how much money can be put down.
Plus, for a new build, the strict requirement of a writing under HICPA does not apply to new construction. That said, Pennsylvania has the statute of frauds, which requires that all contracts for the sale of goods over $500 or the sale of land must be in writing. A home new-build contract can touch upon either of these. Materials purchased relative to building the home are “goods,” for example. Moreover, basic contract law principles apply, regarding enforcement and defenses to the contract.
Further, for new construction, if the home is purchased for use as a consumer (not as a rental), then Pennsylvania’s Unfair Trade Practices and Consumer Protection Law would apply. This allows the home owner to seek an award for actual damages time three, plus attorney fees, as mentioned. Click here for a recent award of $318K for attorney fees against a builder.
III. COMMERCIAL PROJECTS FOR BUSINESSES
Contracts to build or renovate a property for commercial use — including leasing it to tenants, is outside of consumer protection law. These contracts are permitted to include an arbitration clause in the agreement, requiring the matter to go to AAA arbitration or another format. You may or may not want to enforce this, however, as arbitration has relatively high filing fees. Either way, our Pittsburgh lawyers are experienced at handling all kinds of arbitration and mediation. When the property is intended for a commercial purpose, either as a rental, or to be used as a business, neither HICPA nor Pennsylvania’s Unfair Trade Practices and Consumer Protection Law would apply.
IV. OTHER ISSUES
On many jobs – either new-build, improvement, consumer, or commercial — the sub-contractor has rights against the general contractor, if the subcontractor is not paid. A mechanic’s lien is the usual option, but lien waivers can diminish those plus a mechanic’s lien is an “inchoate lien” which means, it stays with the property, only, and the party having a lien may not force the of the property. An unpaid contractor or subcontractor can instead pursue a claim under Pennsylvania’s Contractor and Subcontractor Payment Act. This allows for steep interest to be paid on the unpaid amount, plus, the unpaid party can seek an award the payment of his or her attorney fees, if that person is the prevailing party.
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Frequently Asked Questions
When may a property owner fire a contractor and pay another the finish the job?
The property owner has a duty to mitigate damages and give the contractor a reasonable opportunity to finish the job. A property owner need not give the contractor forever, however. The property owner should establish evidence in writing concerning attempts to get the contractor to finish the job. Use email, or fax, or text even, anything. Avoid relying on oral conversations alone, either over over the phone or in person.
How much money can the property owner seek against the contractor?
Regarding every kind of contract in PA, each party is entitled to the benefit of his or her bargain. The law seeks to put each party in the place they would have been, had the contract been carried out. So the actual damages concerning any contract (regardless of consumer protection issues described above), is the cost it would take to “make you whole.” That said, from the property owner’s side, this means, how much would it cost to have someone else finish the job exactly as promised? On the contractor’s side, it means, to be paid what the property owner agreed to pay you. Also, a recovery can be made for any reasonable change orders necessitated by unforeseen circumstances.
Consumer protection issues and damages (such as treble damages and attorney fees) are separate matter, discussed below, regarding non-commercial contracts.
How do you prove what your damages are?
On the property owner side, you will need an estimate from another contractor. The emphasis should be on finding an estimate that is fair, reasonable, and takes into account all possible issues. Plus, once your estimate is offered as evidence, the you will be hard pressed to offer a different but higher estimate, without losing credibility.
Should you get an estimate from another contractor to finish the job?
Yes, but as the Grail Knight told Indiana Jones: “choose wisely.” Select someone you would want and trust to do the job, or you may find yourself in a dispute with two contractors instead of one.
Does insurance cover your claim against the contractor?
The short answer is, it depends.
Property owner side. The property owner’s homeowner’s insurance may cover damaged caused by the contractor, such as cracked concrete or other harm to the property secondary to the contractor’s work.
The contractor may also have liability insurance. In fact, home improvement contractors in PA are required to carry at least $50,000 of liability insurance coverage. However, an insurance company only provides liability coverage for damages, not the failure to finish the job, otherwise, no contractor would ever finish. They would have their insurance carriers pay you to have someone else to finish the job. Insurance does not pay to finish a contract, for example. For more on the limits of liability insurance, click here.
Rather, the contractor’s liability insurance will only cover the “resulting damage” he caused. This includes a contractor tipping over a paint can, as mentioned, or causing some other damage to your property beyond failing to finish the job. This is consider “secondary damage,” which insurance will typically cover.
