How to Write a Construction Contract

Creating a construction contract is very important for people who are planning to construct any kind of building, be it a home or commercial structure. There are several things that need to be considered when it comes to construction contracts and some of these are associated with the clauses that are mentioned in the contract.

The clauses that are a part of the contract follow the original plan of the construction; however, there are times when there could be modifications to the plan, and it’s for such reasons that you require a professional lawyer to take care of all such legalities. At times such as these the Law Office of Harvey Stern offers the perfect solution to all requirements that people have adding specific clauses into the construction contract to ensure that such problems do not occur.

It is common for construction plans to change once the actual work has begun, and there should be a clause in the construction contract allowing for such changes. Sometimes this happens due to the fact that the original materials chosen for the construction are unavailable; at other times they exceed the cost that was originally outlined in the budget of the builder. It’s things like these that need to be taken into consideration when developing a construction contract.

The clauses that are made ensure that the builder can later make additions to the original contract regarding the things such as changes in construction personnel, changes in the plan or modifications to the original plan, materials used, etc.

It is impossible to tell beforehand about the changes that would be required. A well written construction contract, however, ensures that the builder will have the options available to them to make the necessary changes.

While the legal language on various contracts can change from contract to contract, there are certain specifications that remain the same. This allows the client the power to change or modify the contract during construction, as well as legally compelling the contractor to carry out such specifications as stated by the client. 

When a change order is prepared by the builder of the real estate it is required that everyone necessary must approve and sign on that change order. 

Jobs like this and more are done by Harvey Stern and Associates for the benefit of builders and others who are professionally associated with the real estate business. 

It is human nature that we usually seek to get the lowest price under the assumption that a low price equals a good deal. Sometimes though, what appears to be cheap turns can out to be very expensive.

This is especially applicable in hiring an unlicensed contractor.

To start, it is important to know when a contractor’s license is required. In California, if a job costs $500 or more in labor and materials, a contractor’s license is required. The requirement is not met simply by having a contractor’s license, but the right kind of license. For example, hiring someone with only a roofing contractor’s license to rewire your home is the same as not having a license at all.

To begin with, it is illegal in California for a contractor to work without a license. It is also illegal to hire an unlicensed contractor to perform work which requires a license. There are some serious ramifications as a result. For example, insurance might not cover you should an unlicensed contractor be injured while working on your property. Just as serious is that if the unlicensed contractor does a project and damage occurs at a later date, the insurance company will likely not pay out due to the work being done without a license. So, if your roofing leaks and the house sustains $100,000 of damage, it might come out of your pocket.

If the job is a larger project then it is usually a project subject to CAL/OSHA safety regulations. If a worker is injured the homeowner can find themselves in a lawsuit by the injured worker.

A contractor who is unlicensed would also not be able to pull the necessary permits to do the work you are hiring them for. If a project is done without a permit there are no inspections and quality usually drops off. In addition, if work is performed without a permit the City may require you to tear out all of the work you just built since they cannot verify the materials used or how the work was performed.

All things considered, the temptation of the lower priced job is the same as the sirens in Greek mythology, luring you in to crash upon the rocks.

Under California Business and Professions Code Section 7159 (b) a home improvement project costing over $500 cannot legally go forward without a written contract in place. 

It behooves all parties involved for their mutual protection to create as thorough a document as possible, spelling out in specific terms the obligations and rights of the contractor, the homeowner, and even the architect or designers.

A good rule of thumb in drafting a contract is to detail everything agreed to between homeowner and contractor. This includes but is not limited to the following: what work is to be performed; the project start date and completion date; total cost of the project; payment schedule; who is responsible for obtaining the necessary building permits; what materials are to be used and who will pay for them. In the case of materials the contract should indicate the quality, quantity, weight, color, size, and brand name of each. (See Business and Professions Code Section 7159 for a complete list of contract requirements.)

The contract should also be very clear about the financial terms agreed to; beyond total cost and payment schedule, it should identify the amount of any down payment required (according to Business and Professions Code Section 7159 (d) (8) not to exceed 10% of the total budget or $1,000, whichever is less*), as well as any cancellation penalty. Regarding cancellations, the contract must state that any party may terminate the contract without penalty within three (3) days of signing provided that the terminating party put the cancellation in writing and mail it prior to midnight of the third day (Business and Professions Code Section 7159 (e) (6)).

