Protecting Yourself as a Contractor or Homeowner – What the Law Requires in a Home Improvement Contract
Are you a homeowner considering a home improvement? Or are you a contractor who wants to ensure you are protected when performing home improvements? Article 36-A of New York’s General Business Law provides the answer.
The definition of what constitutes a home improvement covers a range of work. It includes, but is not limited to, various repairs and remodeling, as well as constructing, replacing, or improving the following:
- swimming pools
- solar energy systems
- flooring and
This law does not cover moveable items, such as the installation of appliances or the installation of decorative items, such as draperies or carpets.
On contracts for home improvements valued at $500.00 or more, the following are the necessary terms of a home improvement contract:
- The home improvement contract must appear in writing and both the homeowner and the contractor must sign it.
- The contract must include the name, address, telephone number and any applicable license number(s) of the contractor.
- The approximate dates on which work will begin, and date by which work will be substantially completed. If there are any contingencies which could change the completion date, a statement outlining this must be included. If the contractor and homeowner have determined that the home improvement is “of the essence” (i.e., it needs to get done fast!) the contract between the parties needs to include this, too.
- A description of the work to be performed, the materials to be provided to the homeowner (including make, model number, or other identifying information) and the agreed upon price for the work and materials.
- A notice to the homeowner reserving the right of the contractor to file a mechanic’s lien against the homeowners’ property for any unpaid labor, services, or materials. The law requires the following statement, in clear and conspicuous bold face type:
“Any contractor, subcontractor, or materialman who provides home improvement goods or services pursuant to your home improvement contract and who is not paid may have a valid legal claim against your property known as a mechanic’s lien. Any mechanic’s lien filed against your property may be discharged. Payment of the agreed-upon price under the home improvement contract prior to filing of a mechanic’s lien may invalidate such lien. The owner may contact an attorney to determine his rights to discharge a mechanic’s lien.”
- A notice to the homeowner that that the contractor is legally required to deposit all payments received prior to completion according to §71-a(4) of New York’s Lien Law or in lieu of this deposit, the contractor may post a bond, contract of indemnity, or irrevocable letter of credit, with the owner, guaranteeing the return or proper application of the payment to the purposes of the contract.
- If the parties contemplate progress payments, or periodic payments before substantial completion of the work, the contract must address this. The contract needs to set a schedule of the progress payments and state the amount of each payment, specifically identifying the state of completion for the expected work or services, including any materials to be supplied, before each progress payment is due. The amounts charged for each progress payment must bear a “reasonable relationship” to the amount of work to be performed, the materials to be purchased, or expenses that the contractor is responsible for, at the time of payment.
Tip: If the contract calls for a contractor to perform any portion of work on an hourly basis, or based on some other measure of time, these payments are not treated as progress payments. Likewise with charges for materials, before a progress payment is due. In these instances, the contractor does not need to comply with the depositary requirements discussed in #6, above.
- A notice that the homeowner has the right to revoke an offer. In addition, a notice to the homeowner that they have until midnight of the third business day after signing a home improvement contract or offer to purchase materials, to cancel it. Cancellation occurs when the homeowner provides written notice of the cancellation to the contractor. If the homeowner decides to mail the cancellation, the agreement is cancelled on the day it is mailed.
Exception: A homeowner may need to hire a contractor to perform emergency work on their home. In this case, the contractor may want the homeowner to sign a separate statement describing the situation requiring emergency work and waiving the homeowners’ ability to cancel the home improvement contract within three business days.
- As with all contracts, the contract must be legible, state the terms in plain English, and clearly describe any other document that is incorporated into the contract. Before any work is done, the contractor must provide the homeowner with a written, signed agreement. The agreement may also contain other matters that the parties agree to.
We are happy to help both contractors and homeowners draft home improvement contracts and comply with the requirements of the law.
 Under Lien Law §71-a(4), within 5 days of receipt, contractors must deposit funds received in an escrow account in a bank, or state or federal savings and loan association, located in New York. Unless the home improvement contract specifies the depositary institution where the funds are deposited, the contractor must notify the homeowner within 10 days of where the funds are deposited. While the home improvement project is ongoing, the deposited funds are considered the property of the homeowner.
This is not to be considered legal advise. Please reach out to an attorney for information regarding your specific situation.
Lauren E. Scott is an Associate concentrating in litigation.
She can be reached by phone 845-764-9656 and by email.