Contractor side. For any contractor sued, he should immediately consider all sources of liability coverage for himself or his company. Ideally, the contractor should liability insurance specifically for the job at issue, as his own homeowner’s insurance will not likely cover mistakes made in his professional capacity.
Can I get an award for my attorney fees?
It depends. The general rule in Pennsylvania is, each party pays his or her own attorney fees to litigate a dispute, unless there the contract provides for it or there is some statute that provides otherwise. Thus, you should talk to construction law attorneys to answer this. However, as mentioned, attorney fees may be recoverable in some instances. One example is HICPA (above) or another consumer protection statute, such as Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCP), attorney fees may be recoverable.
Will the case get settled?
This depends. Some contractors are shady and never pay because they have multiple unsatisfied judgments against them. Others, however, are more responsible. Either way, having a lawyer involved will likely enhance our chances to collect money. You may need to sue a contractor, or defend suit, if you are the contractor.
If you are a home owner with a claim governed by HICPA (above), you or your lawyer should contact the PA attorney general for help, again, for consumer-relate cases that are not commercial in nature. The Pennsylvania Attorney General (AG) will assign the matter to an investigator, who is not a lawyer. Overall, the AG will likely not provide you with legal representation (absent very rare circumstances). However, the AG’s office will mainly just write to the contractor. This, at least, puts pressure on the contractor and enhances the chances of settlement.
Does a judgment in court mean the money will be collected?
Unfortunately, no.
This can be the most frustrating thing about civil litigation. Just because you win in court, that does not mean you’ll collect the amount of your judgment. As the expression goes, there can be a long walk from the courthouse to the bank. Click here for another article of ours on this exact topic.
On the property owner side, if you get judgment, you can use it to collect against the contractor’s hard assets and stuff, plus any bank accounts. Only, many contractors already have judgments against them. For example, many are broke on paper) and carry few assets. They only lease their tools and equipment from Lowes or Home Depot, doing business “cash only.” Also, if the contract is for home improvement, however, there is one ray of light. An unsatisfied judgment against a home improvement contractor can work to suspend his home improvement contractor license. This, however, assume the home improvement contractor is not a total fraud and cares about his license.
Contractor’s Defense to Enforcement of a Judgment
On the contractor’s side, you can get a mechanic’s lien, which stays with the property but cannot be used to force the sale of the property. Thus, it’s useless unto the property get sold. Fortunately, in Allegheny County, a judgement against anyone automatically constitute a lien against property. Note the difference from a mechanic’s lien. However, this kind of lien has teeth. It can be used to force the sale of the property. That said, the mortgage holder will be paid first, so unless there is significant equity in the home. Thus, this approach may not be cost-effective.
What if someone was injured from the construction or renovation?
It’s not uncommon for a property owner to be injured during construction by a contractor, or for the injuries to manifest later, such as damage from a water leak or mold related illness or damages. In addition, our lawyers handle all kinds of injury claims. Injuries are governed by negligence law, but your home improvement or other contract may limit those claims. Also, a lawyers should review any waiver closely as these have been disregarded by the courts in numerous instances.
Can I post something online about the shady or shoddy contractor?
The answer is yes, but you have to be sure you are factually correct. Even when you are correct, you can get sued for defamation or trade disparagement if the contractor sees it differently. You can be sued for defamation (of the contractor personally) or trade disparagement, by his company, corporation, or LLC. If you feel you must speak negatively about a contractor, at least do not make any reckless statement.
News and Legal Updates
- An individual claimed he should not be liable for the conduct of his company, allegedly in violation of HICPA. Judgement in favor of the plaintiff was affirmed, however. Parker v. Surman, Pa: Superior Court 2019.
- Helpful Home Improvement Information, click here.
- $2.3M verdict against home builder for fraud and failure to honor warranty for water infiltration. Click here for more.
Free Consultation
This article covers a number of issues but you should talk to our Pittsburgh construction law attorneys to understand your rights. Every case is unique. The above should not be relied on legal advice until you talk to lawyer for him or her to advise about how the law can apply to the specific facts in your case. Plus, we offer reasonable fees in litigation. We have extensive experience litigating construction law disputes. Get help with your claim on a contractor or your defense.
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