Even after a contract has been written to the satisfaction of all parties, reviewed by an experienced attorney if necessary, and is signed, the contract may need to be amended after the project begins. A change in the design plans, the materials used, a foreseeable delay in the project completion date, whatever the cause of an alteration to the original terms of the contract, these amendments must be put in writing as “change orders.” (Please refer to "What is a change order" article below on the importance of including a “changes” clause in your contract.) A proper change order lays out the specific modification to a contract term and how said modification affects the project budget. (See Business and Professions Code Section 7159.6.) Once a change order is signed by all parties it becomes a legally enforceable part of the contract.

The more time spent thinking about what a particular home improvement project will demand, and clarifying each aspect in writing using unambiguous language, the less opportunity there is for misunderstanding and confusion which can lead to long delays, bad reputations, and potential legal problems.

*See the Contractors State License Board website for exceptions to this rule.

Change orders are essentially construction contract amendments and can differ according to the type of the construction project, its stakeholders, and the exact change required by the involved parties.

It’s not uncommon in the course of a home construction project for changes to be made to the contract’s scope of work. Perhaps a room needs to be expanded to accommodate a deeper closet or the original placement of kitchen cabinets is no longer the best choice when you realize that you always wanted counter space where people could sit and talk to you while you prepare a meal.

Regardless of the alteration, a change in the scope of work will likely affect the project’s total cost as well as its completion date. These changes, not handled in the proper manner, are the most cited reason for disputes between the contractor and client.

To that end, it is vitally important for the contractor to detail these changes in writing, known as a “change order,” and for both the contractor and homeowner to sign the order prior to that work being performed. This simple act, if ignored, could lead to a giant legal headache if any disputes arise over cost increases or delays to a project’s timeline. The best practice for both parties is to maintain clear, direct, and documented communication.

So, what should a change order contain? For starters, a description of the additional work or the change to the original scope of work. But generalities such as “cabinets” or “counter tops” are not an adequate description of the work to be done. What type of material is the cabinets going to be made from? Full pull-out drawers? Are the shelves going to be pull-outs? What kind of hardware? Solid doors? Other necessary information is a list of the revised costs and the changes to the work schedule. Pictures of the area subject to the change order can be helpful but are not a requirement.

To be completely effective the change order should be as specific as possible to avoid any confusion or misunderstanding. And, again, it is critical that both the contractor and homeowner sign and date the change order before the work described is performed.

Most contractors already use a change order template, but whether you’re a contractor or a homeowner, if there’s any question as to the contract or the change order’s content and form, it is always wise to consult with a reputable litigation attorney. It can save you many headaches down the road.

Many people have questions regarding HECM loans or, as they’re commonly known, reverse mortgages. Reverse mortgages offer the user a lot of advantages and in some cases can and is a real lifesaver for the homeowner.

Reverse mortgages provide homeowners with an additional source of income which could be essential due to the homeowners’ circumstances. This is essential for senior citizens who are unable to sustain themselves on their retirement funds and for those who require additional funds to live.

The principals of HECM are simple, it mortgages the home that the senior citizen is living in, and this requires that the applicant be 62 years or older. For senior citizens a counseling session for HECM reverse mortgage of your home would cost $125, however no one can be turned away if they are unable to afford that.

The Law Office of Harvey Stern does suggest that everyone should be aware of the benefits and disadvantages of HECM before they apply for the mortgage. There are certain costs that the homeowner must bear to be eligible for a HECM loan. Some of these are third party costs, loan servicing fees, and more. These fees go towards services such as home appraisal, surveys of the property, and other legal requirements that the lender has.

There are certain clauses in the HECM loan that applicants should be aware of, including the fact that the lender needs to continue paying home insurance fees, maintenance, and other service charges that are associated with the home. This is due to the fact that while the loan is against the property, the ownership on the title deed is in the name of the applicant only.

Technically the loan amount cannot exceed the value of the home, and the lender does have certain rights to foreclose the loan. It is the responsibility of the borrower of the loan and their heirs to provide the user of the loan to pay back the loan in full, or the lender has the authority to close the loan which would result in a requirement of immediate return of the loan amount. 

If you choose to apply for a HECM loan be sure that you understand all the pros and cons surrounding your HECM loan. This is essential and it is advisable to consult with a professional such as the Law Office of Harvey Stern for proper guidance.

Given the amount of time and money involved, hiring the right contractor for your home build or remodel project is crucial, no matter the size of the job.

As the homeowner, you can avoid much stress and strife by doing your due diligence to find a contractor who not only does great work but is also honest, professional, and dependable.

Whatever resources you use to compile a list of prospective contractors, and even if you get a referral from a friend or family member, it’s important that you do your own research.

