The California Home Improvement Act (“HIA”) is a consumer protection statute designed to protect homeowners from shady contractors. I regularly speak to contractors who are not 100% up to speed on its requirements, which are detailed and complex. Mistakes can lead to costly homeowner claims, discipline by the CSBL, and other unpleasant things. So, this is my unofficial list of common misunderstandings.
1. THE HIA APPLIES TO BOTH SMALL AND LARGE PROJECTS:
The HIA applies to residential remodel projects. This means anything from small repairs like replacing a hot water heater, to large scale demo-and-rebuild projects leaving only a single original wall. (The statute does not apply to new, ground-up residential construction, or to commercial projects.) A “home improvement” can be just about anything, as long as the job cost (labor, services and materials) is over $500.
2. HIA CONTRACTS CANNOT BE VERBAL:
We all know that oral contracts can be legally enforceable, right? However, that is not necessarily correct for contracts which are subject to the HIA. Home Improvement Contracts must be in writing, and must be signed by the homeowner. The contract must “describe the project, and the significant materials to be used and equipment to be installed.” Technically, it is a misdemeanor for a contractor not to have a signed written contract for a home improvement project.
3. MOST “TIME AND MATERIALS” CONTRACTS DO NOT COMPLY WITH THE HIA:
The HIA requires the contract price to be a sum certain. (“The contract shall include the agreed contract amount in dollars and cents.”) This pretty much eliminates contracts based on “time and materials” or “cost-plus” pricing, and instead requires a lump sum or fixed price agreement. This can create headaches for bidding contractors where unforeseen conditions can be discovered after demolition.
Because of this problem, I usually recommend either: 1.) including a “not to exceed” amount (which will presumably satisfy the “dollars and cents” contract price requirement); or 2.) liberally using “allowances” in the pricing structure (especially where the owner will be selecting appliances, finish elements or material selections later on), and specifying that unforeseen conditions and owner changes will justify change orders based on scope and price.
4. THE HIA RESTRICTS DOWNPAYMENTS:
The HIA limits down payments to either $1,000 or 10% of the contract price – whichever is less. Charging more than this amount is a clear violation of the statute. Apart from this limited down payment, it is specifically “against the law for a contractor to collect payment for work not yet completed, or for materials not yet delivered.”
5. PROGRESS PAYMENTS SHOULD BE BASED ON WORK “MILESTONES”:
If the contractor will request progress payments before completion of the entire job, the contract must contain a schedule of payments stating the amount of each payment in “dollars and cents” (again, a sum certain), tied to a specific level of work (i.e. describing the type and amount of work or services scheduled to be supplied in each phase of payment). This arguably eliminates “percentage of completion” billing, which is common in many construction contracts.
6. YOU MUST PROVIDE START AND COMPLETION DATES:
HIA contracts must provide an “approximate start date” and “approximate completion date.” There must be a statement describing what constitutes “substantial commencement of work” under the contract.
7. THE BUYER HAS AT LEAST 3 DAYS TO BACK OUT OF THE CONTRACT:
The owner/buyer/consumer can cancel an HIA contract within three days after signing it (or within seven days in the case of a disaster repair). The HIA requires a specific consumer notice to be stated in the contract, and failure to include it means that the consumer can cancel the contract at any later time – even after the job is done.
Before any work is started, the contractor must give the buyer a copy of the contract signed and dated by both the contractor and the buyer. Receipt of the signed contract is what triggers the buyer's right to cancel the contract.
8. YOU MUST EXPLAIN CHANGE ORDERS:
The contract must address the mechanics of change orders, including the information to be included in any change order. Also, an HIA contract should provide a “form” for change orders.
9. THE HIA REQUIRES CONSUMER NOTICES – AND LOTS OF THEM:
The HIA requires several verbatim notices to be put into an HIA contract (and some must be in specific size type and font!). In addition to notices about the 3- or 7-day right to cancel and change order requirements (numbers 7 and 8 above), the HIA also requires specific notices about the CSLB, general liability insurance, workers compensation insurance, and a prescribed “Mechanics’ Lien Warning,” among others.
10. BUT WAIT – THERE’S MORE . . .
The nine requirements above are some of the most important in my opinion. However, there are many more! For example:
Private arbitration requires that the HIA contract must set forth the state-mandated disclosure language exactly, and requires the owner to initial the arbitration clause itself. Failure to do so may result in the contractor's loss of this remedy.
If late payments are subject to a finance charge, the contract should include the heading “Finance Charge,” followed by the amount of the finance charge.
For swimming pool contracts, the HIA requires the contract to include a plan and scale drawing of the pool.
Mark Coffin is a construction attorney based in Santa Barbara, California. This article is intended to provide general information rather than specific legal advice, and is not intended to create an attorney-client relationship or serve as a substitute for a professional legal consultation.
10 COMMONLY MISUNDERSTOOD REQUIREMENTS OF THE CALIFORNIA HOME IMPROVEMENT ACT
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