The first step is to confirm that the contractor is currently licensed, has a physical business address and a business telephone number, and has worker’s compensation insurance for its employees. License, contact, and insurance information for California contractors can all be found at the Contractors State License Board website (cslb.ca.gov).

Next it’s key to obtain at least three bids for your project. Make sure each contractor is bidding on the same plans and scope of work so you have a common baseline from which to compare price, materials, and their grasp of the work involved. 

A word of caution if you receive a bid that is substantially lower than the others. What may seem on the surface to be a great deal could be a sign that the contractor is inexperienced or looking to cut corners or has excluded certain items from its bid. Another way to weed out problematic contractors during the bidding process is to avoid any that don’t guarantee the standard of their work and don’t offer warranties on everything they install on the property.

Over the years we have seen arguments between the homeowner and the contractor that should never have taken place. A good contractor will make sure that you know what is going to be built or remodeled. What materials are to be used and how the project will proceed. This protects you and protects the contractor. An experienced contractor knows that “kitchen cabinets” is not enough of a descriptive. The contractor should be able to describe the cabinet in detail. Without knowing exactly what you are getting, disagreements in the future are certain.  

It’s also important to ask each contractor for references. Talking to former clients gives you firsthand insight into each contractor’s personality, reliability, and how they conduct their day-to-day operations on the worksite. Look at pictures and maybe even go see a previous job.

Once you’ve decided on your contractor, they will formalize the agreement with a written contract. For more information on contracts, see our article “Homeowners and Contractors: Read the article above to give you more insight: Starting A Home Improvement Project.” 

If you’re a contractor or sub-contractor, a mechanics lien is the best way to preserve your right to payment should you find yourself in a dispute with a homeowner.

This right, however, becomes meaningless if you miss the deadline in which to record that lien with the County Recorder’s office. In most circumstances, contractors and sub-contractors have 90 days after actual completion of work on a project to record a mechanics lien. But if the homeowner has recorded a Notice of Completion within 15 days of actual completion of work on the project, a contractor only has 60 days from the date the completion notice was recorded to file a mechanics lien, and a sub-contractor only has 30 days.

The other exception to the 90-day deadline rule is if the homeowner has recorded a Notice of Cessation. This notice can be used if no work has been performed on a project for 30 continuous days. If a Notice of Cessation has been recorded, then the deadlines to file a mechanics lien match those of a Notice of Completion: 60 days for a contractor from the date the cessation notice was recorded, and 30 days for a sub-contractor.

As imperative as it is that you know your deadlines in advance, it’s equally as important to know what happens after you’ve recorded a mechanics lien. Mechanics liens in California are only good for 90 days starting from the date the lien is officially recorded by the County Recorder. Before that 90-day deadline expires, you must either foreclose on the lien or extend it for the lien to be considered valid and enforceable.

Concerning the latter, extending a lien’s lifespan past 90 days is not a practical option in California. State law requires that the homeowner must give his/her consent to the extension in a formal written document called a “Notice of Credit.” Since the filing of a lien against a homeowner is generally met with anger, convincing that person to extend it is likely never going to happen.

To that end, if you and the homeowner cannot reach an agreement about the unpaid fees, it’s time to take legal action to preserve your right to collect. This means filing a lawsuit against the homeowner to enforce the lien and to keep it valid for as long as it takes to litigate the case. Winning in court will then grant you the ability to foreclose on the property and sell it to recover the money you’re owed.

Although you may have handled the initial mechanics lien process on your own, the smart move is to hire a seasoned construction law attorney to prepare and file the lawsuit to enforce it. As you can see, when it comes to mechanics liens, meeting your deadlines is vital to protecting your ability to get paid. Be aware of your timing and keep a calendar. Don’t let all of your hard work and effort be for nothing.

When one researches how to obtain and file a mechanics lien, take note that mechanics lien laws exist in all fifty states, however every state’s mechanics lien laws vary often. The mechanics lien legal process also changes from state-to-state, but one main factor that’s true in each state is that a mechanics liens can expire in keeping with a set timetable, and this timetable can vary from state-to-state. As the housing construction industry, alongside everybody else within the industrial sector, continues to grapple with the fast unfolding of the novel coronavirus - COVID-19 - throughout the country, immediate considerations involve delayed performance, inaccessibility of materials and labor, and government-ordered shutdowns. 

Going forward, however, construction contractors, subcontractors, and suppliers ought to additionally pay sharp attention to the potential for payment disruptions that might arise as a results of negative impacts to the construction industry across the country.

When it comes to the purchase and sale of residential realty, there are a few legalities that buyers and sellers need to take into consideration and the Law Office of Harvey Stern can help.

The transfer disclosure statement is one of the most important documents for people who are looking to buy and sell homes. What this entails are the following: whenever a home is sold the seller must provide the buyer with a proper written disclosure statement. This means that the seller needs to disclose all the pros and cons of the real estate before the transfer of the title of the property. This is very important for those who are interested in selling homes. A proper and detailed inspection of the home must be completed to ensure that everything important to the transaction is documented.

Examples of what needs to be disclosed are the condition of the home, the amount of repairs required if any, all the appliances that are being sold with the home and the conditions associated with it. This also includes any modifications to the property, even those that have been made without building permits, and those that do not comply with building codes.

The more time spent thinking about what a particular home improvement project will demand, and clarifying each aspect in writing using unambiguous language, the less opportunity there is for misunderstanding and confusion which can lead to long delays, bad reputations, and potential legal problems.

All problems with the property must also be mentioned, such as problems with drainage, flooding, soil erosion, damage from fires, etc.

There is a separate disclosure about earthquakes and damage that is caused by them, or if the property is located on a fault line and more. These are places that show evidence of earthquakes and show potential for further activity in the future.

There are also a lot of other facts and details that need to be disclosed while selling or purchasing or selling a home. The best course of action that anyone can take is to consult with a legal advisor regarding the situations and circumstances related to selling a home. This ensures that you will receive all the necessary information and guidance required by professionals regarding the do's and the don'ts that need to be followed.

Mechanics liens exist to protect two general categories of workers or suppliers, prime contractors and subcontractors.

Anyone that furnishes labor or materials on a work of improvement is entitled to file a mechanics lien on the property where the improvement is located. These rights exist whether they are contractors, subcontractors, laborers, or material suppliers.

In any business getting paid is a concern. Collecting payment for a contractor is especially difficult, as the work performed on the project is not something that can be repossessed should a customer fail to pay as agreed. In California payment in advance is not a viable option as a contractor may not collect money in advance. If the project is for private works, such as a renovation on a home, the law does provide an effective collection device in the form of a Mechanics Lien.

Once a lien is filed on the property for the unpaid work, it becomes an encumbrance on the property. As a collection technique, this can be especially effective, especially if the owner was planning to put the property on the market or to apply for a loan. A lien may even affect the owner’s ability to refinance.

Often the filing of the lien can be enough to cause one who owes on a past due account to pay, in order to have the lien removed. Even if the owner does not do so, the contractor has greater options once the lien is in place. The claimant may proceed to file a claim and then move to foreclose on the encumbered property.

In order to be effective, very specific requirements and procedures must be followed. Failing to follow these requirements may require that the lien be removed. Once the lien is recorded properly it becomes a powerful tool in making sure that those that provided services or labor on a project receive what they contracted for.

Creating a construction contract is very important for people who are planning to construct any kind of building, be it a home or commercial structure. There are several things that need to be considered when it comes to construction contracts and some of these are associated with the clauses that are mentioned in the contract.

The clauses that are a part of the contract follow the original plan of the construction; however, there are times when there could be modifications to the plan, and it’s for such reasons that you require a professional lawyer to take care of all such legalities. At times such as these the Law Office of Harvey Stern offers the perfect solution to all requirements that people have adding specific clauses into the construction contract to ensure that such problems do not occur.

It is common for construction plans to change once the actual work has begun, and there should be a clause in the construction contract allowing for such changes. Sometimes this happens due to the fact that the original materials chosen for the construction are unavailable; at other times they exceed the cost that was originally outlined in the budget of the builder. It’s things like these that need to be taken into consideration when developing a construction contract.

The clauses that are made ensure that the builder can later make additions to the original contract regarding the things such as changes in construction personnel, changes in the plan or modifications to the original plan, materials used, etc.

It is impossible to tell beforehand about the changes that would be required. A well written construction contract, however, ensures that the builder will have the options available to them to make the necessary changes.

While the legal language on various contracts can change from contract to contract, there are certain specifications that remain the same. This allows the client the power to change or modify the contract during construction, as well as legally compelling the contractor to carry out such specifications as stated by the client. 

When a change order is prepared by the builder of the real estate it is required that everyone necessary must approve and sign on that change order. 

Jobs like this and more are done by the Law Office of Harvey Stern for the benefit of builders and others who are professionally associated with the real estate business.